National Defense > Blog > Posts > Aerospace Industry Gathers Next Week at Farnborough Amid Worries About U.S. Defense Budget

7/9/2010

Aerospace Industry Gathers Next Week at Farnborough Amid Worries About U.S. Defense Budget
The aerospace industry will be coalescing next week at the 2010 Farnborough International Airshow with a sense of trepidation about the future. Suppliers of military hardware, particularly, wonder whether this year’s confab in the United Kingdom will be the last hurrah before the Pentagon’s budget takes a plunge.

American companies — notably Lockheed Martin and Boeing — have curtailed participation at Farnborough this year in a show of austerity. A shrinking presence at international shows may now be regarded as good PR, considering the Pentagon has asked its top contractors to lower their overhead costs. These cutbacks, however, mask the growing interest by American aerospace firms in capturing non-U.S. customers at a time when they fear the domestic market soon may be softening.

Executives from The Boeing Co. for months have proclaimed their intent of increasing their international military sales from 16 percent to 25 percent of their defense revenues over the next five years. The Middle East will become a significant source of new business, company officials predict.

“We encourage our companies to find business overseas,” says Remy Nathan, assistant vice president for international affairs at the Aerospace Industries Association.

Even though the U.S. defense market is larger than the rest of the world combined, American suppliers have financial incentives to seek business outside the United States, says Nathan. U.S. prime contractors tap into the global supply chain in search of lower prices, he says. In some instances, such as in multibillion-dollar competitions for fighter jets, U.S. firms stand to not only make money from new aircraft sales but also additional billions in logistics and maintenance support work. Export sales of U.S. military F-16, F-15 and F-18 fighter jets have kept Lockheed’s and Boeing’s assembly lines chugging along for years, Nathan notes. “If Defense Department budgets start to contract, you need to make that up in some fashion.”

Companies also worry about the “in-sourcing” trend in the U.S. military services, which increasingly are looking to bring in-house more maintenance and logistics support work for major weapon systems. Two major blows to the industry have been recent decisions by the Air Force to take over the supply chain management of the Boeing-made C-17 cargo aircraft and of the Lockheed-made F-22 fighter jet.

So far the impact of these in-sourcing policies is unclear, says Jim O'Neill, vice president and general manager of integrated logistics at Boeing. “The jury is still out.” But he says growing overseas opportunities could help offset lost revenues from U.S. Air Force contracts. “We do see a counterbalance between U.S. and international business,” O’Neill says. Boeing expects to sign new contracts for weapons maintenance in the United Kingdom, Singapore and Australia.

The U.S. Air Force KC-X air refueling tanker, the V-XX presidential helicopter and the Army’s new ground combat vehicle are three major procurement programs in which every U.S. bidder is either teamed with foreign partners or has a significant number of foreign providers in the supplier base. The Pentagon’s latest “Industrial Capabilities Report” submitted to Congress in May predicts this trend will take hold as the industry becomes more globalized. “Global partnerships continue increasing as many European contractors have either formed an alliance or established domestic subsidiaries in the United States in order to better compete for U.S. defense-related programs,” the report says. “Today, the majority of aerospace suppliers supporting DoD programs are still U.S. suppliers; however, participation from global contractors is increasing and so are the number of foreign subcontractors supporting the primes.”

The tanker program, which has pitted Boeing against European giant EADS, has fueled stirring protectionist rhetoric on Capitol Hill, where Boeing’s backers have contented that under no circumstances should the Pentagon choose a non-U.S. design for such a high-stakes program, regardless of who provides the best value. But the reality is that both competitors include some form of foreign content. Pure “made in America” systems are a fantasy, for the most part, says an industry consultant. This is especially true now that so many foreign prime contractors are setting up manufacturing facilities in the United States and creating jobs here, he says. The jobs element is huge, the consultant says. “Having been around senators and the staffs, the state pressure to bring home jobs and support activities in their states is overwhelming.”

Expect to see next week more new alliances forged at Farnborough.
Posted at 12:40 PM by Sandra Erwin | Permalink | Email this Post | Comments (0)

Comments

There are no comments yet for this post.
Items on this list require content approval. Your submission will not appear in public views until approved by someone with proper rights. More information on content approval.

Name: *

eMail *

Comment *

Title

Attachments

Name: *


eMail *


Comment *


 

Refresh
Please enter the text displayed in the image.
The picture contains 6 characters.

Characters *

  

Legal Notice *

NDIA is not responsible for screening, policing, editing, or monitoring your or another user's postings and encourages all of its users to use reasonable discretion and caution in evaluating or reviewing any posting. Moreover, and except as provided below with respect to NDIA's right and ability to delete or remove a posting (or any part thereof), NDIA does not endorse, oppose, or edit any opinion or information provided by you or another user and does not make any representation with respect to, nor does it endorse the accuracy, completeness, timeliness, or reliability of any advice, opinion, statement, or other material displayed, uploaded, or distributed by you or any other user. Nevertheless, NDIA reserves the right to delete or take other action with respect to postings (or parts thereof) that NDIA believes in good faith violate this Legal Notice and/or are potentially harmful or unlawful. If you violate this Legal Notice, NDIA may, in its sole discretion, delete the unacceptable content from your posting, remove or delete the posting in its entirety, issue you a warning, and/or terminate your use of the NDIA site. Moreover, it is a policy of NDIA to take appropriate actions under the Digital Millennium Copyright Act and other applicable intellectual property laws. If you become aware of postings that violate these rules regarding acceptable behavior or content, you may contact NDIA at 703.522.1820.

 

 

Bookmark and Share