Aerospace Industries Gliding Despite Decreased Defense Spending

As the US defense budget tightens, aerospace industries, including space vehicle and missile manufacturers, aircraft manufactures and unmanned aerial vehicle manufacturers, will turn to other revenue streams, such as commercial and international markets.


Arsenal expenditure on items like fighter jets, missiles and drones accounts for a significant part of the defense budget - a budget that is equivalent to the combined military spending of all other countries. Yet the fiscal 2014 defense budget is expected to amount to 0.7% less than the fiscal 2012 budget. As the US defense budget tightens, aerospace industries, including space vehicle and missile manufacturers, aircraft manufactures and unmanned aerial vehicle manufacturers, will turn to other revenue streams, such as commercial and international markets. IBISWorld queried its database of more than 1,000 US industries to identify the aerospace industries most affected by defense budget cuts.

Tapping commercial and export markets

The most prominent companies that operate in the $223.6-billion aerospace sector, such as Northrop Grumman Corporation (Northrop Grumman) and BAE Systems (BAE), already sell to foreign countries or are looking to tap into international markets. For example, Northrop Grumman is considering selling its unmanned aerial vehicle - the Global Hawk - to South Korea or Japan. As the domestic market reduces demand for this sector’s products, other aerospace companies will join in the ranks of Northrop Grumman and BAE, recognizing that the most promising opportunities for growth require gaining a greater international foothold.

That said, other industries within the sector will prevail, being able to cite necessity of new or replacement technology for new or extended domestic government contracts. The superiority, and thus benefits, of new technology in aircraft is just one case in point.

Space Vehicle and Missile Manufacturing

The Space Vehicle and Missile Manufacturing industry manufactures guided missiles and space vehicles. The $21.3-billion industry almost exclusively relies on the US government for its revenue, and particularly the Department of Defense, which accounts for about 69.6% of industry revenue in 2013. This share of revenue is expected to decline over the next five years because the formal war in Afghanistan will wind down and decrease demand for guided missiles. This trend will cause some fluctuation in industry revenue, as demand for these products will be somewhat volatile.

The industry will look to grow through other markets, including private businesses for its commercial suborbital spaceflight equipment. According to the FAA, there are nearly two dozen commercial suborbital vehicles under development, with most being developed to serve markets for suborbital tourism. Ten states, including New Mexico, Oklahoma and Texas, and commercial entities, including SpaceX, are proposing to build commercial spaceports, which are likely to take several years due to permit, construction and testing requirements. From 2013 to 2018, the Space Vehicle and Missile Manufacturing industry will grow at an estimated average annual rate of 1.9% to $23.5 billion, supported by the commercial spaceport segment.

Aircraft, Engine and Parts Manufacturing

The $186.3-billion Aircraft, Engine and Parts Manufacturing industry, which manufactures and overhauls complete aircraft, develops prototypes and converts aircraft, already derives about 54.7% of its revenue from exports.

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