Market Report: Aerospace Braces for a Bumpy Ride
The American aerospace industry is adapting to a decline in defense aircraft demand and is looking into space travel and other outlets.
Dave Claborn , Director of Development and Community Relations, Ohio State University, Marion (March 2011)

With American politics changing at the velocity of an F-15, the American aerospace industry is hanging on for the ride. And so far, while the ride has been bumpy, the industry has weathered the changing political landscape and economic downturn remarkably well. American aerospace has seen year-over-year growth for seven straight years, with overall sales for 2010 totaling $216.5 billion. The Aerospace Industries Association (AIA) expects that to grow, modestly, to $219.2 billion in 2011.

Importance of Defense Spending
Growth in defense spending has been the sector that has fueled the positive results for the aerospace industry in recent years. As we went to press on this issue, there was good news on this front: The U.S. Air Force has awarded Boeing a $35 billion contract to build next-generation aerial refueling tanker aircrafts to replace 179 existing 400 KC-135 models. Boeing will deliver 18 of the new tankers, which are modeled on its 767 commercial aircraft, by 2017.

"We're honored to be given the opportunity to build the Air Force's next tanker and provide a vital capability to the men and women of our armed forces," said Jim McNerney, Boeing chairman, president, and CEO. "Our team is ready now to apply our 60 years of tanker experience to develop and build an airplane that will serve the nation for decades to come."

With a Democrat president and Congress taking office in 2008 and their traditional focus on social programs, continued rapid growth in military aircraft sales appeared clouded. Military aircraft sales nearly doubled between 2000 and 2010, from $34 billion to nearly $64.5 billion. While the AIA looks for an increase from 2010 to 2011, it expects about 2 percent growth in military aircraft sales compared to the 8 percent annual growth the year before.

Marion C. Blakely, the former administrator of the Federal Aviation Administration, now president and CEO of the Aerospace Industries Association, noted the downward pressure on the defense budgets in her year-end review speech: "This is the time for our industry to be understood as essential - not optional," she told the crowd gathered at the Mayflower Hotel in Washington, D.C. "After all," she said, "DOD's funding is 48 percent of federal discretionary spending, making it the biggest target out there. But efforts to cut the defense budget and eliminate programs risk creating greater economic turmoil as well as undermining national security."

Blakely's sentiments are echoed by Dr. Robert Shaw, Jr., associate director for Partnership Programs at the National Aeronautics and Space Administration's Glenn Research Center in Cleveland. The U.S. aerospace sector is "a very important part of the economy and is critical to maintaining our military security," Shaw says. Dr. Shaw also notes that much of the progress in advanced energy - such as wind energy and greater efficiency in fuel consumption - is the product of aerospace engineering. He says that during the oil crisis of the 1970s, NASA's research in Cleveland had more to do with terrestrial energy than with space travel.

Promoting Space Travel
The biggest news in the space sector is the Obama administration's decision to move to a "flexible option" in space travel - to transition from a NASA monopoly on constructing and operating the country's space fleet to commercial entities carrying cargo and people to and from the International Space Station. Two relatively young

U.S. companies have received contracts to run supply missions to the space station through NASA's Commercial Orbital Transportation Services program: Hawthorne, California-based Space Exploration Technologies Corp. (better known as SpaceX) and Dulles, Virginia-based Orbital Sciences Corp.

SpaceX was founded by Silicon Valley entrepreneur Elon Musk, who, earlier in his career, started the PayPal Internet payment system. This past December, the company became the first private firm to send a rocket and capsule into earth orbit and return the capsule intact. The company earned a $5 million payout from NASA on its $1.6 billion contract to transport cargo to the space station after reaching the earth orbit milestone. The California start-up employs 1,100 people. It plans two more demonstration flights this year of its Falcon 9 rocket and Dragon capsule, which, the company says, could eventually be used to ferry astronauts to and from the space station. NASA makes $5 million payments each time the company passes agreed-upon milestones, such as deploying the Dragon's solar arrays and completing ground simulations of the spacecraft's sensors used for rendezvous operations with the space station.

Orbital Sciences Corp. has a longer history than SpaceX and holds a $1.9 billion contract with NASA for eight re-supply flights to the space station. The company was founded in 1982 and employs 3,500 people. While Orbital has yet to test the new Taurus 2 rocket and Cygnus space freighter that it is developing, the company has a track record of Pegasus rocket launches for commercial customers and Minotaur rocket launches carrying U.S. government and military payloads. Orbital has been testing a liquid-fuel AJ26 rocket engine for the Taurus 2's first stage at the Stennis Space Center in Mississippi. At the same time, the company has moved a 29,000-pound Taurus 2 core into NASA's new rocket integration facility at the Wallops Island Flight Facility in Virginia. The core was manufactured in the Ukraine and traveled by rail, ship, and special trailer to the Wallops Flight Facility, which will also be the location of the first Taurus 2 test launch later this year.

More Aerospace News
Other big stories in aerospace this year include Boeing's return to flight-testing of their new twin-aisle jetliner, the 787 Dreamliner. A fire in a power panel in November 2010 grounded the test fleet until improvements could be made in the panel and power distribution software. Those fixes are now complete, and the company expects to deliver the first Dreamliner in the third quarter of this year. Boeing finished construction of its new 1.1-million-square-foot Dreamliner Final Assembly building in North Charleston, South Carolina, in September 2010. Boeing is also ramping up production of its 777 300ER wide-body jetliner from five per month to seven per month in 2011 - and over eight per month in 2013 - in the face of a backlog of 250 jet orders.

While it looks like the American aerospace industry should have another positive year, some serious questions remain:
• As baby-boom generation engineers retire, can American engineering schools turn out enough replacements? NASA's Dr. Shaw notes that, right now, they're not. "We need to be reaching out and convincing young people that engineering - and specifically aerospace engineering - is a lucrative and fulfilling career."
• How will American aerospace companies enter the growing Chinese market without losing their intellectual property? Dr. Shaw suggests staying a step or two ahead in innovation will be key.
• And how will federal funding for NASA shake out? As this is written, NASA is operating under a continuing funding resolution, which restricts its ability to fund the new flexible space exploration model envisioned by the Obama administration.

Answers to these and many other questions will determine how smooth is the flight for America's aerospace industry in the years ahead.

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