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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.

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.

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