The U.S. aviation industry plays a key role in today’s global economy. It makes up about 9 percent of the country’s gross domestic product and generates more than 11 million U.S. jobs.
But the industry must prepare to face several major challenges, according to a recent study by a group of military officers and civilians from the Industrial College of the Armed Forces.
The ICAF team identified six major issues that, if unaddressed, could threaten the aircraft industry’s long-term health. These include: the aging and declining workforce; restrictive regulations and complicated export control processes; defense acquisition instability; declining aerospace research funding; and an overtaxed air-traffic management system that must triple in size to accommodate projected aircraft growth.
The aerospace industry employs more than 635,000 personnel, of whom 380,000 are in the aircraft sector. Labor represents one of the highest costs in aircraft manufacturing. Aircraft industry labor skills are highly transferable and sought after by other industries.
Workforce aging is a significant issue affecting the industry. In 2005, approximately 55 percent of the aerospace workforce were older than 45 and 27 percent of the aerospace manufacturing workforce will be eligible for retirement by 2008. Students in the United States rank near the bottom of the leading industrialized countries of the world in mathematics and science test performance, which limits the pool of qualified students to pursue degrees and careers in science and engineering.
Studies also find that aerospace now ranks last among almost all of the high-tech industries in providing desirable employment. The foreign students, who receive more than half the science and engineering graduate degrees in the United States, are less likely to stay here because of job opportunities in their home countries, as well as the expensive and time-consuming visa process and security clearance restrictions that limit access to defense jobs.
U.S. government regulation of the aircraft industry is a challenge to the entire market, and can be broadly classified into two categories — export controls that seek to protect critical technologies and promote national security and protectionist policies over items such as specialty metals that seek to ensure the health of the U.S. industrial base.
Yet, with increasing international partnerships and global supply chains for components and parts, these policies have unintended consequences such as lost cost-saving opportunities, reduced competitiveness for U.S. companies, and strained international relations.
Under the International Traffic in Arms Regulations (ITAR), export controls of defense-related items and services provide safeguards against critical technologies falling into the hands of potential adversaries. Defense acquisition directives promote foreign collaboration in development and sales of U.S. defense equipment, but this has little impact on the processing or outcome of export license applications. While there is a valid need to control and protect vital U.S. technologies, the ITAR coordination and approval process for technology release is highly bureaucratic, involving multiple agencies, each with the authority to deny a request.
The levels of review within each coordinating agency and the number of agencies involved combine to make the process inefficient, unpredictable, and lacking in transparency. An expert advocate is required simply to navigate through the agencies and their complex decision-making hierarchies. While independent review of technological transfers may be prudent, the layers of oversight is representative of a system fraught with obstacles and barriers that detract from the acquisition credo of simplifying the processes and streamlining operational delivery of essential systems.
Export delays and prohibitions are perceived by international partners and allies as distrust, and failure to approve transfers is frequently viewed as protectionist, undermining U.S. credibility as a free trade partner and hampering allied interoperability. This was clearly demonstrated in the open disagreements between the United States and its international F-35 partners, particularly the United Kingdom, which argued that U.S. refusal to share key technologies was hindering its ability to produce and support the aircraft.
Specialty metals regulation is another concern for the aircraft industry. It began as a debate over the inclusion of specialty metals (primarily titanium) in the Berry Amendment, and recently migrated from the Berry Amendment to the 2007 National Defense Authorization.
This legislation requires that any system or component — from major structural components to 10 cent fasteners — acquired by the Defense Department and containing specialty metal must be 100 percent derived from U.S. sources.
While manufacturers can, at some cost, ensure compliance on major programs such as the Joint Strike Fighter, the issue is more complex on commercially derived products. It is likely that U.S. suppliers will lose competitive advantage to foreign suppliers who are exempt from the specialty metals restriction.
In 2005, military aircraft sales totaled $28.2 billion compared to $31.4 billion for all civilian aviation. The U.S. government is a large, important, and highly influential customer for the aircraft industry. Several firms interviewed for the ICAF study expressed a desire for measures designed to make the government a stable, predictable and dependable customer.
A review of several recent aircraft acquisition programs shows the federal government to be a fickle and often times capricious customer. Orders are constantly changed. These changes included the number of projected aircraft deliveries, design specifications, production requirements and test criteria. Such changes invariably drive up the cost of the end item, which in essence penalizes the government in the form of higher acquisition costs.
This dynamic also makes the aircraft industry less attractive in the eyes of potential entrants and potential investors. Contrast this with the pharmaceutical industry where the U.S. government refrains from applying its power over the marketplace, thereby increasing profit margins and spurring private investment. In the case of the aircraft industry, government application of negotiating power tends to reduce margins and corrode the competitive landscape to the detriment of the industry.
Since the mid-1980s, there has been a significant decline in funding for aviation research and development by both the government and industry. Federal and non-federal funding for aviation R&D peaked in 1987 at approximately $35 billion and since then has seen a 50 percent cut. This decrease in funding has had a negative impact on the U.S. aviation infrastructure and in industry’s ability to develop younger replacements to replenish an aging workforce. During the past decade, federal funding of R&D has been refocused on special programs that are directed toward the global war on terrorism and unanticipated damage associated with natural disasters.
Funding for NASA also fell by approximately 50 percent in the last decade. During the past several years, de-emphasis of long-term aeronautical research in both NASA and the Defense Department has impaired U.S. universities’ ability to maintain vibrant aeronautical engineering programs. The lack of an infusion of “new blood” in the workforce is directly related to the dearth of funding for researching new technologies.
By 2025, the United States will require an air traffic management system that will support an economically viable U.S. aviation industry. A new system must be able to handle doubling or triple the current air traffic volume and be responsive to national security requirements. In order to meet these requirements, the U.S. government has initiated development of the next generation air transportation system.
To avert a future crisis in the industry, the ICAF study group made several recommendations:
• Increase standards for math and science teachers in the elementary and secondary schools. Government, furthermore, must foster improved math and science curricula across the education system.
• Provide tax incentives to stimulate industry investment in worker education and develop and attract highly skilled employees where shortages exist.
• Initiate a joint government-industry strategic communication campaign to promote careers in the industry by improving the perception of aerospace employment opportunities and rewards to high school students.
• Develop competitive employee compensation packages comparable to other high technology sectors to recruit and retain engineers, professionals and workers.
• Find ways to streamline the export control process and add predictability and transparency.
• Reevaluate the rationale behind export controls and protectionist measures. Specifically, International Trade in Arms Regulation export control lists should be evaluated to ensure only the critical, strategic articles and services are included.
• Continue NASA’s historical role of supporting breakthrough research that has a longer time horizon than industry can support — 10 years or more — before it is mature enough to be considered for transition to product development .
• Ensure that federal agencies should act on recommendations in the 2003 President’s Commission on the Future of the U.S. Aerospace Industry, which proposed significant increases to federal government investment in basic aerospace research.
• Continue to encourage U.S. industrial investment via increases in tax credits, with greater credit provided to long term efforts.
Furthermore, both industry and the federal government should look for opportunities to endorse international partnerships that promote research and development initiatives.
The administration and Congress also must select the most beneficial compromise among conflicting financial alternatives for moving forward with investment in air traffic control solutions before the national airspace system becomes gridlocked.
Alan L. Gropman is a distinguished professor of national security policy at the Industrial College
of the Armed Forces, National Defense University. The views expressed in this article are solely those of the author and do not represent those of the Defense Department or the U.S. government.
To Download the complete ICAF study on the aviation industry, please click here.