Dueling Forecasts

The past year hasn't been so bad for the aerospace and defense industry, according to Aerospace Industries Association CEO Marion Blakey.

"As with most sectors of our economy, the aerospace and defense industry has found the business climate in 2009 very challenging," Blakey writes in today's AIA "Daily Lead" newswire service. "But it is fair to say that A&D has proved its mettle by delivering generally positive results each quarter, with a year-end sales increase still projected. Industry leaders can take credit for applying hard-learned lessons of the past to build a solid foundation that is helping us weather a difficult period."

Blakey continues:

Many analysts believe we will be faced by flat or declining defense aerospace R&D and procurement funding in the coming year, despite the new Defense Department team's recognition of industry's increasing concerns about the defense industrial base. Obtaining adequate funding for the Next Generation Air Transportation System and our manned space program are important, yet uncompleted, priorities.

However, long overdue initiatives to modernize the export control system will enhance interoperability with our allies and make us more competitive. And the first-ever National Aerospace Day Sept. 16 successfully highlighted the contributions of our industry to our economy and national security and put a face on the 844,000 workers who contribute day-in and day-out to make us strong. The tagline of our advocacy outreach says it all simply, but eloquently: Aerospace and Defense – the Strength to Lift America.

Shaun McDougall, international military markets analyst for Forecast International, isn't as optimistic, however.

In a press release today, FI announces:

After years of unprecedented growth, the pace of overall U.S. defense spending appears to have reached a plateau, and will likely commence a steady decline in the coming years. That is not to say that the Pentagon's base budget is due for major cuts in the near term, however. Rather, the basis for this anticipated downturn is a shifting security environment overseas, particularly in Iraq.

Indeed, of the total funding obligated for military operations overseas since 2001, over 76 percent was spent in support of Operation Iraqi Freedom (OIF). The U.S. now has an exit strategy in place, and plans to remove its combat forces from Iraq by August 2010, and all remaining personnel by 2011.

According to Forecast International's latest analysis of the U.S. defense market, "Redeploying U.S. assets in Iraq will be a complex and costly process, and the need to repair or replace equipment damaged or lost in theater will only add to the near-term investment. Nevertheless, the report adds that as combat operations wind down and troops leave Iraq by the thousands, the overall financial burden on the U.S. will slowly begin to ease.