What, We Worry?

By John Liang / December 10, 2008 at 5:00 AM

Just because the world's economy is down doesn't mean that the aerospace and defense industry is too, according to the Aerospace Industries Association.

As AIA President and CEO Marion Blakey told attendees at the association's annual year-end luncheon at the lavish Mayflower Hotel in downtown Washington today:

I’m happy to report that, despite the challenges to our economy, our industry had a strong year in 2008. Total sales are on pace to reach $204 billion, a new record for the fifth straight year. It also represents the seventh year of growth in the last eight years, which is even more remarkable when you consider the widespread financial difficulties in our economy. This figure represents an increase of 2.1 percent, which is less growth than we’ve seen in recent years. The main reason for the drop was not the tough economic atmosphere, but the work stoppage at Boeing that trickled down through the industry. We are more than satisfied that there was continued progress throughout the aerospace industry in 2008.

Like last year, our industry saw modest growth in every sector – civil aircraft, military aircraft, missiles, space and related products. This is noteworthy because over the years these sectors were often on different, distinct cycles. When civil aviation was up, military was usually down, and vice-versa. To see this balanced growth across the sectors again is a good sign for our industry.

As for the upcoming year, Blakey said the industry "is in good position to weather the financial storm" for several reasons:

One is that funding levels for two of our three sub-sectors – defense and space – are largely set for the next fiscal year. The defense appropriations bill for fiscal 2009 was part of the continuing resolution that passed in October. The same bill also provides funding for NASA through March at largely the same levels as fiscal 2008.

While ideally we would like to see increased investment in space exploration, it at least keeps a stable base for NASA funding. Much of the groundwork for the fiscal 2010 budget is being laid right now. And the long lead times on federal budgets mean that we anticipate funding levels to remain steady -- without any major adjustments -- for the next 18 months, or even longer.

That said, defense and aerospace are not necessarily "immune" to the current recession, according to Blakey:

There is some speculation out there that the defense budget will be a source for cutbacks in future years to pay for other needs.

Defense R&D funding is expected to decrease, and supplemental budgets are poised to go down. In civil aviation, orders have decreased, passenger traffic is down and the contracting credit market makes aircraft financing deals more difficult. On top of that, anticipated fleet recapitalization by U.S. airlines does not look like it will materialize in the near-term. And, of course, the bad economic environment has traveled around the globe, and the bulk of existing aircraft customers are foreign airlines.

And lest Congress sees the multibillion-dollar defense budget as a potential till from which to pay for other government programs:

Aerospace and defense should not become a bill-payer for other areas of the federal budget, which would hurt our economy in the long-term for some temporary relief elsewhere.

Our industry provides a strong economic foundation for much of our nation’s advanced technology and innovation, and that would suffer if we don’t make adequate, sustained investment. All this effort is to underscore the message that aerospace is a cornerstone of our economy, and it deserves sustained support from our elected leaders.