Table of Contents
Are Defense Budgets Cratering?
- The aerospace and defense industry, as a whole, is in a state of turmoil. Economic conditions are impacting both parts of the industry in different ways.
- The aerospace industry is generally in good condition with the air transport portion experiencing good sales and moderate growth of new aircraft. However, the business aircraft market is effectively flat, and the general aviation (GA) market is in very bad condition.
- The defense industry is expected to have a decline in revenue following the disengagement of forces from Iraq and Afghanistan. However, the downturn in spending now looks more significant than expected.
- Within each industry, there are areas of growth or areas of minimal decline.
oIn commercial aerospace, the areas include: New air transport jet aircraft, inflight connectivity equipment, airport designs in Asia-Pacific (APAC) and the Middle East and Africa (MEA), and airport information technology (IT) infrastructure.
oIn defense, the areas include: Unmanned systems sensors, defense IT solutions, deployable solutions, and modular equipment.
The Current Aerospace and Defense Situation
The aerospace and defense industry has been significantly affected by economic factors. The defense industry has traditionally been immune to economic downturns. However, the focus on reducing budgets due to economic conditions is now very directly affecting defense spending.
APAC and regions other than North America (NA) and Europe provide the greatest need and the best revenue opportunities. The United States will continue to have the largest single defense budget, but the impact of the US defense spending reduction will impact the industry globally.
The aerospace industry was previously a North American and European market. Asia has emerged as the largest spending area for commercial aerospace. Europe and NA round out the top xx for spending on commercial aerospace.
New and improved technologies will be the key focus for both industries. Changes to air traffic management systems worldwide will have far-reaching effects on avionics, airports, and the air traffic management systems themselves. The need for improved sensors, modularity, and enhanced deployability will provide market opportunities for defense contractors.
The aerospace industry currently has both highs and lows. The air transport part of the market is dependent on airlines. The airlines have generally returned to profitability, they are maintaining a strong demand for orders of new aircraft. This has led to record production of air transport aircraft.
The business aircraft part of the industry has experienced a marginal recovery from the lows experienced in 2008. While new aircraft are being ordered and delivered, the growth is inexorably tied to the dismal economic recovery.
The GA market is far worse than the business aircraft market. Following the economic collapse of 2007, the GA market crashed. Prior to the collapse, GA manufacturers had delivered an average of xxaircraft per quarter. By Q1 of 2009, the number had fallen below xx aircraft per quarter. A small recovery has occurred, resulting in an average of xxaircraft per quarter in 2012.
Airport improvements have been limited in scope in NA and Europe, but have been active in the MEA. The United States, for example, has not opened a new airport since Denver International opened in 1995. New IT systems have become common upgrades for airports.
Air Transport Delivery Forecast
- Air transport production is currently at record levels.
oAirbus and Boeing—Strong orders
oEmbraer—Burning into order book
oBombardier—Effectively just turboprops
- New aircraft designs from new OEMs* will change the market.
- New/modified designs from traditional OEMs will lower the production rate.
- Fuel costs are driving sales more than aircraft age.
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