Aerospace and Defense: Background

Industry Composition:

The aerospace and defense industry is mainly comprised of companies that manufacture products for military use. This includes manufacturers of military ships, such as submarines, destroyers, or aircraft carriers, and commercial, private or government aircraft, such as bombers, fighter jets, and commercial or private airplanes, and the companies which manufacture and distribute the necessary parts and components for these machines. Also included in this industry are weaponry, such as missiles or ammunition, and other defense-related technological devices, such as radar, sonar, or satellites. The aerospace and defense industry also produces spacecraft, such as those used by government space administrations and commercial space tourism companies.

Many developed countries, or coalitions of countries such as the European Union, fill their demand for these products with domestic companies. Most of the demand is derived from a federal defense department, including the Pentagon in the United States and NATO, or government-run space programs.

For globalEDGE's purpose, the Aerospace and Defense industry is comprised of businesses that manufacture defense and aerospace products or parts. Companies that provide the service of air travel are listed in the Hospitality and Travel industry.

History:

Ever since humankind has been having wars, humans have been trying to find a way to “bring a bigger stick” to the war. The phrase, while not used to be taken literally, has evolved into bringing better and more technologically advanced weaponry than the opponent's to the battleground. Humans have always been in constant development of weaponry and war craft, both for the desire to conquer and the desire to defend. While some developments, such as aircraft or watercraft, were not originally developed for this purpose and were converted to military use due to their obvious advantages, war tends to bring out innovation in companies and many military products are then used in the private sector, including the Internet and GPS. This demand for higher innovation to create better weaponry and technologies causes national governments to give lucrative contracts to the companies who have the best ideas and products. This is what created the aerospace and defense industry as we see it today, with large corporations vying for these government contracts.

Leaders:

There are many companies that specialize in different products, but the companies that succeed in obtaining the government contracts are the big earners. In the United States, Boeing, the world’s largest aerospace company, is the primary military aircraft and space shuttle contractor. Boeing is the number two manufacturer of commercial airplanes, behind Airbus, and second largest collector of defense contracts, behind Lockheed Martin, in the world. They make two-thirds of their sales in the U.S. Airbus, which is a division of EADS, the European Aeronautic Defence and Space Company, is the primary producer of airplanes for countries in the European Union, and also manufactures products such as satellites or space rockets. In the United Kingdom, BAE SYSTEMS is the leading defense contractor and is also the largest foreign company in the U.S. defense market.

Trends:

Likely the largest situation facing the aerospace and defense industry today is the government debt crisis. Historically, this industry was able to rely upon sovereign governments to generate revenues with the government’s expenditures on military equipment and technology. However, today many countries (such as Greece, Ireland, Spain, and Portugal) have already declared bankruptcy and many others are on the verge of needing to. This is causing the primary consumer base for this industry to lower their spending, which will lead to lower revenues. On the flip side, if there is more need for the products in the aerospace and defense industry due to increased unrest (such as what is going on in the Middle East now) and intervention, that could be a positive driver for the industry and keep the revenues up in it. The commercial airline sector is starting to come back again as travelling picks up with the economic recovery.

Future Outlook:

According to the Stockholm International Peace Research Institute, the United States had the largest defense budget in 2008, followed by China, France, the United Kingdom, and Russia. These are huge markets for defense manufacturers, who typically depend on government expenditures. The U.S. military budget is $680 billion for 2010 and China has increased its military dramatically in recent years, although the government has not released official figures. With these governments starting to face budgetary expenditure cuts, they will likely spend less on aerospace and defense. Although they likely won’t cut as much money going to this industry as they would to others due to the importance of national security to the constituencies of these governments. Commercial aerospace looks likely to pick back up as consumers are now able to travel more with the economy in an upswing.