Aerospace and Defense: Background
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.
Since the beginning of time, humankind has engaged in wars, the human race, in turn, has strived 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. Humanity has always been in constant development of weaponry and warcraft, 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 such things like the Internet and GPS. This demand for higher innovation to create better weaponry and technologies causes national governments to give lucrative contracts to companies who have the most innovative 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.
There are many companies that specialize in different products, but companies that succeed in obtaining government contracts are 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. 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 and space rockets. In the United Kingdom, BAE Systems is the leading defense contractor and is also the largest foreign supplier in the U.S. defense market.
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 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. This is causing the primary consumer base for this industry to decrease 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 and foreign intervention, a positive driver for the industry, it will keep the revenues up. The commercial airline sector is starting to come back again as traveling picks up with the economic recovery.
According to Deloitte, we should expect another record year for commercial aerospace and continued declines in defense. This continual increase for commercial aerospace is driven by the replacement cycle of obsolete aircraft and newly engineered fuel-efficient aircraft. Additionally, the demand for passenger travel is projected to increase five percent over the next 20 years.
Over the next decade, commercial aircraft annual production levels are anticipated to increase by an estimated 25 percent. In 2014 alone commercial aerospace should have double-digit growth levels. For the defense side, there is a projected decrease due to reduced conflict around the world as well as the affordability concerns in many traditional military-active governments. The current loss of about two and one-half percent is projected to carry over into the coming years. However, the defense spending is increasing in countries including Brazil, China, India, Japan, Russia, and South Korea. In total, the industry is expected to incur a five percent revenue growth for the upcoming year.