Facts, Figures & Outlook for the Aviation and Aerospace … · 2020-02-15 · Source: Board of...

Photo courtesy of Northrop Grumm

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3rd

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nAerospace Industry Report

Facts, Figures & Outlook for the Aviation and Aerospace

Manufacturing Industry

Published by the Aerospace Industries Association of America and the Center of Aviation & Aerospace Leadership

at Embry-Riddle Aeronautical University–Worldwide

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Facts, Figures & O

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The photos on the front and back of this report are pictures of Northrop Grumman’s X-47B Unmanned Combat Air System (UCAS).

The X-47B is a tailless, intelligent, unmanned aircraft under development for the U.S. Navy to demonstrate carrier-based launches and recoveries and autonomous aerial refueling.

The X-47B UCAS is based on the concept of network centric warfare where a single controller located anywhere can monitor and control several aircraft simultaneously. When fully operational, the X-47B will be able to suppress enemy air defenses and conduct deep strike and surveillance missions within a global command and control network.

Photo credit: Northrop Grumman Corporation.

Photo Credits:

Chapter 1: Boeing 787 Dreamliner in Production at Seattle. (Credit: The Boeing Company)

Chapter 2: Boeing 747 Taking Off On-Schedule. (Credit: Yao Meng Peng, Photos.com)

Chapter 3: Taking Off from New York. (Credit: John Foxx, Photos.com)

Chapter 4: The Last Lockheed Martin Raptor. Air Force Magazine. (Credit: Damien A. Guarnieri, Lockheed Martin)

Chapter 5: FedEx Boeing 777F Undergoing Maintenance, Repair, and Overhaul in Memphis. (Credit: FedEx Corporation)

Chapter 6: The New Lockheed Martin Joint Strike Fighter. (Credit: Lockheed Martin)

Chapter 7: Embraer 175 and ERJ 135 Jets in Production at Sao Jose dos Campos, Brazil. (Credit: Embraer)

Chapter 8: Keeping America Strong. Senior Airman Christopher Blackstone applies lubrication to the nose landing gear struts of an A-10 Thunderbolt II at Osan Air Base, South Korea. (Credit: Senior Airman Adam Grant, U.S. Air Force)

Chapter 9: New Bombardier Global 6000 at NetJets Headquarters. (Credit: NetJets)

Chapter 10: Qube® Unmanned Aircraft System designed to meet the needs of first responders. (Credit: AeroVironment)

Chapter 11: Night time image of the Northern Gulf coast. From 220 miles above Earth, one of the Expedition 25 crew members on the International Space Station shot this image of the northern Gulf coast. (Credit: NASA)

Acronyms and Other Terms: UH-60 Blackhawk helicopter in Kandahar Province, Afghanistan. (Credit: Sgt. Daniel Schroeder, U.S. Army)

Glossary: SpaceX Dragon Resupplying the International Space Station. (Credit: NASA)

Appendix: Bell Helicopter 412EP. (Credit: Bell Helicopter)

About the Authors: Air Force Hunter-killer MQ-9 Reaper UAV in Afghanistan. (Credit: U.S. Air Force)

Acknowledgements: The Ticonderoga-class guided-missile cruiser USS Cowpens (CG 63) fires Standard Missiles (SM) 2 at an airborne drone during a live-fire weapons shoot. (Credit: U.S. Navy)

Aerospace Industry ReportThird Edition

Facts, Figures & Outlook for the Aviation and Aerospace Manufacturing Industry

By

Robert Materna, Ph.D.Professor of Business Administration

Center for Aviation & Aerospace LeadershipEmbry-Riddle Aeronautical University–Worldwide

Brig. Gen. Robert E. Mansfield, Jr. USAF (Ret.)Executive Director

Center for Aviation & Aerospace LeadershipEmbry-Riddle Aeronautical University–Worldwide

Frederick W. Deck, IIISenior Director

Aerospace Research CenterAerospace Industries Association

With contributions by

William A. Chadwick, Jr.Aerospace & Defense Industry Consultant

Aman D. Gupta, Ph.D.Program Chair, Master of Science in Logistics

and Supply Chain ManagementEmbry-Riddle Aeronautical University–Worldwide

K. Dunlop Scott President and Chief Operating Officer

Columbia Partners

Published by:

Aerospace Industries Association of America, Inc.1000 Wilson Blvd.Suite 1700Arlington, VA 22209-3928Phone: (703) 358-1015Web: www.aia-aerospace.org

Center for Aviation & Aerospace LeadershipEmbry-Riddle Aeronautical University600 South Clyde Morris Blvd.Daytona Beach, FL 32114-3900Phone: (770) 726-9987Web: www.erau.edu

The views contained in this document are those of the authors and do not necessarily represent the official policies or endorsements, either expressed or implied, of the Aerospace Industries Association or Embry-Riddle Aeronautical University. This report is for information only and should not be used for investment purposes.

All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database, network, or retrieval system, or broadcast for distance learning without the written consent of the Aerospace Industries Association or Embry-Riddle Aeronautical University. Any quotation must be accompanied by appropriate bibliographic credit.

© 2013 Embry-Riddle Aeronautical University and the Aerospace Industries Association

of America, Inc.

ISBN 978-0-9881837-1-1

iii

Foreword

Welcome to the second joint publication of the Aerospace Industries Association (AIA) and the Center for Aviation & Aerospace Leadership (CAAL) at Embry-Riddle Aeronautical University–Worldwide.

Some time ago, both organizations agreed to share their resources to produce an authoritative report on the state of aero-space manufacturing in the U.S. Now in its second production, the Aerospace Industry Report is an all-encompassing source book designed to help business leaders, opera-tors, and policymakers make more informed decisions. The publication will also help educate students—our next generation of aerospace professionals.

This edition of the Aerospace Industry Report includes another new set of statistical data that quantitatively assess the industry’s performance along with an even more focused look at topical issues that face the industry. This report’s emphasis on emerg-ing trends is particularly important as the industry heads into what appears to be a time of significant change.

As we deal with the challenges of sequestration and look to the future, it is clear that we must all work together to maintain America’s lead-ership role in the aviation and aerospace manufacturing industry. In addition to our work with large aerospace firms and key government

John R. Watret, Ph.D. Chancellor Embry-Riddle Aeronautical University–Worldwide

Marion C. Blakey President and Chief Executive Officer Aerospace Industries Association

iv

agencies, it is also clear that we must continue to promote an environ-ment that supports small to medium-size aerospace manufacturers. These firms, which are distributed across all 50 states, are a key source of innovation and jobs that produce over 80 percent of the parts that go into our aerospace systems.

If you have any questions, please feel free to contact the Aerospace Industries Association or the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University.

Marion C. Blakey President and Chief Executive Officer Aerospace Industries Association

John R. Watret, Ph.D. Chancellor Embry-Riddle Aeronautical University–Worldwide

AEROSPACE INDUSTRy REPORT 3RD EDITION

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About AIA

The Aerospace Industries Association (AIA) is the most authorita-tive and influential trade association representing the aerospace and defense industry. We are the leading voice for the industry on Capitol Hill, within the administration, and internationally.

In times like these, AIA’s strong representation and advocacy is essen-tial to protecting the interests of the nation’s aerospace and defense industry, while helping to establish new opportunities for growth.

AIA represents nearly 380 aerospace and defense manufacturers and suppliers. We are at the forefront of critical issues, such as advocat-ing for robust federal budgets for aerospace and defense, a strong U.S. industrial base, defense modernization, and an efficient acquisition system. In addition, accelerating deployment of Next Generation Air Transportation System technologies and equipment, modernizing export controls, and obtaining additional resources for research and develop-ment and space exploration are important priorities for the association.

Unlike many other associations, CEOs of our member companies and their senior managers define and drive our agenda. We work together to shape regulatory and legislative policies and we are a leader in developing and publishing national aerospace standards that are used in aerospace design and manufacturing across the globe.

The aerospace and defense industry supports and drives our nation’s economy. It fuels innovation, creates competition, and employs millions of Americans. We are proud to represent our members and our nation. To learn more about AIA and the benefits of membership, please visit www.aia-aerospace.org.

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About Embry-Riddle Aeronautical University

Embry-Riddle Aeronautical University was founded in 1925, just 22 years after the Wright brothers’ first flight. Today, the University and its graduates have built an enviable record of achievement in every aspect of aviation and aerospace. At Embry-Riddle, our mission is to teach the science, practice and business of aviation and aero-space, preparing students for productive careers and leadership roles in service around the world. The curriculum covers the operation, engineering, research, manufacturing, marketing, and management of modern aircraft and the systems that support them. The University also engages in extensive research and consulting that addresses the unique needs of aviation, aerospace, and related industries.

Residential campuses in Daytona Beach, Florida and Prescott, Arizona provide education in a traditional setting. The residential campuses also have over 90 instructional aircraft and offer FAA approved programs in flight and flight dispatch. Flight programs include private, commercial, instrument, multi-engine, flight instructor, and instrument flight instructor ratings.

The Worldwide campus provides instruction at over 150 locations in the United States, Canada, Europe, the Middle East, and Asia, with more than 27,000 students.

Combined annual enrollment for all three campuses is more than 34,000. Embry-Riddle now has over 100,000 alumni.

Embry-Riddle Aeronautical University is an independent, nonsectar-ian, not-for-profit, coeducational university that is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools.

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About CAAL

The Center for Aviation and Aerospace Leadership (CAAL) was founded in 2008 to capture, create, and share information on leadership related to the aviation and aerospace industry. The Center’s vision is to prepare aviation and aerospace leaders for tomorrow’s world. To accomplish its mission, the Center for Aviation and Aerospace Leadership conducts research on how leaders are dealing with specific challenges and publishes articles and reports on topics that are important to the industry.

This report, which is published in partnership with the Aerospace Industries Association, is a product of the Center. CAAL also offers leadership development programs to individuals and teams in aviation, aerospace, and related industries, and is actively involved in promoting programs that teach science, technology, engineering, math, and manu-facturing (STEM+M). CAAL is continuously developing new case studies, professional development courses and material for Embry-Riddle Worldwide’s Master of Science in Leadership program.

CAAL is located in Embry-Riddle Worldwide’s College of Business. It operates under the direction of a permanently staffed management committee, and has been designed to leverage Embry-Riddle’s world-wide network of practitioners, scholars and alumni to address key leadership issues related to the industry. For more information, please contact CAAL at the following:

Center for Aviation & Aerospace Leadership Embry-Riddle Aeronautical University–Worldwide Phone: (770) 726-9987 E-mail: [email protected] Web: http://worldwide.erau.edu/caal/

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The CAAL Manufacturing Initiative

The CAAL Manufacturing Initiative is one of several programs designed to serve the aviation and aerospace industry. One of the primary purposes of the initiative is to provide aerospace manufactur-ers and service providers of all sizes with additional resources to help us all understand what can be done to make the U.S. aerospace indus-try more competitive.

This report is one of the core products of the CAAL Manufacturing Initiative, which focuses on the status of aerospace manufacturing in the United States. The report includes a review of major trends affecting the industry, sales across the various sectors of the industry, employment trends, international trade statistics, industry financial statements, and a forecast for the future based on an assessment of what the government and industry are saying—along with AIA and Embry-Riddle’s own analysis. In addition to the core product, tailored reports can be prepared for states, regions, or countries upon request.

The initiative also includes an annual Aviation and Aerospace Industry Manufacturing Summit. This event gathers leaders and experts in a variety of fields to discuss topics of relevance to the aviation and aero-space manufacturing and service community. Related services include seminars and tailored presentations for specific customers and markets.

The information provided in this report is intended to help inform business planning, strategy, and decision-making. For more informa-tion about this report, the manufacturing summit, or other services, please visit the CAAL website, send us an e-mail, or give us a call using the information on the previous page.

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Table of Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

About AIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

About Embry-Riddle Aeronautical University . . . . . . . . . . . . . . . . . . vii

About CAAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

The CAAL Manufacturing Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Chapter 1 n The Return of American Manufacturing—Opportunities and Challenges for U.S. Aerospace Manufacturers . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

The Return of Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Manufacturing and the Economy. . . . . . . . . . . . . . . . . . . . . . . . . . 2

Aerospace Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Benefits of Aerospace & Defense Manufacturing . . . . . . . . . . . 8

Research and Innovation in the Aerospace Industry . . . . . . . . .10

Global Research and Development . . . . . . . . . . . . . . . . . . . 11

Research and Development in the United States . . . . . . . .12

Programs that Promote Manufacturing and Innovation . . .15

Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Chapter 2 n The National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Economic Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The Recovery Continues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Money Multiplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Reserve Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Velocity of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

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Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Producer Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Industrial Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Capacity Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Manufacturing Output per Worker . . . . . . . . . . . . . . . . . . . . 28

Unemployment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Civilians Unemployed 15 Weeks or More . . . . . . . . . . . . . . 29

Initial Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Number of Manufacturing Employees . . . . . . . . . . . . . . . . 30

Corporate Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Employment Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Fixed Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

National Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Gross Domestic Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Chapter 3 n The International Economy. . . . . . . . . . . . . . . . . . . . . . . 39

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

The State of the World Economy . . . . . . . . . . . . . . . . . . . . . . . . . 39

GDP Growth Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

OECD Leading Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Dependency Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

International Manufacturing Competitiveness . . . . . . . . . . . . . 48


Chapter 4 n Aerospace Manufacturing in the United States . . . . . 53

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Aerospace Sales, Orders, and Backlog . . . . . . . . . . . . . . . . . . . 53

Federal Outlays for DOD Aircraft and Missiles . . . . . . . . . . 56

Civil and Military Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Civil Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Military Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59


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Rotorcraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

General Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66


Chapter 5 n Maintenance Repair and Overhaul . . . . . . . . . . . . . . . 69

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Commercial Aircraft MRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Scale and Scope of the Market . . . . . . . . . . . . . . . . . . . . . . . 70

Distribution by Type and Geography . . . . . . . . . . . . . . . . . 72

Military Aircraft MRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Scale and Scope of the Market . . . . . . . . . . . . . . . . . . . . . . . 74

Distribution by Type and Geography . . . . . . . . . . . . . . . . . 74

Trends and Challenges in MRO . . . . . . . . . . . . . . . . . . . . . . . . . . 76


Chapter 6 n The Global Aerospace Marketplace . . . . . . . . . . . . . . 79

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

U.S. Aerospace Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

U.S. Military Aerospace Exports . . . . . . . . . . . . . . . . . . . . . . 82

U.S. Aerospace Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

U.S. Military Aerospace Imports . . . . . . . . . . . . . . . . . . . . . . 87

U.S. Balance of Trade in Aerospace Products and Parts . . . . . 87

Regional Aerospace Exporting Trends . . . . . . . . . . . . . . . . . . . . 90

Pacific Region Aerospace Exports . . . . . . . . . . . . . . . . . . . . 90

Mountain Region Aerospace Exports . . . . . . . . . . . . . . . . . 93

South-Central Region Aerospace Exports . . . . . . . . . . . . . 95

North-Central Region Aerospace Exports . . . . . . . . . . . . . 97

South-Atlantic Region Aerospace Exports . . . . . . . . . . . . . 99

Mid-Atlantic Region Aerospace Exports . . . . . . . . . . . . . . .102

New England Region Aerospace Exports . . . . . . . . . . . . .104

Export-Import Bank of the United States . . . . . . . . . . . . . . . . . .106

TABLE OF CONTENTS

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Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108

Chapter 7 n Aerospace and the BRICs . . . . . . . . . . . . . . . . . . . . . . . 111

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

For More Information on Doing Business in Brazil . . . . . . . 114

Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

For More Information on Doing Business in Russia . . . . . . 119

India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120

Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124

For More Information on Doing Business in India . . . . . . .124

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

For More Information on Doing Business in China . . . . . .129


Chapter 8 n The Aerospace Workforce . . . . . . . . . . . . . . . . . . . . . . .133

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

Employee Productivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

Workforce Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134

Employment Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136

The Workforce as a Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . 141

Creative Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Business and Industry STEM Education Coalition . . . . . . .143

Team America Rocketry Challenge . . . . . . . . . . . . . . . . . . .143

Real World Design Challenge . . . . . . . . . . . . . . . . . . . . . . . .144

Manufacturing Skills Certification Program . . . . . . . . . . . . .144

Other Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145



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Chapter 9 n Finance and Capital Markets . . . . . . . . . . . . . . . . . . . . .149

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149

Financial Overview of the U.S. Aerospace Industry . . . . . . . . .149

Changing Market Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . .150

Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

yield on the U.S. Treasury 10-year Bond . . . . . . . . . . . . . . . .153

Aerospace and Defense Bond yield Spread . . . . . . . . . . .154

Traditional Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154

Loan Value Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154

New Commercial and Industrial Loan Value . . . . . . . . . . . .154

Small Business Loan Value . . . . . . . . . . . . . . . . . . . . . . . . . . .155

Small Business Loan Size . . . . . . . . . . . . . . . . . . . . . . . . . . . .156

Increased Willingness to Lend . . . . . . . . . . . . . . . . . . . . . . . .156

Smaller Lenders Not Lending . . . . . . . . . . . . . . . . . . . . . . . .157

Alternative Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158

Asset-Backed Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158

Cash Flow Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159

The CDO/CLO Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .160

Private Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

State of the Equity Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Stock Market Performance of Aerospace Companies . . .164

Price-to-Earnings Comparisons . . . . . . . . . . . . . . . . . . . . . . .165

Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165


Chapter 10 n Topics to Watch in 2013 and Beyond . . . . . . . . . . . . . . 171

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

The Benefits of Aerospace Clusters . . . . . . . . . . . . . . . . . . . . . . 171

Clusters are Important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172

The Role of Location in a Networked World . . . . . . . . . . .174

America’s Leading Aerospace and Defense Clusters . . .175

Cluster Registry Formed . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177

The Path to Regional Innovation . . . . . . . . . . . . . . . . . . . . .178

Guidelines for Building Effective Regional Clusters . . . . .179

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Collaboration Strategies for the Aerospace Industry . . . . 181

The State of Small and Medium-Size U.S. Aerospace Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183

Challenges Facing Aerospace Suppliers . . . . . . . . . . . . . .188

Opportunities and Challenges in Civil Space . . . . . . . . . . . . . .189

Restoring Human Access to Space . . . . . . . . . . . . . . . . . . .189

Maintaining Leadership in Space Science and Earth Observation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .190

Preserving Weather Satellite Capabilities . . . . . . . . . . . . . .190

Integrating UAS into the U.S. National Airspace . . . . . . . . . . . . 191

Recent Legislation and Anticipated Applications . . . . . . . 191

Need for a National Plan and Benefits of Integration . . . .192

Managing Risk in Aerospace Supply Chains . . . . . . . . . . . . . . .193

Why Risk is an Issue in Supply Chain Networks . . . . . . . . .193

Examples of “Risk Events” and Their Impact . . . . . . . . . . . .194

Risk Management Concepts . . . . . . . . . . . . . . . . . . . . . . . . .195

Characteristics of Aerospace Supply Chain Risk . . . . . . . .196

Lessons Learned in Aerospace Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197

Best Practices in Managing Risk . . . . . . . . . . . . . . . . . . . . . .198

Developing an Adaptive Enterprise . . . . . . . . . . . . . . . . . .201

The Continuing Threat of Counterfeit Parts . . . . . . . . . . . . . . . 202

Performance, Reliability, Safety and Security Threatened . 202

Scale, Scope, and Primary Source of the Problem . . . . . 202

Industry Actions to Address the Issue . . . . . . . . . . . . . . . . 202

Rare Earth Elements and the Aerospace Industry . . . . . . . . . . 203

Rare Earth Applications for Aerospace and Defense . . . 203

DOD’s Response and Other U.S. Actions . . . . . . . . . . . . . 204

Impact on Small to Medium Aerospace Manufacturers . 205

Options for Dealing with Rare Earth Element Issues . . . . 205

Outlook for Rare Earth Elements in the Foreseeable Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

International Specifications for Technical Documentation . . 206

Lead-Free Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207


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Cyber-Warfare and the U.S. Aerospace and Defense Industry . .209

Primary Aggressors and Main Areas of Interest . . . . . . . .210

Impact on Small to Medium-Size Aerospace Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210

Best Practices in Data Protection and Due Diligence for Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210

Fuel Efficiency and the Aviation Industry . . . . . . . . . . . . . . . . . .212

Commercial Aviation’s Strategy to Reduce Global CO2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213

International Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .216

Greenhouse Gas Emissions . . . . . . . . . . . . . . . . . . . . . . . . . .217

The Impact of Sequestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Chapter 11 n Industry Forecasts and Outlook . . . . . . . . . . . . . . . . . 229

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

General Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Commercial Aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Large Commercial Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Regional Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Civil Cargo Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

Unmanned Aircraft Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

Military Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

Civil and Commercial Systems . . . . . . . . . . . . . . . . . . . . . . 248

Commercial Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .251

Commercial Space Outlook . . . . . . . . . . . . . . . . . . . . . . . . 254

The Implications of Commercial Space for the Aviation and Aerospace Industry . . . . . . . . . . . . . . . . . . . . .261

Outlook for 2013 and Beyond . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Challenges in the Short-Term . . . . . . . . . . . . . . . . . . . . . . . . 263

Opportunities in the Long-Term . . . . . . . . . . . . . . . . . . . . . 264

General Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Acronyms and Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

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Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

Summary Aerospace Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 286

Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298

Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .312

Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .316

Air Carriers, Traffic Statistics, and Fuel Costs . . . . . . . . . . . . . . 322

General Aviation Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

Landing Facilities by State and Type . . . . . . . . . . . . . . . . . . . . . 332

Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

Foreign Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .341

Employment, Earnings, and Other Workforce Statistics . . . . 352

Income Statement, Balance Sheet, and Other Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

Key Operating Costs for Selected Aerospace Manufacturing Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

Major DOD and NASA Contractors . . . . . . . . . . . . . . . . . . . . . . .371

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

Robert Materna, Ph.D. CPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

Robert E. Mansfield, Jr., Brig. Gen., USAF (Ret.) . . . . . . . . . . . 374

Frederick W. Deck, III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

Figures

Figure 1.1 Average Hourly Wages and Benefits for Manufacturing Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Figure 1.2 U.S. Manufacturing Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Figure 1.3 U.S. Manufacturing Output Index . . . . . . . . . . . . . . . . . . . . 4

Figure 1.4 Index of Manufacturing Output per Person, Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Figure 1.5 Manufacturing Output for Selected Countries . . . . . . . . . 5

Figure 1.6 Average Hourly Wages and Benefits for Aerospace Production Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Figure 1.7 U.S. Aerospace Manufacturing Jobs . . . . . . . . . . . . . . . . . 7

Figure 1.8 Aerospace Manufacturing Output . . . . . . . . . . . . . . . . . . . 8


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Figure 1.9 Aerospace Exports for Selected States in 2012 . . . . . . . .10

Figure 1.10 Global R&D and Innovation . . . . . . . . . . . . . . . . . . . . . . . .12

Figure 1.11 U.S. R&D as Percentage of GDP . . . . . . . . . . . . . . . . . . . . .13

Figure 1.12 Defense and Non-Defense R&D . . . . . . . . . . . . . . . . . . . .13

Figure 1.13 Percentage Change in R&D Funding Since 2009 . . . . . .14

Figure 1.14 Domestic R&D Expenditures by Size of Firm . . . . . . . . .14

Figure 1.15 Domestic R&D Expenditures for Aerospace . . . . . . . . . .15

Figure 2.1 M1 Money Multiplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Figure 2.2 Reserve Balances with Federal Reserve Banks . . . . . . . 23

Figure 2.3 Velocity of the M2 Money Stock . . . . . . . . . . . . . . . . . . . 24

Figure 2.4 U.S. 10-year Treasury Constant Maturity Rate . . . . . . . . . 25

Figure 2.5 Producer Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Figure 2.6 Industrial Production in Manufacturing . . . . . . . . . . . . . . 27

Figure 2.7 U.S. Manufacturing Capacity Utilization . . . . . . . . . . . . . . 27

Figure 2.8 Manufacturing Output per Worker . . . . . . . . . . . . . . . . . 28

Figure 2.9 Unemployment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Figure 2.10 Civilians Unemployed 15 Weeks or More . . . . . . . . . . 30

Figure 2.11 Four-Week Moving Average of Initial Claims . . . . . . . . 30

Figure 2.12 Number of Manufacturing Employees . . . . . . . . . . . . . .31

Figure 2.13 Corporate Profits After Tax . . . . . . . . . . . . . . . . . . . . . . . . 32

Figure 2.14 Employment Cost Index, Wages, and Salaries for Private Industry Manufacturing Worker . . . . . . . . . . . . . . . . . . . . 33

Figure 2.15 Private Nonresidential Fixed Investment . . . . . . . . . . . . 33

Figure 2.16 Federal Government Debt . . . . . . . . . . . . . . . . . . . . . . . 34

Figure 2.17 Gross Domestic Product . . . . . . . . . . . . . . . . . . . . . . . . . 35

Figure 2.18 Percentage Change in GDP from Previous Quarter . . 35

Figure 3.1 Actual and Projected GDP Growth Rates 2008–2015 . . . 40

Figure 3.2 CLIs for the U.S., Europe and Japan . . . . . . . . . . . . . . . . . 42

Figure 3.3 CLIs for Brazil, Russia, India, and China . . . . . . . . . . . . . . 42

Figure 3.4 Long-Term Interest Rates for Selected Countries . . . . . 43

Figure 3.5 U.S. Dollar Amount per Unit of Foreign Currency . . . . . 44

Figure 3.6 Projected Average Growth Rates in GDP . . . . . . . . . . . 46

Figure 3.7 Projected Average Current Account Balances . . . . . . . 46

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Figure 3.8 Dependency Ratios for Selected Countries . . . . . . . . . 47

Figure 3.9 Global Manufacturing Competitiveness Rankings . . . . 49

Figure 4.1 Aerospace Industry Sales by Product Group . . . . . . . . 54

Figure 4.2 Aerospace Industry Sales by Customer . . . . . . . . . . . . . 55

Figure 4.3 Aerospace Orders, Shipments, and Backlog . . . . . . . . . 55

Figure 4.4 Federal Outlays for Aerospace Products and Services . . 56

Figure 4.5 Military Outlays by Functional Title . . . . . . . . . . . . . . . . . 57

Figure 4.6 Civil Aircraft Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Figure 4.7 Shipments of U.S. Large Civil Transport Aircraft . . . . . . . 58

Figure 4.8 Military Aircraft Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Figure 4.9 DOD Outlays for Aircraft Procurement by Agency . . . . 59

Figure 4.10 NASA Outlays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Figure 4.11 DOD Outlays for Missile Procurement by Agency . . . 65

Figure 5.1 Estimated Global Commercial Aircraft MRO Market, 2012–2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Figure 5.2 Commercial Aircraft MRO Spending by Region, 2012 . .72

Figure 5.3 Commercial Aircraft MRO Spending by Activity, 2012 . . .73

Figure 5.4 Estimated Global Military Aircraft MRO Market, 2012–2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Figure 5.5 Military Aircraft MRO Spending by Region, 2012 . . . . . 75

Figure 5.6 Military Aircraft MRO Spending by Activity, 2012 . . . . . 76

Figure 6.1 U.S. Exports of Aerospace Products and Parts . . . . . . . . 80

Figure 6.2 Map of U.S. Aerospace Export Countries . . . . . . . . . . . . .81

Figure 6.3 Trends in Top U.S. Aerospace Export Markets . . . . . . . . 82

Figure 6.4 National Defense Total Obligation Authority . . . . . . . . . 83

Figure 6.5 Military Aerospace Exports . . . . . . . . . . . . . . . . . . . . . . . . 84

Figure 6.6 Imports of Aerospace Products and Parts . . . . . . . . . . . 84

Figure 6.7 Map of U.S. Aerospace Import Countries. . . . . . . . . . . . 85

Figure 6.8 Trends in Top U.S. Aerospace Import Markets . . . . . . . . 86

Figure 6.9 Military Aerospace Imports into the United States . . . . 87

Figure 6.10 Balance of Trade Aerospace Products and Parts . . . . . 88

Figure 6.11 Map of U.S. Aerospace Trade Balances . . . . . . . . . . . . . 88

Figure 6.12 Trade Balance for Selected Products, 2012 . . . . . . . . . . 90

Figure 6.13 Pacific Region Aerospace Exports to World . . . . . . . . .91


xxiii

Figure 6.14 Trends in Pacific Region Aerospace Exports by State . . . 92

Figure 6.15 Trends in Pacific Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Figure 6.16 Mountain Region Aerospace Exports to World . . . . . 93

Figure 6.17 Trends in Mountain Region Aerospace Exports by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Figure 6.18 Trends in Mountain Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Figure 6.19 South-Central Region Aerospace Exports to World . . .95

Figure 6.20 Trends in South-Central Region Aerospace Exports by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Figure 6.21 South-Central Region Top Aerospace Export Markets . . 97

Figure 6.22 North-Central Region Aerospace Exports to World . . 97

Figure 6.23 Trends in North-Central Region Exports by State (Part I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Figure 6.24 Trends in North-Central Region Exports by State (Part II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Figure 6.25 Trends in North-Central Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Figure 6.26 South-Atlantic Region Aerospace Exports to World .100

Figure 6.27 Trends in South-Atlantic Region Aerospace Exports by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Figure 6.28 Trends in South-Atlantic Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102

Figure 6.29 Mid-Atlantic Region Aerospace Exports to World . . .102

Figure 6.30 Trends in Mid-Atlantic Region Aerospace Exports by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

Figure 6.31 Trends in Mid-Atlantic Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Figure 6.32 New England Region Aerospace Exports to World . .104

Figure 6.33 Trends in New England Region Aerospace Exports by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Figure 6.34 Trends in New England Region Top Aerospace Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

Figure 6.35 Export-Import Bank Authorizations . . . . . . . . . . . . . . . .107

Figure 6.36 Export-Import Bank Exposure by Industry . . . . . . . . . .108

Figure 7.1 Brazilian GDP and Unemployment Trends . . . . . . . . . . . 112

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Figure 7.2 Aerospace Trade Trends with Brazil . . . . . . . . . . . . . . . . . 112

Figure 7.3 Russian GDP and Unemployment Trends . . . . . . . . . . . . 116

Figure 7.4 Aerospace Trade Trends with Russia . . . . . . . . . . . . . . . . 118

Figure 7.5 India GDP and Unemployment Trends . . . . . . . . . . . . . . 121

Figure 7.6 Aerospace Trade Trends with India . . . . . . . . . . . . . . . . .122

Figure 7.7 China GDP and Unemployment Trends . . . . . . . . . . . . .127

Figure 7.8 Aerospace Trade Trends with China . . . . . . . . . . . . . . . .128

Figure 8.1 A&D Hiring Needs, 2012–2016 . . . . . . . . . . . . . . . . . . . . . .135

Figure 8.2 Percentage of Workforce Eligible to Retire . . . . . . . . . .135

Figure 8.3 Employment in the U.S. Aerospace Industry by Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136

Figure 8.4 Top 10 States for Aerospace Employment . . . . . . . . . . .137

Figure 8.5 Average Annual Wages for Functional Managers, Lawyers, and Specialists in Aerospace . . . . . . . . . . . . . . . . . . . . . . .137

Figure 8.6 Number of Functional Managers, Lawyers, and Specialists in Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138

Figure 8.7 Average Annual Wages for Engineers in Aerospace . .138

Figure 8.8 Number of Engineers in Aerospace . . . . . . . . . . . . . . . .139

Figure 8.9 Average Annual Wages for Production Workers in Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139

Figure 8.10 Number of Production Workers in Aerospace . . . . . . .140

Figure 8.11 Age Distribution for Aerospace Products and Parts Manufacturing Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140

Figure 8.12 Supply Chain Model of STEM Graduates . . . . . . . . . . . 141

Figure 9.1 Aggregate Level of Commercial and Industrial Loans at all Commercial Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Figure 9.2 yield on 10-year Constant Maturity Bond . . . . . . . . . . . .153

Figure 9.3 Aerospace & Defense Bond yield Spread . . . . . . . . . . .154

Figure 9.4 Total Value of Loans Outstanding . . . . . . . . . . . . . . . . . . .155

Figure 9.5 Total Value of New C&I Loans . . . . . . . . . . . . . . . . . . . . . .155

Figure 9.6 Total Value of Small Business Loans . . . . . . . . . . . . . . . . .156

Figure 9.7 Small C&I Loan Balances . . . . . . . . . . . . . . . . . . . . . . . . . .157

Figure 9.8 Net Percentage Tightening Standards for C&I Loans . .157

Figure 9.9 Change in Asset-Based Credit Commitments . . . . . . . .159

Figure 9.10 New CLO Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .160


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Figure 9.11 Price Comparison S&P 500 Index vs. iShares Dow Jones Aerospace & Defense Index Fund . . . . . . . . . . . . . . . .164

Figure 9.12 Price-to-Earnings Ratios for Selected Corporations . .165

Figure 9.13 Number of Aerospace & Defense M&A Deals . . . . . .167

Figure 9.14 Aerospace & Defense M&A Transactions by Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167

Figure 10.1 Benefits of Aerospace Clusters . . . . . . . . . . . . . . . . . . .173

Figure 10.2 Percentage Change in Share of National Cluster Employment 1998–2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178

Figure 10.3 Path to Regional Innovation. . . . . . . . . . . . . . . . . . . . . . .179

Figure 10.4 Number of Employees and Size of Firm . . . . . . . . . . . .184

Figure 10.5 Index of Net Sales by Size of Aerospace Manufacturer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184

Figure 10.6 Income from Operations Ratio . . . . . . . . . . . . . . . . . . . .185

Figure 10.7 Net Income After Tax Ratio. . . . . . . . . . . . . . . . . . . . . . . .185

Figure 10.8 Total Current Assets to Total Current Liabilities . . . . . . .186

Figure 10.9 Total Cash, U.S. Government and Other Securities to Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187

Figure 10.10 Days Beyond Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187

Figure 10.11 Model of Supply Chain Risks and Consequences . . .196

Figure 10.12 Risk Management Process Model . . . . . . . . . . . . . . . .197

Figure 10.13 Percentage Change in Key Performance Areas . . . . .199

Figure 10.14 Approaches to Supply Chain Risk Management . . . .199

Figure 10.15 Rare Earth Element Reserves . . . . . . . . . . . . . . . . . . . . 206

Figure 10.16 Lead-free Electronics Operating Environment . . . . . 208

Figure 10.17 Key Drivers of Emissions Reduction . . . . . . . . . . . . . . .214

Figure 10.18 Fuel Efficiency Gains Since the Early Jet Age . . . . . . .214

Figure 10.19 Congressional Budget Office Estimated Impact of Sequestration on GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . .221

Figure 10.20 Congressional Budget Office Estimated Impact of Sequestration on Unemployment . . . . . . . . . . . . . . . . . . . . . . . . .221

Figure 11.1 Worldwide GA Shipments and Billings . . . . . . . . . . . . .231

Figure 11.2 Comparison of Shipments and Billings for Q1 2012 to Q1 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

Figure 11.3 Active U.S. General Aviation Aircraft by Type, 2010 . . 232

xxvi

Figure 11.4 Global Market Distribution of General Aviation Aircraft, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Figure 11.5 Boeing’s Drivers of Air Travel . . . . . . . . . . . . . . . . . . . . . 234

Figure 11.6 Projected Worldwide RPK Growth, 2012–2013 . . . . . . 235

Figure 11.7 Fleet Development 2011–2031 . . . . . . . . . . . . . . . . . . . . 236

Figure 11.8 Boeing’s Estimate of New Deliveries by 2031 . . . . . . . 236

Figure 11.9 Airbus Predicted Demand for 2012–2031 . . . . . . . . . . . 237

Figure 11.10 GDP Comparison Between Large Urban Centers and Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

Figure 11.11 New Aircraft 2012–2031 . . . . . . . . . . . . . . . . . . . . . . . . . . 240

Figure 11.12 Regional Fleet Size, 2011 to 2031 . . . . . . . . . . . . . . . . . . .241

Figure 11.13 Boeing Air Freighter Forecast . . . . . . . . . . . . . . . . . . . 242

Figure 11.14 Airbus Freighter Forecast Growth, 2012–2031 . . . . . . 243

Figure 11.15 Common Elements of an Unmanned Aircraft System . 244

Figure 11.16 DOD Categories of UAS . . . . . . . . . . . . . . . . . . . . . . . . 246

Figure 11.17 DOD UAS Inventory by Model and Group . . . . . . . . 247

Figure 11.18 Total Forecasted Launches . . . . . . . . . . . . . . . . . . . . . . 254

Figure 11.19 Total Forecasted Payloads . . . . . . . . . . . . . . . . . . . . . . 255

Figure 11.20 Forecasted GSO Launches . . . . . . . . . . . . . . . . . . . . . . 255

Figure 11.21 Forecasted GSO Payloads . . . . . . . . . . . . . . . . . . . . . . 256

Figure 11.22 Forecasted NGSO Launches by Type . . . . . . . . . . . . 256

Figure 11.23 Forecasted NGSO Payloads by Type . . . . . . . . . . . . 257

Figure 11.24 Space Foundation Indexes versus S&P 500 . . . . . . . 259

Tables

Table 3.1 Actual and Projected GDP Growth Rates 2008–2015 . . . 40

Table 6.1 U.S. Exports of Aerospace Products and Parts . . . . . . . . .81

Table 6.2 Percent GDP Spent on Military, 2012 . . . . . . . . . . . . . . . . . 82

Table 6.3 U.S. Imports of Aerospace Products and Parts . . . . . . . . 86

Table 6.4 Balance of Trade in Aerospace Products and Parts . . . . 89

Table 6.5 Pacific Region Aerospace Exports by State . . . . . . . . . . .91

Table 6.6 Mountain Region Aerospace Exports by State. . . . . . . . 93

Table 6.7 South-Central Region Aerospace Exports by State . . . . 96

Table 6.8 North-Central Region Exports by State . . . . . . . . . . . . . . 98


xxvii

Table 6.9 South-Atlantic Region Aerospace Exports by State . . . . 101

Table 6.10 Mid-Atlantic Region Aerospace Exports by State . . . .103

Table 6.11 New England Region Aerospace Exports by State . . .105

Table 7.1 Aerospace Trade Statistics with Brazil . . . . . . . . . . . . . . . . 113

Table 7.2 Aerospace Trade Statistics with Russia . . . . . . . . . . . . . . . 118

Table 7.3 Aerospace Trade Statistics with India . . . . . . . . . . . . . . . .122

Table 7.4 Aerospace Trade Statistics with China . . . . . . . . . . . . . . .128

Table 9.1 Summary Income Statement, Operating Ratios and Balance Sheet Ratios for Aerospace Manufacturers in 2012 . . . . .150

Table 9.2 Number of Small Business Loans Outstanding From Depository Lenders by Lender Size . . . . . . . . . . . . . . . . . . . . . . . . .158

Table 9.3 Dow Jones Aerospace & Defense Index Fund Operating Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .162

Table 9.4 Dow Jones Aerospace & Defense Index Fund Market Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .162

Table 9.5 Top Aerospace & Defense M&A Deals in 2012 . . . . . . . .166

Table 10.1 Aerospace Vehicles and Defense Clusters, Top 15 Economic Areas by Employment, 2010 . . . . . . . . . . . . . . . . . . . . . . .174

Table 10.2 Aerospace Engine Clusters, Top 15 Economic Areas by Employment, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .176

Table 11.1 Airbus Forecast of Top 10 Countries in New Passenger Aircraft Deliveries, 2012–2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

Table 11.2 Embraer Outlook for 30–120 Seat Commercial Jet Delivery by Seat Segment, 2012–2031 . . . . . . . . . . . . . . . . . . . . . . . 239

Table 11.3 Embraer Outlook for World Fleet in Service by Seat Segment and Type of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . 240

Table 11.4 Tauri Group Forecasted SRV Demand and Revenue . .258

1

1

The Return of American Manufacturing—Opportunities and Challenges for U.S. Aerospace Manufacturers

IntroductionIn 2011, the Aerospace Industries Association (AIA) launched a campaign called Second to None. The campaign sought to educate the general public and elected leaders about the importance of the aero-space and defense industries to the U.S. economy and national defense. A second objective was to provide information about the negative impact of sequestration on national security, the defense industrial base, other important government functions, and the overall economy.

Despite the best efforts of many to avoid the cuts mandated by sequestration, on March 1, 2013, the automatic budget enforcement procedures were implemented. In general terms, this means that defense and non-defense programs will be cut by approximately

2

$1.2 trillion between the time sequestration was enacted and the end of Fiscal Year 2021. While the full impact of these cuts has yet to be determined, AIA and Embry-Riddle Aeronautical University remain committed to ensuring that the U.S. aviation, aerospace, and defense industries remain second to none.

This chapter addresses the role of manufacturing in the economy, the benefits of aerospace and defense manufacturing, the link between manufacturing and innovation, and programs that promote manufac-turing and innovation.

The Return of ManufacturingThe nascent return of manufacturing to the shores of the United States has been promoted by the government, praised by the press and encouraged by industry leaders—but that was not always the case.

In 2009, Pisano and Shih published an article in the Harvard Business Review that raised questions about the decline of America’s industrial base and the ability of U.S. firms to develop and produce high-technol-ogy products in the future.1 Pisano and Shih describe how decades of outsourcing can not only destroy a firm’s ability to develop new prod-ucts, but can also damage its network of suppliers and service provid-ers. This article helped trigger an important dialogue in the United States because manufacturing is the key to innovation and a major contributor to the long-term economic viability of the nation.2

Fortunately, there is evidence which suggests that at least some of the jobs that have been offshored to China, India, Mexico and other coun-tries over the past 20 years may be slowly, but steadily, returning. The findings from a 2012 Boston Consulting Group (BCG) survey indi-cated that more than a third of large U.S. manufacturers plan to reshore some manufacturing work back to the United States over the next several years. Even though only about 50,000 factory jobs have been reshored since 2010,3 the number of jobs returning to the United States is expected to accelerate around 2015. Major factors driving these decisions include changing labor costs, stable energy prices, high prod-uct quality, ease of doing business, intellectual property protection, less supply chain risk, and the transformation of U.S. manufacturing.4

Manufacturing and the EconomyIn late 2011, the Council on Competiveness released a report on the state of manufacturing in the United States.5 This report confirmed that as the economy recovers, manufacturing may be more important than


3THE RETURN OF AMERICAN MANUFACTURING

ever. As stated in the report, manufacturing contributed $1.7 trillion to the U.S. economy in 2010. The recovery of the manufacturing sector is particularly significant because it has a higher multiplier effect than any other sector of the economy. The report claims that “for every $1 in manufacturing value added, $1.4 in additional value is created in other sectors.” The latest figures indicate that manufacturing employs over 11 million people directly and an additional seven million indirectly.6

At an average hourly rate of $29.75, manufacturing jobs tend to pay more than non-manufacturing jobs. When company benefits are added, the number increases to $38.27 per hour (see Figure 1.1).

FIguRE 1.1 Average Hourly Wages and Benefits for Manufacturing Workers

The rebound in manufacturing is also important because, as illustrated in Figure 1.2, manufacturing jobs in the United States have declined over the past 20 years—and the decline accelerated during the 2007–2009 recession.

Fortunately, the decline in jobs reversed itself as the country came out of the recession. By October 2012, the index of manufacturing output had increased to 101—slightly below its pre-recession high of 104.5 in October 2007 (see Figure 1.3). However, the tendency to assume that the economy is in full recovery must be balanced by information from other sources. At the end of 2012, for example, the Institute for Supply Management’s Purchasing Managers’ Index (now referred to as the PMI) was at 50.2 percent, which indicated that the economy was neither expanding nor contacting.7 As stated on the Federal Reserve’s

Wages & Salaries Benefits

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

Non-Manufacturing

$32.84

Hourly Rate

$29.75

$8.52

Manufacturing

$38.27

$5.37

$27.47

Source: U.S. Department of Commerce, The Benefits of Manufacturing Jobs, 2012.

4

website, a PMI reading above 50 percent indicates that the manufactur-ing economy is generally expanding, while a reading below 50 percent indicates that that it is generally declining. This message was reinforced by the National Association of Manufacturers/Industry Week Survey of Manufacturers which reported that manufacturers’ optimism declined to slightly above 50 percent in the fourth quarter of 2012 over concerns about the fiscal cliff, slowing sales, and the impact of sequestration.8

FIguRE 1.2 u.S. Manufacturing Jobs

FIguRE 1.3 u.S. Manufacturing Output Index

50

60

70

80

90

100

110

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Index 2005 = 100

101

Source: Federal Reserve Bank of St. Louis, March 2013.

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Thousands of Persons

11,951

Source: Federal Reserve Bank of St. Louis, March 2013. Note: The shaded vertical bars on many of the figures in this report represent the dates of official U.S. recessions.



Output was able to increase even as jobs were being cut because the productivity of the American worker continued to go up as companies invested in new equipment, new technologies, and process changes.

Figure 1.4 is an index of output per person for the production of durable goods for October 1990 through October 2012.

Index 2005 = 100

40

50

60

70

80

90

100

110

120

130

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

124.2

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000Brazil China India Russia United States Japan

Billions of U.S. Dollars

1990 1993 1996 1999 2002 2005 2008 2011

1,832

1,506

944


Source: United Nations (UN) Statistical Division, National Accounts Database, March 2013. Note: this chart is in constant (2005) U.S. dollars.

FIguRE 1.4 Index of Manufacturing Output per Person, Durable goods

FIguRE 1.5 Manufacturing Output for Selected Countries

6

Even though U.S. manufacturing output has generally increased over the years, China’s manufacturing output increased at a faster rate as depicted in Figure 1.5. In 2011, the United States, Japan, and China continued their upward trend while Russia, India, and Brazil remained relatively flat.

Figure 1.5 shows manufacturing output in U.S. dollars, based on data published by the UN. While these numbers represent the absolute value of manufacturing output, when measured on a per capita basis, China’s manufacturing output per capita is well below Japan, Germany, the United States and other western countries.

When measured by Manufacturing Value-Added (MVA), China actu-ally displaced the United States as the world’s largest manufacturing nation in 2010. China’s MVA totaled $1.92 trillion in 2010 while U.S. manufacturing value-added was $1.86 trillion.9

With respect to Manufacturing Value-Added, Lawrence Summers, past president of Harvard and former Secretary of the Treasury, observed that the key to protecting our lead against Chinese manufacturers is to “create a climate that fosters growth in manufacturing while protecting U.S. innovation and technology.” Summers continued by saying “while emerging economies are important markets for U.S. manufacturers, these exchanges should not become opportunities to misappropriate U.S. companies’ intellectual property.”10 This is certainly true for the design and production of state-of-the-art commercial and military aircraft.

Aerospace ManufacturingWhile compensation for manufacturing workers tends to be higher than that for non-manufacturing workers, the compensation for aero-space production workers is even greater. As stated earlier, the mean hourly wage for manufacturing workers is $29.75 and $38.27 when benefits are added. However, the average, hourly wage for employ-ees working in the production of aircraft is $34.50, and if the same ratio for benefits is used, their total hourly compensation would equal $44.38 as shown in Figure 1.6.

By the end of 2012, the U.S. Bureau of Labor Statistics estimated that over 500,000 people were employed in the production of aerospace parts and components (see Figure 1.7). This is roughly three percent more than were employed at the same time in 2011 and 4.5 percent more than 2010.



FIguRE 1.6 Average Hourly Wages and Benefits for Aerospace Production Workers

FIguRE 1.7 u.S. Aerospace Manufacturing Jobs

In a manner similar to that of the overall manufacturing sector, as the number of aerospace jobs declined over the years, aerospace manufac-turing output continued to increase (see Figure 1.8).

300

400

500

600

700

800

900

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Thousands of Employees

501

Source: U.S. Bureau of Labor Statistics, March 2013.

Wages & Salaries Benefits

$34.50 $29.75

$9.88

$8.52

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

Aircraft Manufacturing All Manufacturing

$44.38

$38.27

Hourly Rate

Source: Aerospace Industries Association, Average Hourly Wage data for aircraft production workers, 2011; and U.S. Department of Commerce, The Benefits of Manufacturing Jobs, 2012.

8

FIguRE 1.8 Aerospace Manufacturing Output

As we discover more about the complex ways manufacturing contributes to society, it is clear that maintaining a core manufactur-ing capability is essential to the health and well-being of the United States. Moreover, given the growing scale and scope of threats facing the United States and its allies, maintaining a healthy aerospace and defense (A&D) industry may be more important than ever. Some of the benefits associated with A&D manufacturing are highlighted in the following section.

Benefits of Aerospace & Defense ManufacturingIn March 2012, the Aerospace Industries Association (AIA) released a study, conducted by Deloitte, which quantified the economic value of the A&D industry in the United States. The study summarized its findings at both the national and state level. At the national level, the findings from the study indicate that in 2010:11

■n The U.S. A&D industry directly employed 1.05 million workers. Of this total, 480,668 were employed in aerospace manufacturing.

■n U.S. A&D workers generated an additional 2.48 million jobs for a total of over 3.5 million jobs—not including federal workers or those employed by the airlines.

Aerospace Manufacturing Output per Hour Index (2002 = 100)

60

70

80

90

100

110

120

1990 1993 1996 1999 2002 2005 2008 2011

113

Source: U.S. Bureau of Labor Statistics, March 2013.



■n U.S. A&D workers earned over $84 billion in wages. Aerospace manufacturing accounted for almost 48 percent of the total or slightly over $40 billion in wages.

■n The average annual wage for U.S. A&D workers was $80,175 and the average annual wage for aerospace manufacturing workers was $83,985—more than twice the national average of $41,410.

■n The average annual revenue generated per employee in the U.S. A&D industry was $308,364.

■n U.S. A&D companies paid over $14 billion in federal, state, and other taxes.

■n U.S. A&D employees paid $23.7 billion in federal, state, and other taxes.

■n U.S. A&D exports totaled $89.6 billion and imports totaled $47.5 billion for a positive trade balance of $42.2 billion.

■n Direct U.S. A&D industry sales accounted for 2.23 percent of the Gross Domestic Product (GDP) of the United States.

At the state level, the study revealed that:

■n California led all states in direct A&D employment with 162,162 employees, followed by Washington and Texas with 93,925 and 87,781 employees respectively.

■n California, Washington and Texas also had the highest A&D payrolls per state at approximately $15.3 billion, $8.4 billion, and $7.2 billion respectively.

■n Kansas had the largest percentage of its economy tied to the industry, with 10.4 percent of its GDP coming from aerospace and defense, followed by Washington and Arizona with 9.63 percent and 5.91 percent respectively.

Figure 1.9 shows that Washington, California, and Connecticut led in aerospace exports in 2012.

10

FIguRE 1.9 Aerospace Exports for Selected States in 2012

In addition to the contributions highlighted above, the Deloitte study recognizes that the A&D industry:12

■n Plays a critical role in national defense.

■n Enables safe and efficient air travel.

■n Increases communication and the dissemination of knowledge.

■n Contributes to increased consumerism and the globalization of supply chains.

■n Is a major source of innovation and technological advancements.

Research and Innovation in the Aerospace IndustryResearch and development (R&D) is one of the principal drivers of innovation, and innovation is the lifeblood of growth.13 Innovation leads to increased competitiveness and increased competitiveness leads to more jobs at higher wages, the launch of new businesses and, in some cases, the creation of entirely new industries.14


2.51

2.58

3.84

5.47

5.63

5.64

5.90

6.99

7.96

37.11

- 10 20 30 40

New York

Arizona

Kentucky

Georgia

Texas

Ohio

Florida

Connecticut

California

Washington

Source: TradeStats Express, International Trade Administration, U.S. Department of Commerce, March 2013.



When most people think about innovation in the aerospace industry, they think about new aircraft, spacecraft, missiles, display systems, software applications, unmanned aerial aircraft systems or similar new capabilities. However, as pointed out in a recent Charles River Associates report, the design and deployment of evolutionary or disruptive products demand the following:15

■n The flexibility to adapt to changing customer needs.

■n The willingness to take risks by undertaking complex projects with uncertain outcomes.

■n The provision of adequate resources through the raising of capital and investing in R&D.

■n The structuring of organizations to promote the development of new technology.

■n The attraction of top talent who bring a fresh perspective and new ideas.

Innovation can also occur in the form of new and pioneering ways to transform the manufacturing process itself. The next section focuses on R&D funding and the steps that are being taken to stimulate manu-facturing and innovation.

Global Research and DevelopmentFigure 1.10 highlights the relative amount spent on R&D for selected countries. The size of the circle represents the Gross Expenditures on Research and Development (GERD). The X and Y axes represent R&D as a percent of GDP and the number of scientists and engi-neers per million people. This figure is similar to that used by Battelle in their annual Global R&D Funding Forecast, and was developed by Battelle specifically for this report.16

For the countries portrayed in Figure 1.10, the United States has the highest levels of gross R&D expenditures and the largest number of scientists and engineers per million people; while Japan is spending the most in terms of R&D, as a percent of GDP. However, a recent report by the Congressional Research Service warns, “U.S. manufac-turers spend far more on research and development than those in any other country, but manufacturers’ R&D spending is rising more rapidly in China, Korea, Mexico, and Taiwan.”17

12

FIguRE 1.10 global R&D and Innovation

Research and Development in the United StatesU.S. manufacturers have a long and distinguished record of developing breakthrough products to support the aviation and aerospace indus-tries. However, such breakthrough products almost always depend on extensive R&D which has historically been sustained by both federal and non-federal R&D dollars and related tax incentives.18 Figure 1.11 is a graph of U.S. R&D funds as a percentage of GDP from 1990 through 2012. As indicated in this figure, the ratio of R&D spending to the U.S. GDP remained relatively stable during this period.

Even though the United States remains a leader in overall R&D, by mid-2012, many industry observers were becoming concerned about the future of U.S. R&D due to anticipated reductions in federal and corporate funding and recent failures to adjust R&D tax credits.19

As indicated in Figure 1.12, total R&D funding began to decline in 2010, driven primarily by a reduction in R&D funding for defense, but is estimated to increase slightly in FY 2013 due to an increase in non-defense R&D spending.

United States

China

Japan

Germany

France

UK

India

Russia

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%

Sci

entis

ts &

Eng

inee

rs/M

illio

n P

eopl

e

R&D as % of GDP

Brazil

Source: Martin Grueber, Research Leader, Battelle, based on information from Battelle, R&D Magazine, the International Monetary Fund, World Bank, CIA World Factbook, and the OECD, 2011.



FIguRE 1.11 u.S. R&D as Percentage of gDP

The percentage changes in defense and non-defense R&D funding over the past five years are illustrated in Figure 1.13. If recent trends continue, the impact on military aerospace R&D could be significant, including the loss of innovation and jobs that accompany such actions.

FIguRE 1.12 Defense and Non-Defense R&D

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70

2.80

2.90

3.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012(E)

Percent

2.85

Source: Battelle 2012 Global R&D Funding Forecast. R&D Magazine, December 2011. E = estimate.

Defense Non-Defense Total

Fiscal Year

84,646 84,456 81,581 77,020 75,895

62,672 62,683 61,133 61,849 64,925

147,318 147,139 142,714 138,869 140,820

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2009 2010 2011 2012(E) 2013(E)

Millions of U.S. Dollars

Source: Office of Science and Technology Policy, R&D Budgets, 2008–2013. E = estimate.

14

Figure 1.14 illustrates domestic R&D expenditures by size of firm in 2009. This figure reveals that, while large firms spent the most on domestic R&D, firms with less than 1,000 people accounted for almost 25 percent of the total.

FIguRE 1.13 Percentage Change in R&D Funding Since 2009

FIguRE 1.14 Domestic R&D Expenditures by Size of Firm

34,769

12,747

11,204

10,119

44,008

169,546

5–99

100–249

250–499

500–999

1000–4999

5000 and Above

Number of Employees


Source: The National Science Foundation, 2012.

DefenseNon-Defense

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Fiscal Year2009 2010 2011 2012(E) 2013(E)

Percent Change

+9.0%

-10.0%

Source: Office of Science and Technology Policy, R&D Budgets, 2008–2013. E = estimate.


15The ReTuRn of AmeRicAn mAnufAcTuRing

Figure 1.15 shows that domestic R&D spending in aerospace was increasing prior to the recession, but began to decline shortly thereafter.

Figure 1.15 Domestic r&D expenditures for Aerospace

Despite anticipated reductions in R&D funding, numerous actions are underway to continue transforming manufacturing in America. A number of these are addressed in the following section.

Programs that Promote manufacturing and innovationA number of programs and new initiatives have been implemented that have the potential to transform aerospace manufacturing in the United States. Some of these programs are highlighted in the follow-ing paragraphs.

Advanced manufacturing PartnershipThe Advanced Manufacturing Partnership (AMP) was initiated in response to the need to create more high-paying jobs by helping U.S. manufacturers reduce costs, improve quality, and accelerate product development.

According to the AMP website:20

The U.S. manufacturing sector now faces enormous challenges, and American leadership and competitiveness in manufacturing are at risk. After ranking as the world’s largest manufacturer for more than a century, the United

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


34,554

Source: U.S. Census Bureau and the National Science Foundation, 2012.

16

States has lost ground to China in terms of share of global manufacturing output. It also has slipped below Germany, South Korea, and Japan in rankings of manufacturing intensity, a critical indicator of future job-creating innovation.

A National Program Office has been established to manage the AMP program. This initiative, along with other actions listed below, is intended to recover and grow America’s share of global manufacturing.

Manufacturing Extension PartnershipThe Manufacturing Extension Partnership (MEP) is a federal and state government service designed to help small and mid-sized U.S. manu-facturers create and retain jobs, save time, and increase profitability. According to MEP’s website, “America needs a robust manufacturing base and MEP is critical to the small and mid-sized U.S. manufactur-ers who strengthen that base.” They also claim that for every dollar of federal investment, the MEP generates around $30 in new sales growth.21

The MEP connects small manufacturers with a national network of approximately 1,400 specialists who help business owners expand operations and improve productivity. The MEP program has centers in every state and this national network provides a number of services, from strategic planning to process improvements, case studies, and best practices. The Manufacturing Extension Partnership also arranges programs to assist manufacturers in developing new customers, expanding into new markets, and creating new products.

National Network for Manufacturing InnovationThe National Network for Manufacturing Innovation is a collabora-tive initiative involving the Departments of Commerce, Defense, and Energy, and the National Science Foundation. When fully imple-mented, the National Network will consist of 15 U.S. Institutes for Manufacturing Innovation with the goal of bringing together industry, universities, community colleges, federal agencies, and regional and state organizations to accelerate innovation by investing in industrially-relevant manufacturing technologies with broad applications.

Materials Genome InitiativeThe Materials Genome Initiative is intended to model the Human Genome program and accelerate our understanding of the use of advanced materials in manufacturing. According to a report published by the National Science and Technology Council, this program will create



the infrastructure that will allow scientists and engineers to create new, advanced materials and address issues of pressing national importance.22

SBIR/STTRThe Small Business Administration (SBA) Technology Program Office administers the Small Business Innovation Research (SBIR) Program and the Small Business Technology Transfer (STTR) Program. These two programs are designed to ensure that small, high-tech, innovative businesses have access to the resources they need to be successful. Examples of some of the services provided include guidelines for financing small manufacturing businesses, venture capital brokerage services, business guides for the aerospace and defense sector, site selection services, assistance with various types of regulations, import and export assistance, links to Manufacturing Extension Partnership programs, and much more.

Select USAThis program was created to promote the United States as a good place to do business; resolve issues related to foreign direct invest-ments (FDI) into the United States; provide information on economic development and incentives; and advise the Administration and appropriate federal agencies on relevant FDI issues and business policy.23

Other ProgramsThere are also a number of smaller but no less important programs that are intended to improve America’s R&D and manufacturing capabili-ties. These include accelerated programs in flexible manufactur-ing, nanotechnologies, ultra-light materials, robotics, additive manufacturing, and other prom-ising research areas. Some of the more innovative manufacturing “game changers” are listed in the box on the right.24

Innovative Manufacturing game Changers

■n Robot technologies including machine vision.

■n Machine communication standards.

■n Embedded sensors for in-process inspection, feedback and health monitoring.

■n Automated creation of more efficient machine tool paths based on in-house capabilities and geometric component features.

■n Reductions in consumables such as coolant and development of longer cutting tool life.

■n Friction stir welding.

■n Advanced composites manufacturing.

■n Additive manufacturing.

■n Integrated computational materials science & engineering.

■n Manufacturing modeling and simulation.

Source: Ed Morris, National Defense Industrial Association (NDIA) Manufacturing Division Chairman, 2012.

18

Summary and ConclusionsManufacturing is vital to innovation, the economy, and national defense. Over the past year, R&D levels have remained relatively constant, manufacturing output has increased, and manufacturing jobs have grown. Nevertheless, the U.S. economy has been impacted by political inaction, mounting debt, and wavering demand for U.S. goods caused by faltering economies and other events in Europe, the Middle East, China, Russia, India and other countries. The following two chap-ters go into more detail about the national and international economy.

Chapter Endnotes

1 Pisano, G.P., & Shih, W. C.(2009. July-August). Restoring American competitiveness. Harvard Business Review, 87(7/8), 114-125.

2 Langdon, D., & Lehrman, R. (2012, May). The benefits of manufacturing jobs. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, p. 1. Retrieved from http://www.esa.doc.gov/news/2012/05/09/new-us-commerce-department-report-manufacturing-jobs-provide-higher-pay-more-benefit

3 Boston Consulting Group. (2012, April 20). More than a third of large manufacturers are considering reshoring from China to the U.S. Retrieved from http://www.bcg.com/

4 Ibid.

5 Council on Competitiveness. (2011, December). Make: An American manufacturing movement. Retrieved from http://www.compete.org/publications/

6 Ibid.,17.

7 Federal Reserve Bank of St. Louis. (2013, March). ISM Manufacturing: PMI Composite Index (NAPM). Retrieved from http://research.stlouisfed.org/fred2/series/NAPM/

8 Moutray, C. (2012, June 29). NAM/IW Q2 Survey: cautious optimism even as U.S., global uncertainties mount. Industry Week. Retrieved from http://www. industryweek.com/artcles/nam/iw_q2_survey_ cautious_ optimism_even_as_u-s-_global_uncertainties_mount_27729.aspx

9 Meckstroth, D. (2012, January 31). Is China the largest manufacturer in the world? The Manufacturers Alliance for Productivity and Innovation (MAPI). Retrieved from http://www.mapi.net/china-largest-manufacturer-world

10 Brookings. (2012, January). Adjusting to China: a challenge to the U.S. manufacturing sector. Policy Brief #179. Retrieved from http://www.brookings.edu/research/papers/2011/01/china-challenge-baily

11 Deloitte. (2012, March). The aerospace and defense Industry in the U.S. A financial and economic impact study. Retrieved from http://www.aia-aerospace.org/assets/deloitte_study_2012.pdf

12 Ibid., 22-29.

13 Brynjolfsson, E., & Schrage, M. (2009, August 17). The new, faster face of innovation. The Wall Street Journal, R3.



14 U.S. Department of Commerce. (2012, January). The competitiveness and innovative capacity of the United States. Retrieved from http://www.commerce.gov/sites/default/files/documents/2012/january/competes_010511_0.pdf

15 Charles River Associates. (2010, February). Innovation in aerospace and defense. Retrieved from http://www.crai.com/uploadedFiles/Publications/innovation-in-aerospace-and-defense.pdf

16 Battelle. (2011, December). 2012 Global R&D Funding Forecast. Retrieved from http://www.battelle.org/aboutus/rd/2012.pdf

17 Levinson, M. (2012, January 5). U.S. Manufacturing in international perspective. (CRS Report No. R42135). Washington DC: Congressional Research Service.

18 Velocci, A. (2009, October 26). The innovation imperative. Aviation Week & Space Technology, 50.

19 The Information Technology & Innovation Foundation, for example, claims that adjusting “the Alternative Simplified Credit from 14 to 20 percent would increase annual GDP growth by $66 billion and create at least 162,000 jobs.” See Stewart, L., Warda, J., & Atkinson, R. (2012, July 1). We’re #27: The United States lags far behind in R&D incentive generosity. The Information Technology & Innovation Foundation. Retrieved from http://www.itif.org/publications/we%E2%80%99re-27-united-states-lags-far-behind-rd-tax-incentive-generosity

20 Advanced Manufacturing National Program Office. (2012). Made in America: The next-generation of innovations. Retrieved from http://manufacturing.gov/advanced_manufacturing.html

21 National Institute of Standards and Technology. About the Manufacturing Extension Partnership. Retrieved from http://www.nist.gov/mep/about.cfm

22 National Science and Technology Council. (2011, June 24). Materials Genome initiative for global competitiveness. Retrieved from http://www.whitehouse.gov/sites/default/files/microsites/ostp/materials_genome_initiative-final.pdf

23 U.S. Department of Commerce. (2013). Select USA: The aerospace Industry in the United States. Retrieved from http://selectusa.commerce.gov/industry-snapshots/aerospace-industry-united-states

24 Morris, E. (2012, October 9). Manufacturing innovation: a national defense imperative. Presented at the Aerospace States Association Fall General Meeting, Ft. Worth, Texas.

21

2

The National Economy

IntroductionThe policies and practices of a nation have a major impact on the performance and financial wellbeing of firms and individuals in that country. Such policies define the framework within which compa-nies must operate and address issues such as taxes, inflation, the availability of credit, interest rates on investments, minimum wages, spending limits on specific programs, and numerous other factors. Understanding those issues that are most relevant to the aviation and aerospace communities can help firms of all sizes make better busi-ness decisions.

This chapter presents a number of economic indicators that collec-tively provide an understanding of context in which the aviation and aerospace industries must operate. These indicators provide insight into the strength and direction of the economy and can help busi-nesses leaders develop better plans and strategies to guide decision-making. Almost all of these indicators are routinely updated and publicly available.

22

Economic OverviewThe United States has the largest, most innovative, and diverse economy in the world. However, because the economy is so diverse, each industry segment has its own specific drivers—and competing in today’s market requires an understanding of these drivers and their impact on corpo-rations. For example, demand for new aircraft in the civil aerospace segment tends to be highly correlated with Gross Domestic Product (GDP).1 GDP, in turn, is an important measure of the state of the economy. Hence, understanding the state of the domestic and global economy is an important first step in understanding the forces that are driving demand for new aerospace systems and services.*

The Recovery ContinuesPolitical and economic uncertainty, combined with events in Europe, the Middle East, Africa and Asia have diminished the pace of recov-ery in the United States. Despite numerous efforts to stimulate the economy, it is now clear that the United States is experiencing its longest economic recovery since World War II. In June 2012, the Federal Reserve lowered its estimates for GDP growth, and increased its estimates for unemployment for the balance of the year.2 However, by the end of the year, an increasing number of signs indicated that the economy was slowly, but steadily, beginning to recover. Many of the signs are described below.

Money MultiplierThe M1 Money Multiplier is an important measure of the nation’s money supply. M1 measures the number of times the basic money supply circulates in the economy.** The multiplier is inversely related to the Federal Reserve requirements, so as reserve requirements increase, the money multiplier decreases. Furthermore, a multiplier above 1.0 indicates that the money supply is expanding, while a figure below 1.0 indicates the supply is contracting. Liquidity of capital is vital to a healthy economy and the supply of money affects interest rates, investments, stock prices, and inflation. Prior to 2008, M1 varied between a low of 1.5 and a high of 3.0, but as the recession deepened in 2008, the Federal Reserve increased its reserve requirements. As reserve requirements rose, the multiplier dropped, and by the end of 2012, M1 was hovering around .90 (see Figure 2.1).

* Each segment of the aerospace industry has its own set of drivers. For example, new orders for general aviation aircraft, large commercial aircraft, remotely piloted vehicles, and military systems are determined by their own set of drivers and influencing factors.

** M1 includes currency and demand deposits at commercial banks. Source: Minneapolis Federal Reserve Glossary, August 2012.


23THE NATIONAL ECONOMy

Reserve BalancesAs reserve requirements increased and the banks deposited funds into the Federal Reserve System, balances rose quickly and have remained high to this day. These actions impacted the entire aerospace supply chain—from the lack of loans for small to medium-sized aerospace manufacturers,3 to the lack of capital for leasing or purchasing large civil aircraft.4 In 2011, balances began to decrease, but at the end of 2012, obtaining credit was still difficult and reserve balances were in excess of $1.5 trillion (see Figure 2.2).

FIguRE 2.2 Reserve Balances with Federal Reserve Banks

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Ratio

.90


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

1,570



FIguRE 2.1 M1 Money Multiplier

24

Velocity of MoneyAnother important indicator is the Velocity of the M2 Money Stock (M2V). This indicator measures the rate at which the M2 money supply turns over in the economy.* During the years preceding the recession, M2V remained above 1.8, but dropped during the reces-sion. By the end of 2012, M2V had declined to 1.5—the lowest since records started being kept in 1959—indicating a loss of confidence in the economy and a lack of consumer demand as companies and individuals reduced spending and investments. Even though M2V is only one indicator of the state of the economy, the downward trend is troubling and consistent with other signs that indicate that the recov-ery may be delayed (see Figure 2.3).

FIguRE 2.3 Velocity of the M2 Money Stock

Interest RatesAnother key indicator of the state of the economy is the 10-Year Treasury Constant Maturity Rate. This is a risk-free rate and most bonds and money market instruments are priced at a spread over this rate. This rate is a good gauge of what aerospace manufacturers can expect to pay for investments and other expenditures. Under normal circumstances, one would expect that the rates reflected in Figure 2.4 would stimulate the economy and create new jobs, but this may be one more indication that further monetary stimuli may not be useful.

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Ratio

1.5


* M2 is a broader measure of the money supply that incorporates M1, but also includes assets such as commercial bank savings deposits, deposits at credit unions and non-institutional money market funds, among other components. Source: Minneapolis Federal Reserve Glossary, August 2012.



FIguRE 2.4 u.S. 10-Year Treasury Constant Maturity Rate

Producer PricesThe Producer Price Index (PPI) is a widely used family of indexes that measures the average change in selling prices over time.* The PPI measures the selling prices producers charge for goods and services in the wholesale market. It is a measure of the cost of inputs into the production process. Because higher costs of production tend to be passed on to consumers, a rising PPI can be an early indicator of a growing economy and potential inflation. Conversely, a falling PPI can signal an economic slowdown. The Producer Price Index can provide insight into what is driving higher prices in the aerospace industry. The price of metals and fuel, for example, can be significant cost drivers, and the PPI can be helpful in estimating the cost of manufacturing or operating aircraft. When the PPI peaked and then dropped in 2008, the recession was evident. In a similar, but opposite manner, the back-to-back increases in producer prices in 2011 and 2012, suggest that the economy may be recovering (see Figure 2.5).

Industrial ProductionThe Industrial Production Index (IPI) measures the real output of the manufacturing industry. The IPI is one of the economic indicators

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Percent

1.8


* The Bureau of Labor Statistics defines the Producer Price Index as a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPI measures price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser’s perspective. The prices of sellers and producers may differ due to government subsidies, sales and excise taxes, and distribution costs. Source: U.S. Bureau of Labor Statistics, August 2012.

26

that reacts fairly quickly to changes in the business cycle. It measures changes in the volume of goods produced, not prices. Because manu-facturing is sensitive to cyclical economic activity, it is a good indicator of business conditions. As can be seen in Figure 2.6, the index declined abruptly during the last recession. Manufacturing industrial production has now rebounded with the index for aerospace and miscellaneous equipment exceeding the manufacturing average. This tends to indicate the demand for aerospace and miscellaneous equipment is increasing somewhat faster than the demand manufactured goods overall.

Capacity UtilizationCapacity utilization is another widely used measure that tends to respond quickly to changes in the economy. This makes it a particu-larly good leading indicator of a recession. Levels around 80 percent are generally considered normal. Figure 2.7 shows that after recovering from a low of 64.2 percent in June 2009, overall manufacturing capac-ity utilization increased to 77 percent by December 2012. During the same period, aerospace and miscellaneous transportation manufactur-ing utilization increased to an “almost normal” level of 77.6 percent.

Increasing utilization usually means that unit costs are declining, and that the firm is working more efficiently and becoming more competi-tive. The opposite is true when utilization is declining. Given the steep drop in utilization that occurred during the last recession, there may not yet be enough capacity to meet demand as economies around

0

50

100

150

200

250

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Total Manufacturing

Aerospace Products and Parts Manufacturing

Index 1985 = 100

193.1

215.7

Source: U.S. Department of Labor: Bureau of Labor Statistics, March 2013.

FIguRE 2.5 Producer Price Index



the globe continue to recover. In Chapter 11 of this report, forecasts from various public and privates sources are presented. Based on these forecasts, demand is expected to rise, and as demand rises, insufficient capacity could become a constraint.

Index 2007 = 100

0

20

40

60

80

100

120

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

All Manufacturing

96.6

107.7

Aerospace and Misc Trasportation Equipment

Source: Board of Governors of the Federal Reserve System, March 2013.

Percent Utilization

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Aero 77.6

All 77.0

All Maufacturing

Aerospace and Misc Transportation Equipment


FIguRE 2.6 Industrial Production in Manufacturing

FIguRE 2.7 u.S. Manufacturing Capacity utilization

28

Manufacturing Output per WorkerProductivity growth is one of the single most important indicators of the long-term health of the economy. It is a key indicator of future prosperity. Today, the output per work hour for the average U.S. worker is more than twice what it was two decades ago. As depicted in Figure 2.8, productivity started to rebound in October 2008 and has continued to increase ever since.

One unique aspect of the current economic situation is that even though employment is down, productivity has continued to increase, due in large part, to investments in technology and process innova-tion. It should also be noted that the recently formed Advanced Manufacturing Partnership (AMP) is exploring how new materials and advanced manufacturing techniques may be able to reduce the time required to design, build, and test new products, including complex systems for the U.S. Department of Defense.5

FIguRE 2.8 Manufacturing Output per Worker

Unemployment RateFollowing the end of the “official” recession, unemployment rose dramat-ically and reached a high of 10.1 percent in October 2009. Since then, the number of unemployed workers has decreased and by the end of 2012, unemployment was down to 7.8 percent (see Figure 2.9).

50

60

70

80

90

100

110

120

Index 2005 = 100

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

116.7

Source: U.S. Department of Labor: Bureau of Labor Statistics. March 2013.



Ironically, while the unemployment rate remains high across the United States, in most states there is a severe shortage of workers who are qualified to work in aerospace. This shortage has been well docu-mented, but a recent article in The Wall Street Journal illustrates the scope of the problem. In the fall of 2011, AAR, an aviation Maintenance, Repair and Overhaul (MRO) service provider and parts fabricator in Chicago, had to pass up new work and delay existing work due to the company’s inability to fill 600 maintenance and manufacturing jobs.6

FIguRE 2.9 unemployment Rate

Civilians Unemployed 15 Weeks or MoreLike the overall unemployment rate, the number of people unem-ployed 15 weeks or more peaked just after the end of the official recession. By the end of December 2012, the number of people unemployed for 15 weeks or more was approximately 6,661,000— a 27 percent reduction from its peak in April 2010 (see Figure 2.10).

Initial ClaimsDuring any downturn, the number of people who file initial claims for unemployment benefits is followed closely. Since the weekly number is somewhat volatile, in practice, the four-week moving average is often used to follow trends in this important metric. At the height of the recession, the average number of initial claims rose to 659,250, but by the end of 2012, the four-week moving average had declined to 364,500 claims (see Figure 2.11).

0

2.0

4.0

6.0

8.0

10.0

12.0

Percent

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

7.8


30

FIguRE 2.11 Four-Week Moving Average of Initial Claims

Number of Manufacturing EmployeesAs shown in Figure 2.12, the United States experienced a steady loss of manufacturing jobs over the past decade. That loss acceler-ated during the recent recession. Since the recession ended, however, manufacturing employment has been steadily increasing. At the begin-ning of December 2012, the number of manufacturing employees totaled 11,951,000. Fortunately, as stated in Chapter One, there is

0

100

200

300

400

500

600

700

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Average Number of Claims in Thousands

364.5


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


6,661


FIguRE 2.10 Civilians unemployed 15 Weeks or More



evidence which suggests that at least some of the manufacturing jobs that have been offshored over the years, will soon be returning.

However, this figure does not address the growing shortage of qualified, aerospace manufacturing workers, which is a topic that is discussed in some detail in Chapter Eight.

FIguRE 2.12 Number of Manufacturing Employees

Corporate ProfitsCorporate profits after taxes dropped dramatically during the last recession. Fortunately, the rebound has been equally robust. Alen Mattich wrote in The Wall Street Journal that “the boom in corporate profitability since the financial crisis, particularly in the United States, has been astonishing.” Mattich attributes the dramatic rise in profit-ability to a combination of intense cost cutting along with massive government spending. As demand returned to the economy, he notes that a lot of the revenue “flowed straight into the bottom line.”7 By the end of 2012, profits totalled approximately $1.77 trillion (see Figure 2.13).

Key figures on the profitability of the aerospace industry, and other financial data, are included in Chapter Nine as well as the Appendices.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


11,951


32

FIguRE 2.13 Corporate Profits After Tax

Employment CostsWhile producer prices, industrial production, capacity utilization, productivity, and even profitability declined during the recession, wages and salaries of all workers continued to rise. Employment costs have risen because the U.S. manufacturing industry is dependent on highly-skilled workers, and many of these workers are in short supply, especially in aerospace. Based on an index of wages and salaries, aircraft manufacturing workers are at 120.6 on the index, which is significantly higher than the industry average (see Figure 2.14).

Fixed InvestmentsAs mentioned in last year’s report, one of the key drivers of long-term economic growth is private, non-residential fixed investment (PNFI). As a general rule, reinvesting resources back into a company will increase efficiency, drive revenues, and increase profits. U.S. PNFI peaked during the second quarter of 2008 at more than $1.70 trillion, but subsequently dropped because of the recession. Firms have, once again, started to invest in their physical infrastructures and PNFI is now approaching pre-recession levels. By the end of 2012, PNFI had increased to almost $1.67 trillion (see Figure 2.15). Over time, these investments should lead to improved operating efficiencies, increased profits, and, perhaps, more jobs in the aerospace sector.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


1,774

Source: U.S. Department of Commerce: Bureau of Economic Analysis, March 2013.



National DebtOne of the major concerns of the U.S. Government, its citizens, and the rest of the world is the growing size of America’s national debt. As indicated in Figure 2.16, at the end of FY 2012 the total public debt stood at $16,432,729,000,000.

All ManufacturingAircraft Manufacturing

90

95

100

105

110

115

120

125

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Index December 2005 = 100

120.6

115.1


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

1,666



FIguRE 2.15 Private Nonresidential Fixed Investment

FIguRE 2.14 Employment Cost Index, Wages, and Salaries for Private Industry Manufacturing Worker

34

FIguRE 2.16 Federal government Debt

Under normal circumstances, the federal debt would not, by itself, have a direct impact on aviation or the aerospace manufacturing industry. However, the inability of Congress and the White House to reach an agreement on how to deal with the debt and deficit reduction is now threatening agency budgets and putting a substantial portion of the U.S. aerospace industry and the country’s national security at risk.

Gross Domestic ProductThe most comprehensive measure of the condition of the U.S. economy is the Gross Domestic Product. At the end of 2012, the U.S. Department of Commerce’s Bureau of Economic Analysis reported that the Gross Domestic Product was slightly over $16 trillion (see Figure 2.17). Furthermore, the percentage change in quarterly GDP growth has been positive since 2010 (see Figure 2.18). Since commer-cial aerospace sales tend to be correlated with the Gross Domestic Product, its role as an indicator of future demand is important.


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

16,433

Source: U.S. Department of the Treasury, March 2013.




0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1990 1993 1996 1999 2003 2006 2009 2012

16,010

Percent Change

2.3 2.2

2.6 2.4

0.1

2.5

1.3

4.1

2.0

1.5

3.1

0.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012



FIguRE 2.18 Percentage Change in gDP from Previous Quarter

FIguRE 2.17 gross Domestic Product

36

Summary and ConclusionsAlthough the economic indicators presented in this chapter are mixed, in general, they paint a picture of an economy that is slowly, but steadily, recovering. By late 2012, manufacturing productivity was up, fixed investments were on the rise, and industrial production and capacity utilization were increasing. At the same time, however, the M1 Money Multiplier was below 1.0, reserve balances were still high, unemployment was still elevated, and the nation’s debt surpassed its Gross Domestic Product.

Fortunately, there is a substantial backlog for large commercial aircraft and orders for new aircraft have returned to pre-recession levels. Although the domestic business jet and general aviation markets are still weak, there are encouraging signs of growth internationally. Sequestration, however, is expected to dampen demand for commer-cial air travel and have a negative impact on organizations such as the Federal Aviation Administration, the Transportation Security Administration, the National Oceanic and Atmospheric Administration, and the National Aeronautics and Space Administration.

In addition, sequestration is expected to have a negative impact on military aerospace budgets through 2021. These cuts are making some defense contractors look for ways to increase the production and sales of non-defense products, while expanding exports of their military goods and services through the U.S. Foreign Military Sales (FMS) program. As a result, the health of both commercial and mili-tary aerospace manufacturing in the United States will be somewhat determined by the health of the international economy—which is the subject of the next chapter.

Chapter Endnotes

1 Chadwick, W. A., Ellis, B. W. C., Mansfield, R. E., & Materna, R. [Equal Contributors] (2011). Aerospace industry report 2011: Facts, figures & outlook for the aviation and aerospace manufacturing industry. Washington, D.C.: Aerospace Industries Association and the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University–Worldwide.

2 Federal Reserve Bank. (2012, June). Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2012. Retrieved from http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120620.pdf

3 Haynes, G. W., & Williams, V. (2011). Lending by Depository Lenders to Small Businesses, 2003 to 2010. Washington DC: U.S. Small



Business Administration Retrieved from http://www.sba.gov/content/lending-depository-lenders-small-businesses-2003-2010.

4 ILFC’s $11.6bn aircraft order. (2011, March). Airfinance Journal. Retrieved from http://www.airfinancejournal.com/Article/2784894/UPDATE-ILFCs-116bn-aircraftorder. html?LS=EMS500174

5 The White House, Office of the Press Secretary. (2011, June 24). President Obama launches advanced manufacturing partnership. Retrieved from http://www.whitehouse.gov/the-press-office/2011/06/24/president-obama-launches-advanced-manufacturing-partnership

6 Casselman, B. (2011, November 26). Help wanted: In unexpected twist, some skilled jobs go begging. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970203707504577010080035955166.html

7 Mattich, A. (2012, April 2). Mind that corporate margin gap. The Wall Street Journal. Retrieved from http://blogs.wsj.com/source/2012/04/02/mind-that-corporate-margin-gap/?KEYWORDS=rising+corporate +profits+tab/print/

39

The International Economy

IntroductionEconomic conditions in Europe, the decline in demand for manufac-tured goods in China, and the current state of the U.S. market vividly demonstrate the interdependencies of today’s global economy. These interdependencies extend well into the aerospace industry. As a result, what happens in Europe or Asia affects aerospace manufacturing in the United States, and vice versa. By the end of 2012, it was clear that conditions in Greece, Spain, Italy, and Portugal were not only rais-ing questions about the role of the European Central Bank and the strength of the Euro, but were also having an impact on markets in the U.K., the United States, China, India, South Africa, Brazil, and other countries.1

The State of the World EconomyAs a result of the interconnected business, travel, and trade relation-ships that exist between countries, international markets tend to move “in sync.” In the fall of 2012, many signs were pointing to a global economic slowdown.2 These concerns were reflected in the downward

3

40

adjustment of GDP forecasts by the International Monetary Fund, the World Bank, and other organizations.

GDP Growth ForecastsThe World Bank projects that global GDP will grow at approximately three percent in 2013.3 Actual and projected GDP growth rates for selected countries are shown in Table 3.1 and Figure 3.1.4 Figure 3.1. in particular, reveals the impact of the recession on the Gross Domestic Product of the countries listed. It is also interesting to note that China was the least affected.

TABlE 3.1 Actual and Projected gDP growth Rates 2008–2015

FIguRE 3.1 Actual and Projected gDP growth Rates 2008–2015

-10.0

-5.0

0.0

5.0

10.0

15.0

2008 2009 2010 2011 2012 2013 2014 2015

Percent

Brazil China India Russia United StatesGermany

Source: International Monetary Fund, World Economic Outlook Database, March 2013.

Actual Projected

2008 2009 2010 2011 2012 2013 2014 2015

Brazil 5.17 -0.33 7.53 2.73 0.87 3.02 4.04 4.13

China 9.64 9.21 10.45 9.30 7.80 8.04 8.24 8.51

France -0.08 -3.15 1.66 1.69 0.03 -0.07 0.88 1.46

Germany 0.80 -5.07 4.02 3.10 0.87 0.61 1.46 1.32

India 6.19 5.04 11.23 7.75 3.99 5.68 6.23 6.63

Russia 5.25 -7.80 4.50 4.30 3.40 3.37 3.78 3.70

United Kingdom -0.97 -3.97 1.80 0.92 0.17 0.69 1.54 1.84

United States -0.34 -3.07 2.39 1.81 2.21 1.85 2.95 3.56

Source: International Monetary Fund, World Economic Outlook Database, March 2013.


41THE INTERNATIONAL ECONOMy

If these projections are correct, it is easy to see why firms are inter-ested in establishing a presence in countries with high GDP growth rates like India and China.

It is also well known that commercial aircraft demand tends to be correlated with GDP growth rates, and the major aircraft manufactur-ers use these rates in developing their long-range plans.

OECD Leading IndicatorsA number of years ago, the Organisation for Economic Cooperation and Development (OECD) developed Composite Leading Indicators (CLIs) to predict the economic performance of countries around the world. Figure 3.2 displays CLI data for the United States, Europe and Japan from April 2011 through December 2012, while Figure 3.3 includes data for Brazil, Russia, India and China (the BRIC countries).

These figures are conceptually similar to business cycles, but CLIs are designed to detect turning points in economic activity six to nine months into the future. A CLI of 100 equals the long-term industrial production level for any given country. Hence, a CLI of 105 suggests that industrial production is projected to be five percent above that country’s long-term production level, implying a positive output gap six to nine months into the future. Similarly, a value of 98 indicates that production is forecast to be two percent lower than the country’s long-term potential six to nine months into the future.5

Given this, the data in Figures 3.2 and 3.3 tell different, but interesting, stories. In October 2011, the U.S. CLI was just starting to rise, indicat-ing a positive change in economic activity in the spring of 2012. By the end of Q1, industrial production in the United States had, indeed, increased by over five percent from the beginning of the year, validat-ing the accuracy of the CLI forecast. Alternatively, between March and April of 2012, the index started a sharp downward trend indicating a decline in activity by late summer. The decline actually started several months before the CLI predicted, so the index was directionally correct, but the timing was somewhat off.6 A closer look at the U.S. data shows that as of October 2012, the production gap was posi-tive and increasing. In Europe, on the other hand, the production gap was negative in October 2012, indicating that production levels were predicted to be below the region’s long-term potential in the spring of 2013. Similarly, at the end of 2012, the CLIs for Brazil and the Russian Federation were just slightly below their long-term potential, while the indicators for China and India were somewhat lower and decreasing. For India in particular, this means that economic activity is expected to

42

be almost three percent below its long-term potential by the summer or fall of 2013. Overall, it is interesting to note that during the last half of 2012, the CLIs for the United States, Japan and the Euro Area were trending up, while the CLIs for Brazil, India, China and the Russian Federation were generally flat or trending down.

FIguRE 3.2 ClIs for the u.S., Europe and Japan

FIguRE 3.3 ClIs for Brazil, Russia, India, and China

United States Euro-AreaJapan

98.0

98.5

99.0

99.5

100.0

100.5

101.0

101.5

102.0

Apr2011

Jun2011

Aug2011

Oct2011

Dec2011

Feb2012

Apr2012

Jun2012

Aug2012

Oct2012

Dec2012

100.9

100.6

99.7

Index Long-Term Trend = 100

Source: OECD Composite Leading Indicators, March 2013.

Brazil China India Russian Federation

94.0

95.0

96.0

97.0

98.0

99.0

100.0

101.0

102.0

103.0

104.0

Apr2011

Jun2011

Aug2011

Oct2011

Dec2011

Feb2012

Apr2012

Jun2012

Aug2012

Oct2012

Dec2012

Index Long-Term Trend = 100

Russian Federation 99.4 Brazil 99.4

China 99.1

India 97.3

Source: OECD Composite Leading Indicators, March 2013.


43The InTernaTIonal economy

Interest ratesLong-term interest rates affect how much manufacturers have to pay to obtain financing for the development of new products, including aircraft, and the equipment to produce them. They also affect how much customers must potentially pay to finance the purchase or lease of new aircraft. Hence, the rate and availability of financing have an important impact on the global aerospace industry. Differences in long-term rates between the Russian Federation, the United States, the Euro-area and Japan are highlighted in Figure 3.4. This figure vividly illustrates how the European Central Bank has been lowering inter-est rates to stimulate the European market, much like the U.S. Federal Reserve has done over the past several years.

Figure 3.4 Long-Term interest rates for Selected Countries

exchange ratesThe graph in Figure 3.5 represents the U.S. dollar amount per unit of the Chinese Yuan, the Brazilian Real, the Indian Rupee and the Euro for 2012. Exchange rate changes can have a major impact on the profitability of aerospace manufacturers and their suppliers. A recent report produced by the U.S. International Trade Commission states the following:7

Japan United States Euro-Area (17 countries) Russian Federation

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Feb2011

Apr2011

Jun2011

Aug2011

Oct2011

Dec2011

Feb2012

Apr2012

Jun2012

Aug-2012

Oct2012

Dec2012

Percent

.78

2.10

1.72

8.1

Source: OECD.StatExtracts, March 2013.

44

Currency movements represent an important risk factor for international aerospace companies. This is because the companies are likely to have a significant mismatch between the currency mix of their revenues and the currency mix of their costs. If revenues and costs arise in different currencies (for example, if revenues are denominated in U.S. dollars, while costs are incurred in a combination of currencies corresponding to the location of manufacturing facilities around the world), a company’s operating profit … may be affected negatively or positively merely by a movement in exchange rates. As previously discussed, virtually all aerospace revenues are denominated in U.S. dollars, even for sales to customers in non-U.S. dollar markets.

This explains, in part, Airbus’s decision to build a new plant in Mobile, Alabama, and Embraer’s decision to locate in Melbourne, Florida.

FIguRE 3.5 u.S. Dollar Amount per unit of Foreign Currency

Emerging MarketsIn 2010, the OECD projected that over the next 20 years, emerging economies would surpass the output of advanced economies and that within the next generation, 50 percent of the top 10 economies would be in emerging markets.8

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Yuan Real Rupee Euro

Yuan, Real, and Rupee Euro

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Jan2012

Feb2012

Mar2012

Apr2012

May2012

Jun2012

Jul2012

Aug2012

Sep2012

Oct2012

Nov2012

Dec2012

1.32

.488

.160

.018




Today, most experts believe that these claims will still come to pass, but after the worldwide downturn in mid-2012, some are a little less enthusiastic. Both the World Bank and the International Monetary Fund (IMF) expect economic activity to increase in 2013 and then ease in 2014 as some of the developing countries, including India and China, approach the limits of their productive capacity.9 Projected differences in GDP growth rates and Current Account Balances

Internationalization of the u.S. Aerospace & Defense IndustryThe U.S. aerospace and defense (A&D) industry has been going through various forms of “internationalization” for decades. In most companies, the process begins when orders are received from a single foreign customer. Over time, growing foreign sales lead to the establishment of an export department, international division, or more complex structure that balances the need for product knowledge with a regional or global presence. In aerospace manufacturing, in particular, most new products involve some form of coproduction, cooperative logistics support, or industrial offset requirement.

In some cases, international agreements can be as simple as a management contract, or involve licensing, joint ventures, or the establishment of subsidiaries in one or more countries depending on the size of the opportunity and level of risk. The figure below highlights the level of domestic versus international sales for a number of major U.S. A&D companies.

Source: 2012 Annual Reports.

Domestic Sales International Sales

90%

83%

79%

74%

48%

46%

40%

10%

17%

21%

26%

52%

54%

60%

0% 20% 40% 60% 80% 100%

Northrop Grumman

Lockheed Martin

General Dynamics

Raytheon

General Electric

Boeing

United Technologies

46

between the advanced economies and developing and emerging coun-tries are shown in Figures 3.6 and 3.7.

FIguRE 3.6 Projected Average growth Rates in gDP

FIguRE 3.7 Projected Average Current Account Balances

The Current Account Balance refers to the “record of all transactions in the balance of payments covering the exports and imports of goods and services, payments of income, and current transfers between resi-dents of a country and nonresidents.”10 A negative Current Account Balance, or deficit, means that the country is importing more goods

-300

-200

-100

100

0

200

300

400

Advanced Economies Emerging Market and Developing Economies


2013 2014 2015 2016 2017 2018

-

249

163

0

1.0

2.0

3.0

4.0

5.0

6.0

7.0Percent

Advanced Economies Emerging Market and Developing Economies

2013 2014 2015 2016 2017 2018

6.15

2.45

Source: IMF World Economic Outlook Database, March 2013.

Source: IMF World Economic Outlook Database, March 2013.



and services than it is exporting. In broad terms, the message from Figure 3.7 is that advanced economies are importing more than they are exporting and the emerging and developing countries are export-ing more than they are importing.

This imbalance in trade is a major source of tension between the United States and China, which reinforces the importance of aero-space since it is one of the few industry sectors where America has a positive trade balance. This topic is addressed more in Chapter Six, The Global Aerospace Marketplace.

Dependency RatiosAround the world, economies with large working age populations and few dependents offer the greatest opportunity for demand creation, including air travel.11 These countries are often described in terms of low “dependency ratios.” Dependency ratios are calculated by dividing the number of children (0–14 years old) and older persons (65 years or over) by the working-age population (15–64 years old), and express-ing the result in terms of hundreds of people.12

As indicated in Figure 3.8, relative to advanced economies, depen-dency ratios are lower and more favorable in developing or emerging market countries.

FIguRE 3.8 Dependency Ratios for Selected Countries

37.82

38.95

41.34

46.95

47.45

47.83

50.07

51.87

54.34

57.90

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00

China

Russian Federation

Vietnam

Serbia

Brazil

Indonesia

United States

United Kingdom

India

Japan

Dependency Ratio

Source: The World Bank Data Indicators, August 2012.

48

In the case of China, however, it should be noted that as a result of the government’s fertility policies, their workforce is expected to decline substantially over the next 30–40 years as a percentage of its population. As reported by the Economist, this shift will have significant social and financial consequences and could “spell the end of China as the world’s factory.”13

International Manufacturing CompetitivenessIn early 2013, The U.S. Council on Competitiveness and Deloitte Touche Tohmatsu Limited released their 2013 Global Manufacturing Competitiveness Index. The report is based on data collected from over 550 CEOs and senior manufacturing executives from around the world in 2012.14

The results confirm what many have been reporting for years—that manufacturing in a number of emerging economies is becoming more competitive, while the manufacturing competitiveness of many devel-oped countries appears to be waning. According to the report, China is expected to continue to dominate manufacturing over the next five years, and Brazil and India are expected to surpass the United States in terms of manufacturing competitiveness during the same period (see Figure 3.9).

According to the report, the main drivers of international manufactur-ing competitiveness, in order of importance, include the following:15

1. A culture that supports talent-driven innovation—which depends on the availability of high quality scientists, engineers and skilled labor.

2. Strong economic and trade networks with sound financial systems and clear tax policies.

3. Affordable and available labor and raw materials.

4. A robust supplier network.

5. Stable and clear legal and regulatory policies.

6. High quality, efficient physical and electronic infrastructure.

7. Competitive energy costs with plans and resources for ongoing energy investments.

8. Access to sizeable local markets with spending power.



9. High quality affordable healthcare and responsible environmental policies.

10. Government investments in research and development (R&D); science, technology, engineering, and mathematics (STEM) education; as well as public and private collaboration on programs that stimulate manufacturing and innovation.

Not surprisingly, these are the same types of characteristics required to grow and nurture successful aerospace manufacturing clusters—a topic that is addressed later in this report.

FIguRE 3.9 global Manufacturing Competitiveness Rankings

6.21

5.94

6.17

6.60

5.75

5.73

6.64

7.24

7.57

7.59

7.84

7.98

7.13

7.65

10.00

6.24

6.31

6.38

6.46

6.49

6.50

6.64

6.99

7.18

7.63

7.69

7.82

7.89

8.49

10.00

5.00 6.00 7.00 8.00 9.00 10.00

Thailand

Malaysia

Mexico

Japan

Indonesia

Vietnam

Singapore

Canada

Taiwan

South Korea

United States

Germany

Brazil

India

China

Index Score 1 = Low, 10 = High

Five Years from Now

Now

Source: Deloitte & The U.S. Council on Competitiveness. 2013 Global Manufacturing Competitiveness Index, 2013.

50

Although the overall message is not necessarily a surprise, it represents a change in the status quo for many developed and developing econo-mies. As stated in the report:16

Through a regional lens, five years from now the Americas continue to show significant manufacturing strength with the U.S., Brazil, Canada and Mexico all in the top 15 most competitive nations. But the continued shift to Asia is unquestionable with 10 of the top 15 most competitive nations in five years. And the message for European nations is sobering: Only Germany among the European nations remains in the top 15 most competitive nations five years from now.

Summary and ConclusionsThe 2007-2009 recession was the most severe and globally synchro-nized recession since the end of WWII.17 According to the IMF, the most distinguishing feature of the recession was its uneven nature. Today, the length of the recovery and the number of jobs that remained unfilled almost four years after the official end of the reces-sion, have left many wondering when the full recovery will occur.

These conditions have created an environment that has had a predict-able impact on manufacturers around the world, including aerospace manufacturers in the United States and their global networks of suppliers. More detail on the state of aerospace manufacturing in the United States is presented in the following chapter.

Chapter Endnotes

1 Hilsenrath, J., & Mitchell, J. (2012, May 25). New signs of global slowdown. The Wall Street Journal, pp. A1, A6.

2 Ibid.

3 The World Bank. (2012, June). Global Economic Prospects. Retrieved from http://web.worldbank.org/

4 International Monetary Fund. (2013, March). World Economic Outlook Database. Retrieved from http://www.imf.org/external/ns/cs.aspx?id=28

5 Fortunately, the OECD offers ample documentation on how to use and interpret CLI data. However it should be noted that in March 2012, the OECD switched from using an index of industrial production to GDP as its reference series for predicting economic activity. OECD System of Composite Leading Indicators. (2013, March). Retrieved from http://www.oecd.org/



6 As stated in the previous endnote, the OECD changed from using an index of industrial production to GDP as its reference series during this time frame. This might explain why the timing of this prediction was off.

7 Andersen, P., McNay, D., & Peterson, J. (2012, April). Business jet aircraft industry: structure and factors affecting competitiveness. (Publication 4314). Washington, DC: U.S. International Trade Commission, pp. 6-27.

8 Organisation for Economic Cooperation and Development. (2010). OECD Factbook 2010: Economic, Environmental and Social Statistics. Retrieved from http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en?fmt=en

9 International Monetary Fund. (2012, April). World Economic Outlook Database. Retrieved from http://www.imf.org/external/ns/cs.aspx?id=28

10 Ibid.

11 Birdsall, N. A., & Sinding, S. (Ed.). (2001). Population matters: demographic change, economic growth, and poverty in the developing world. New York: Oxford University Press.

12 For more information on dependency ratios see http://www.un.org/esa/sustdev/natlinfo/indicators/methodology_sheets/demographics/dependency_ratio.pdf

13 China’s Achilles heel: A comparison with America reveals a deep flaw in China’s model of growth. (2012. April 21). The Economist. Retrieved from http://www.economist.com/node/21553056

14 Deloitte & The U.S. Council on Competitiveness. (2013). 2013 Global manufacturing competitiveness index. Retrieved from http://www.deloitte.com/view/en_US/us/Industries/Process-Industrial-Products/manufacturing-competitiveness/mfg-competitiveness-index/index.htm

15 Ibid., pp. 7-26.

16 Ibid., p. ii.

17 International Monetary Fund. (2012, April). World Economic Outlook, Washington, D.C.: International Monetary Fund Publication Services, p. 38.

53

Aerospace Manufacturing in the United States

IntroductionThis chapter focuses primarily on aerospace manufacturing in the United States. The discussion begins with a review of trends in aerospace sales by product and customer. Following this review, the emphasis then shifts to more detail about civil and military aircraft manufacturing, general aviation manufacturing, engine manufactur-ing, trends in space, and a significant change in focus for U.S. missile development and production programs.

Aerospace Sales, Orders, and BacklogThe U.S. aerospace industry has demonstrated remarkable resilience since the end of the recession. In 2012, aerospace sales totaled $217.9 billion—a new record for the industry and a 3.4 percent increase over 2011. This increase was largely due to a significant jump in civil aircraft sales and the rollout of a number of new products and services (see Figure 4.1).

4

54

FIguRE 4.1 Aerospace Industry Sales by Product group

While the overall results were positive—a considerable achievement given the continuing economic challenges in both the national and international markets—sales were uneven across the various aero-space sectors. Civil aircraft sales were strong, while military aircraft and missile sales declined slightly. The push to cut defense spending, as part of the overall strategy to reduce the national budget, affected both domestic and international sales of military aerospace products. However, strong gains within the civil sector more than compensated for the decrease in military aircraft and missile sales.

Figure 4.2 presents the same annual sales data shown in Figure 4.1, but with the yearly totals broken out by customer. In 2012, sales of civil aircraft surpassed those purchased by the Department of Defense. The non-government civil sales sector is comprised primarily of large commercial aircraft sales which, as discussed previously, experienced a very respectable rebound in 2011 and 2012. In the coming years, downward pressure on the defense budget and other discretionary federal spending areas is likely to be reflected in decreased fund-ing levels for military, space, and other federally-funded programs. However, the non-government civil sector is expected to continue to improve as the U.S. economy recovers and demand for air travel continues to grow in emerging markets.

Civil Aircraft Military Aircraft Space Related Products and ServicesMissiles

48.2 51.3 48.2 53.1 60.6

64.0 59.4 61.8 59.7 58.2

24.6 24.7 23.5 23.4 23.1

43.2 45.0 45.4 44.6 44.9

30.2 29.4 29.7 30.031.0

0

25

50

75

100

125

150

175

200

225

250

2008 2009 2010 2011 2012


Source: Aerospace Industries Association (AIA), based on company reports and data from the National Aeronautics and Space Administration, the Bureau of the Census, the Office of Management and Budget, and the Department of Defense, 2013.


55AEROSPACE MANUFACTURING IN THE UNITED STATES

FIguRE 4.2 Aerospace Industry Sales by Customer

In 2012, U.S. aerospace shipments, orders, and backlog all increased. Shipments totaled $224.5 billion for an increase of 11.6 percent over the previous year; orders totaled $267 billion for a gain of approxi-mately 7.5 percent; and the backlog increased to $543.6 billion result-ing in a 8.5 percent increase over 2011 (see Figure 4.3).

FIguRE 4.3 Aerospace Orders, Shipments, and Backlog

DoD NASA and Other Govt. Agencies Other Customers Indeterminant Customers

19.5 20.8

0

25

50

75

100

125

150

175

200

225

250

2008 2009 2010 2011 2012


101.5 99.4 101.2 99.6 96.2

21.1 21.2 20.3

59.0 60.2 56.5 60.0 70.4

30.2 29.4 29.7 30.0 31.0

Source: AIA, based on company reports and data from NASA, the Census Bureau, OMB, and DOD, 2013. Note: “Indeterminable source” indicates that it was not possible to determine if the customer was military, government, or civilian.

OrdersShipments Backlog

0

100,000

200,000

300,000

400,000

500,000

600,000

2008 2009 2010 2011 2012

543,582

267,037

224,493


Source: U.S. Census Bureau, 2013.

56

Federal Outlays for DOD Aircraft and MissilesFederal outlays for DOD aircraft and missiles have continued to increase over the past five years. In 2012, outlays for aircraft and missiles increased by 19.4 percent and 32.7 percent respectively (see Figure 4.4).

Figure 4.4 Federal Outlays for Aerospace Products and Services

Figure 4.5 displays budget outlays for the Department of Defense by functional title from 2008 to 2012. This figure highlights how DOD’s budget has leveled off with an overall increase of just 1.5 percent from 2011 to 2012. Within the 2012 budget, DOD procurement grew at nine percent, operations and maintenance grew at 1.2 percent, and research and development grew at 1.4 percent. The budget for military person-nel dropped by 3.4 percent as did the “other” category which includes military construction, family housing and other miscellaneous items.

Civil and Military Aircraft

Civil AircraftThe U.S. large civil aircraft market enjoyed several hallmarks in 2012.* The value of aircraft shipped increased by 27.9 percent between 2011 and 2012 and the number of aircraft shipped increased by 26 percent (see Figures 4.6 and 4.7). Production of the Boeing 787 continued to

DOD Aircraft DOD MissilesMillions of U.S. Dollars

25,964 30,575 33,745 35,513

42,398

9,721 9,894

9,847

0

10,000

20,000

30,000

40,000

50,000

60,000

2008 2009 2010 2011 2012

8,545

13,070

Source: Office of Management and Budget, The Budget of the United States Government, 2013.

* Civil aerospace sales include all fixed-wing and rotary-wing aircraft, aircraft engines, and related parts and services sold to private entities or to civil (non-defense) government departments and agencies (e.g., NASA, NOAA, the U.S. Department of Transportation, Federal Aviation Administration, and state governments).

AerOspACe InDustry repOrt 3rD eDItIOn


ramp up at the Washington and South Carolina plants and is expected to achieve its goal of producing 10 aircraft per month by the end of 2013. A total of 46 Boeing 787s were produced in 2012.

FIguRE 4.5 Military Outlays by Functional Title

ProcurementMilitary PersonnelOperations & Maintenance

OtherResearch, Development, Test & Evaluation

117,398 129,218 133,603 128,003 139,869

138,940 147,348 155,690 161,608 156,185

244,836 259,312

275,988 291,038 294,513

75,120 79,030

76,990 74,871 75,904 18,338

21,834 24,432 22,544 21,784

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2008 2009 2010 2011 2012


Source: Office of Management and Budget, the Budget of the United States Government, 2013.

FIguRE 4.6 Civil Aircraft Shipments

General AviationHelicoptersTransport Aircraft Total Value

375 481 462 477 601 671

1,084 570

339 435 478 519

3,079

1,585

1,334 1,465

1,514 1,662

43,097 44,105

40,602

45,582

58,298 62,482

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010 2011 2012 2013(E)

Number of Aircraft Millions of U.S. Dollars

Source: AIA, based on company reports and data from the General Aviation Manufacturers Association (GAMA), 2013. E = estimate.

58

Production of the Boeing 777 increased to 8.3 aircraft per month with a total of 83 aircraft produced in 2012. Twenty six Boeing 767s were produced in 2012 as this line is converted to KC-46A produc-tion. Thirty one Boeing 747s were manufactured in 2012, and the new Boeing 747-8 is now being produced at the rate of approximately two units per month. Finally, the Boeing 737 line produced 415 aircraft in 2012 and is likely to surpass 450 units in 2013.

A key market driver well into 2013 will be the price of fuel, which is problematic for the airlines and other fuel-dependent industries. The net effect on the aircraft manufacturing industry is difficult to quantify because while high fuel prices create demand for new fuel-efficient aircraft, the added expense also erodes the airlines’ ability to purchase new aircraft. This situation places renewed emphasis on developing commercially viable alternative fuels, which could poten-tially dampen the volatility of fuel costs faced by operators while also lessening the global airline industry’s environmental impact. The United States is a leader in developing alternative aviation fuels. U.S. producers have successfully completed test flights using fuels from a variety of sources and are now moving toward commercial produc-tion. DOD-led tests in the laboratory and in the air have shown that many types of feedstock, from weedy plants to animal fat, can be used to create aviation fuel that is chemically identical to the crude-oil based kerosene that powers flight today.1

Number of Aircraft Total Value

375

481 462 477

601

28,263

34,051 31,834 36,171

49,127

0

10,000

20,000

30,000

40,000

50,000

60,000

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012

Number of Aircraft Millions of U.S. Dollars

Source: Aerospace Industries Association based on company reports, 2013.

FIguRE 4.7 Shipments of u.S. large Civil Transport Aircraft


59AerospAce MAnufActuring in the united stAtes

Military AircraftAs stated in the Aerospace Industries Association 2012 Year-end Review and Forecast,2 the U.S. military aircraft sector continued to decline in 2012, falling 2.4 percent over last year. Furthermore, a decline by more than 10 percent is anticipated in 2013. Figure 4.8 is a graph of military aircraft sales, while Figure 4.9 highlights current and projected outlays for military aircraft by DOD agency.

Figure 4.8 Military Aircraft Sales

Figure 4.9 DOD Outlays for Aircraft Procurement by Agency

64,010

59,390

61,800

59,658

58,236

50,000

52,000

54,000

56,000

58,000

60,000

62,000

64,000

66,000

2008 2009 2010 2011 2012


Source: AIA, based on company reports and data from NASA, the Bureau of the Census, OMB, and DOD, 2013.

Air Force Army Navy

11,448 13,503 13,736 13,089 17,701 15824

12808

4,250 5,076 5,672 6,138

6,403 6,818

5,709

10,266

11,996 14,337 16,286

18,294 18,601

15,218

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2009 2010 2011 2012(E) 2013(E) 2014(E)


Fiscal Year

Source: Office of Management and Budget, Budget of the United States Government, FY 2013. E = estimate.

60

The decision to terminate production of the F-22 and to not fund additional C-17 transport purchases or the development of a future strategic airlifter, have all had a negative impact on the development and production of military aircraft and their related support programs. However, the F-35 Joint Strike Fighter, the KC-46 tanker, the P-8 maritime patrol aircraft and other platforms continue to receive funding. In addition to these programs, the venerable C-130 has now been in production longer than any other military aircraft and various models are in use by 72 countries.3 According the Lockheed Martin’s website, 15 countries have already selected the C-130J Super Hercules and additional orders are expected—despite emerging competition from Europe’s Airbus Military A400M.

The aging of the U.S. military aircraft fleet remains a significant factor. Anecdotally, it has been said that some of today’s pilots are now flying the exact same equipment as did their fathers—and, in a few cases, their grandfathers. For example, in 2012, the newest B-52 turned 50 years old and those aircraft are projected to fly another 20 years. Overall, the current U.S. Air Force fleet, with planes averaging more than 23 years old, is the oldest in USAF history.

Given the sequestration-driven budget reductions being implemented across the Department of Defense, foreign sales of military aircraft represent an important growth opportunity for U.S. aerospace defense contractors. As of 2012, no fewer than three key military aircraft production lines—the C-17, F-15 and F-16—are being sustained largely by international export demand. However, U.S. firms face stiff competition from around the world, as suppliers from France, the U.K., Russia, and elsewhere pursue the same opportunities. A case in point is the recent India fighter competition. The Indian government was able to choose between aircraft from Europe, Russia, and the United States and ultimately selected the Rafale jet fighter manufactured by Dassault Aviation. Although talks are currently stalled around the production of Indian manufactured Rafales, this transaction represents one of the biggest military aircraft purchases in the world. Another example of an opportunity lost is India’s decision to co-develop a fifth generation fighter with Russia. Even though India is purchasing U.S. manufac-tured aircraft such as the C-17 Globemaster III, the AH-64D Apache combat helicopters, the C-47F Chinook heavy-lift helicopter and the P-8I anti-submarine aircraft,4 the fact that U.S. contractors failed to win the multi-role combat aircraft competition and India’s rejection of the F-35, are indicative of the challenges facing U.S. military aircraft manu-facturers in the international marketplace.



RotorcraftThe U.S. civil rotorcraft market is still recovering from the economic downturn but has seen a steady increase in new deliveries over the past two years. The market encompasses emergency medical service providers, offshore oil and gas exploration and law enforcement applications.

Preliminary figures indicate that helicopter shipments increased by 9.9 percent from 2011 to 2012. This estimate may be low because Robinson Helicopter reported that shipments of its civil helicop-ters increased by 45 percent in 2012,5 and Bell Helicopter, a Textron company, reported almost a 41 percent jump in its commercial helicopter revenue. Bell also launched its largest civil model ever produced, the Model 525 Relentless, a testament to the strength of demand from the offshore oil segment.6 Sikorsky, a United Technologies company, saw an increase in civil helicopter sales of about two percent, due primarily to an increase in S-92 volume, which was partially offset by lower S-76 sales as the company transitions to the new S-76D model.7

This steady, upward trend in civil helicopter sales is expected to continue as demand deferred during the downturn reaches the U.S. and foreign markets. While growth in the emerging markets has soft-ened recently, the demand for helicopters in the Asia Pacific and Latin American markets is spurring considerable OEM investment. China, in particular, shows enormous promise, where demand for civilian heli-copters is expected to rise as authorities relax certain flying restrictions.8

General AviationThe overall number of U.S. manufactured general aviation (GA) aircraft increased by slightly over three percent in 2012, but at $8,017 million, the dollar value of billings actually decreased by about the same percent. Within the GA category, results were mixed. The number of single engine piston aircraft shipped increased from 639 to 645; the number of multi-engine piston aircraft shipped decreased from 67 to 63; turbo-prop shipments increased from 395 to 459; and the number of turbojet aircraft shipped decreased from 364 to 347.

AIA’s 2012 year-end report notes that the last few years have been challenging for the general aviation industry, but few doubt that growth will resume as the world economy recovers.9 The General Aviation Manufacturers Association (GAMA) believes that market fundamentals are moving in the right direction and that the industry is poised for

62

resurgence.10 U.S. corporate profits are at record highs, the used aircraft market is improving, and as the U.S. and European markets recover and the emerging markets resume their growth, sales will follow. In the near term, alternative financing techniques have the potential to help spur sales in the United States and elsewhere (see Chapter 9).

Worldwide, sales of larger business jets are leading the market, particu-larly in Russia, China and the Middle East. It is estimated that China alone, could account for 20 percent of all business jet deliveries by the end of the decade, which would be a significant increase over the current level of deliveries at seven percent. Light and medium busi-ness jets have not yet returned to their pre-recession sales levels, and remain a concern for business jet manufacturers.

EnginesThe jet engine market is dominated by a three manufacturers: General Electric (GE) Aviation; Pratt & Whitney (P&W), a United Technologies company; and Rolls Royce plc. Given the high barriers to entry, the fundamental market structure for jet engine development and production is not likely to change.11 However, joint ventures and other forms of collaboration play an important role in aircraft engine manufacturing. Significant joint ventures involving U.S. aerospace engine manufacturers include:

■n The Engine Alliance (EA), created in 1996 between General Electric Aviation and Pratt & Whitney.

■n CFM, founded in 1974 by Snecma of France and General Electric Aviation. and

■n Aero Engines International, a 30-year, collaborative venture that includes Pratt & Whitney Aero Engines International GmbH, the Japanese Aero Engine Corporation and MTU Aero Engines.

Not surprisingly, trends in the aircraft engine market are linked to aircraft sales, which have been steadily increasing after sharp declines in 2008 and 2009. For 2012, GE Aviation’s revenue went from $18,859 to $19,994 million for an increase of six percent; while Pratt & Whitney’s revenues increased from $12,711 to $13,964 million for a gain of 10 percent. During the same period, Rolls Royce civil and defense sales increased by over 13 percent. Looking forward, most experts agree that aircraft engine production will increase in 2013, “but more significantly on the commercial side than the military.”12


63AerospAce MAnufActuring in the united stAtes

spaceSpace sector sales increased slightly to $44.9 billion in 2012, but NASA’s 2012 budget decreased by 3.7 percent to $17.7 billion. Within NASA’s budget, funding for space applications increased by over five percent; but funding for the development of space exploration capabilities decreased by roughly three percent; and funding for space operations declined by approximately 19 percent (see Figure 4.10).

When NASA’s Space Shuttle rolled to a stop on July 21, 2011, the U.S. became dependent on foreign countries for human access to space.13 NASA is now moving forward with plans to incentivize the develop-ment of commercial crew services by private companies, obviating the need to pay Russia $63 million a seat to send astronauts to or from the International Space Station (ISS). Under this new paradigm, the U.S. government relies on private industry to take a more active role in this segment of the market, freeing up government resources to make investments in space exploration beyond low Earth orbit.

Although this transition has been difficult for many involved in the development of America’s space program, there is evidence which suggests that this new strategy may be working. In May 2012, SpaceX successfully completed the first visit of a commercially-operated vehicle to the ISS. This achievement was followed by the first official commercial resupply mission to the ISS in October 2012, moving the United States closer to supplying the ISS through commercial space services. Boeing and Sierra Nevada are also working on alterna-tive approaches for ferrying astronauts to and from the International Space Station. Other commercial space initiatives include Virgin Galactic’s SpaceShipTwo program for ferrying commercial passengers into space by the end of 2013 and using its WhiteKnightTwo carrier for small satellite launch services. Similarly, XCOR Aerospace hopes to use its all composite reusable Lynx launch vehicle to launch passengers and small science payloads into sub-orbital flight by the end of 2013.14

Despite budget pressure, NASA has had several noteworthy successes and more are on the way. Some of these include the Mars Science Laboratory, Curiosity, which landed on Mars on August 6, 2012; the development of the Orion Crew Exploration Vehicle which is sched-uled for its first uncrewed flight in 2014; the development of the Space Launch System which should see its first launch in 2017; and the development of the James Webb Space Telescope which is sched-uled for launch in October 2018.

64

Unfortunately, some of this progress may be at risk as sequestration cuts are implemented. Under sequestration, NASA’s budget will be reduced by nearly $1.2 billion in fiscal year 2013—with similar reduc-tions the following eight years. These cuts could delay progress on the development of private space transportation services as well as NASA’s next generation of launch vehicles and spacecraft. NASA’s science activities, including efforts to follow up on its successful Mars exploration program, would also be affected, and its public outreach programs will be cut.

Similarly, the National Oceanic and Atmospheric Administration (NOAA) satellite programs may also be affected by sequestration, with an immediate reduction of $154 million and additional cuts over the next several years. If the budget cuts go forward, NOAA could be forced to extend what is already projected to be a 17-month gap in polar orbiting weather satellite coverage beginning in 2017. These satellites provide nearly 90 percent of all observation data used to deliver three- to seven-day weather forecasts.

At this point, the U.S. space industrial base faces an uncertain future. Challenges include budget cuts and increasing competition from space programs in India, China, and Russia. At the same time, however, the government’s increasing dependence on commercial space is creating new opportunities for the private sector.

FIguRE 4.10 NASA Outlays

Fiscal Year

Space Applications Exploration CapabilitiesSpace Operations Inspector Gen & Other

4,996 5,375 5,611 6,052

3,833 3,507 3,589 3,773

5,800 5,046 4,471 4,259

4,277 3,690 3,519 3,713

-

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013(E)


Source: Office of Management and Budget, Budget of the United States Government for FY 2013.



MissilesU.S. missile sales continued to decrease in 2012 and this trend is expected to continue (see Figure 4.1).* Although U.S. government outlays for missile procurement jumped in 2012, they are expected to decrease almost as dramatically in 2013 (see Figure 4.11). These reduc-tions are being driven by the drawdown of forces in Afghanistan and reductions in the Department of Defense budget.

According to Aviation Week, as the United States reduces its presence in Afghanistan and shifts its attention to the Pacific, the focus of its missile programs may also shift from the development and produc-tion of air-to-surface weapons to long-range land attack and anti-ship systems.15 A detailed breakdown of missile procurement funds by service and system is provided in the Appendix.

But even as funding for missile development and production in the United States declines, missile exports could increase. Examples include the United Arab Emirates’ decision to purchase the Terminal High Altitude Air Defense (Thaad) system, which is also being considered by Qatar.16 Additional foreign military missile sales that

* The aerospace missile sector includes RDT&E and procurement of DOD missiles, missile defense systems, and parts. Sector components include the missiles themselves, as well as the associated sensors and command, control, battle management, and communications systems.

Air Force Army Navy

4,082 4,338 4,412 4,410

7,427 5,747

1,468 2,057 2,034 1,994

1,835

1,694 2,995

3,326 3,448 3,443

3,808

3,668

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012 2013(E)


Source: Office of Management and Budget, Budget of the United States Government for FY 2013.

FIguRE 4.11 DOD Outlays for Missile Procurement by Agency

66

were being evaluated in late 2012 and early 2013 included Sidewinder missiles to Singapore and Turkey; Seasparrow missiles to Thailand; Javelin missiles to Belgium, Indonesia, Oman, and Qatar; Patriot missiles to Kuwait, Saudi Arabia and Qatar; and numerous other sales to countries whose national security interests are aligned with those of the United States.17

The U.S. missile defense program faces several difficult challenges in the years ahead, as the Missile Defense Agency balances the ability to counter threats under increasingly austere financial constraints. North Korea and Iran continue to pursue long-range missiles, as well as nuclear warhead technologies and advanced countermeasures. China’s development of the so-called DF-21 anti-ship ballistic missile is also troubling, as it could limit the Pentagon’s ability to place aircraft carrier strike groups in the Pacific.18

International TradeAerospace exports exceeded imports, resulting in a positive balance of trade for the U.S. aerospace industry in 2012. The role of the U.S. aerospace industry in the global economy is so important that is addressed separately in Chapter 6.

Summary and ConclusionsLooking forward, the commercial aerospace sector is expected to continue the momentum established in 2011 and 2012. Order books at Boeing and Airbus contain years of commercial aircraft backlog and both companies have announced production rate increases that will continue through at least 2014. In addition, the demand for high-end business jets is also expected to increase.

Volatile fuel prices continue to cause the airlines and business jet owners to replace older, less fuel-efficient aircraft with newer models. This demand, combined with low-rate financing and the rapid growth of air travel in Asia and the Middle East, suggests that new aircraft sales are likely to increase. Moreover, the global air traffic market is expected to increase at a rate of 4.9 percent per year over the next 20 years, considerably higher than the global GDP growth rate. In order to keep pace with the growing demand for air travel, estimates are that by the end of 2031, the world’s airlines will need 34,000 new commer-cial aircraft with a total value of $4.5 trillion. Nearly 70 percent of the deliveries will be single-aisle airplanes, reflecting growth in emerging markets, such as India and China, and the continued expansion of



low-cost carriers throughout the world. At the same time, the new twin-aisle airplanes will allow the airlines to continue their expansion into international markets.19

On the military side, the Department of Defense is doing its best to deal with sequestration. In April, 2013, the President submitted a proposed budget of $526.6 billion in discretionary budget authority to fund defense programs for fiscal year (FY) 2014—not including the budget for Overseas Contingency Operations which will be submitted later.20 Even as the budget was submitted, the DOD press release noted that FY 2014 programs would be significantly and adversely affected by the sequester budget cuts in FY 2013. Such cuts would result in less train-ing, civilian furloughs, deferral of equipment and facility maintenance, reductions to energy conservation investments, contract inefficiencies, and curtailed deployments.21 From an aerospace manufacturer’s perspec-tive, the full scale and scope of these cuts is not yet known, but they are likely to result in reduced and/or stretched out production of the KC-46 tanker, the F-35 Joint Strike Fighter, and the V-22 Osprey, as well reduc-tions in other fixed-wing and rotorcraft programs. Missile production and munitions also look vulnerable as weapons stockpiles are often the first to be cut when combat operations and defense budgets trend downward. Sales for the space sector are expected to continue at a reasonable level, driven by satellite replenishment and launch service demands. Although the ongoing cuts to NASA’s budget will have a negative impact on indus-try, they are less severe than some anticipated.

The aerospace industry plays a key role in the U.S. economy, while simultaneously contributing to America’s national defense. With employees in every state, the aerospace industry generates the high-est positive trade balance of any U.S. manufacturing sector. In terms of sales, 2012 was the best year ever for the U.S. aerospace industry, where robust demand in the commercial market more than offset losses in the defense sector. As the global economy continues to recover, similar results, or better, are expected in the coming years.

Chapter Endnotes

1 Lavelle, M. (2011, May 20). As jet fuel prices soar, a green option nears the runway. National Geographic News. Retrieved from http://news.nationalgeographic.com/news/energy/2011/05/110520-jet-fuel-biofuel-for-commercial-flights/

2 Aerospace Industries Association. (2013). 2012 Year-end review and forecast. Retrieved from http://www.aia-aerospace.org/assets/aia_yearender_web_2012.pdf

68

3 Lockheed Martin. (2013). C-130J Super Hercules. Retrieved from http://www.lockheedmartin.com/us/products/c130.html

4 Menon, J. (2013, January 7). Buying spree. Aviation Week & Space Technology, 174(47), pp. 63-64.

5 Robinson Helicopter Company. (2013, January 11). Robinson’s production tops 500 in 2012. Retrieved from http://www.robinsonheli.com/media/pressrelease/2012_sales.pdf

6 Textron. (2013). 2012 Annual report. Retrieved from http://investor.textron.com/phoenix.zhtml?c=110047&p=proxy

7 United Technologies. (2013). 2012 Annual report. Retrieved from http://2012ar.utc.com/assets/pdfs/UTCAR12_Full_Report.pdf

8 Pereira, V. (2012, February—March). Mixed messages. ROTORHUB. Retrieved from http://www.heliasset.com/images/file_pdf/RH_FebMar12.pdf

9 Aerospace Industries Association. (2013). 2012 Year-end review and forecast, p. 4.

10 General Aviation Manufacturers Association. (2013, February 12). GAMA releases 2012 year-end report and focuses on the opportunities and goals that lie ahead. Retrieved from http://www.gama.aero/media-center/press-releases/content/gama-releases-2012-year-end-report-and-focuses-opportunities-and

11 PRNewswire. (2013, February 20). Global commercial aircraft gas turbine engine market 2013–2023. Retrieved from http://finance.yahoo.com/news/global-commercial-aircraft-gas-turbine-155900065.html

12 Norris, G. (2013, January 7). Power game. Aviation Week & Space Technology, 174(47), pp. 87-88.

13 Many of the comments in this section are based on material from the Aerospace Industries Association 2012 Year-end report, referenced earlier.

14 Warwick, G. (2013, January 7). Launch space. Aviation Week & Space Technology, 174(47), pp. 94-95.

15 Warwick, G., & Dickerson, L. (2013, January 7). Sea change. Aviation Week & Space Technology, 174(47), pp. 78-79.

16 Ibid.

17 The Arms Export Control Act requires the President to give Congress advance notification of the intent to sell defense articles, equipment and services. As part of the process, the Defense Security Cooperation Agency (DSCA) prepares and delivers notifications to Congress with the approval of the State Department. A description of each proposed sale is listed on DSCA’s website at http://www.dsca.mil/Default.htm

18 Butler, A. (2012, August 13). New challenge for MDA: field more interceptors. Aviation Week & Space Technology. Retrieved from http://www.aviationweek.com/Article.aspx?id=/article-xml/AW_08_13_2012_p44-483481.xml

19 The Boeing Company. (2012).Current Market Outlook 2012–2031. Retrieved from http://www.boeing.com/commercial/cmo/

20 U.S. Department of Defense. (2013, April 10). DOD releases Fiscal Year 2014 budget proposal. Retrieved from http://www.defense.gov/releases/release.aspx?releaseid=15921

21 Ibid.


69

Maintenance Repair and Overhaul

IntroductionThis chapter addresses the maintenance, repair and overhaul (MRO) of large commercial and military aviation aircraft. The size of each segment is determined by its own unique set of drivers but, at the same time, all segments are directly or indirectly, influenced by world events and the economy.

Commercial Aircraft MROThe commercial aircraft MRO market is driven by a somewhat complex set of factors. Some of these include the following:

■n Demand for air travel and cargo services. In the commercial aircraft market, the demand for shipping and passenger travel tends to be correlated with the state of the economy. FedEx Express, for example, is the world’s largest cargo airline. As demand for air cargo rises or falls, FedEx Express adjusts its fleet to maintain the efficiency of its worldwide logistics

5

70

operation—and as FedEx Express adjusts its fleet, their MRO requirements also change.1

■■ Size and location of the fleet. As the size of the fleet increases, so does the need for MRO services. Thus, the scale and scope of MRO services are determined by the size of the fleet for both passenger and cargo aircraft, broken down by aircraft type and geographic location.

■■ Age and lifecycle of the fleet. Newer aircraft require less maintenance and are more efficient to operate and maintain. Hence, there is a trend towards shorter aircraft lifecycles (e.g., 20 versus 30 years) which is being driven, in part, by the fact that it is often easier to obtain financing for new aircraft than for used aircraft.2

■■ Cost and availability of skilled labor. As the technology becomes more sophisticated, the skills required to analyze, test and repair structures, avionics, engines and components also become more specialized—making it more expensive to train and maintain people with the right experience and skill sets. Consequently, as the fleet size continues to increase, the shortage of skilled workers could become a problem. Some experts say that as many as 650,000 maintenance technicians must be added by 2030 just to support new additions to the fleet.3 As global demands for these skills increase, competition will increase and labor costs will likely rise.4

■■ Cost and complexity of test equipment. Another factor that is becoming increasingly important is the rising cost and complexity of test equipment. Even though the on-board equipment may be more reliable, the equipment required to test the next generation of equipment can be extraordinarily expensive, making it difficult for the airlines or third parties to deliver a full range of MRO services.

Scale and Scope of the MarketEstimating the scale and scope of the global maintenance, repair, and overhaul market is an inexact science. For example, most commercial MRO estimates are based on the following categories of activity: heavy airframe maintenance and modifications; engine maintenance and over-haul; component maintenance on items such as fuel systems, avionics, wheels and brakes, etc.; and line maintenance. Such work is typically done by the original equipment manufacturer (OEM); the operator,

AeroSpAce InduStry report 3rd edItIon

71MAINTENANCE REPAIR AND OVERHAUL

such as an airline; an operator that services other operators; or a third party provider that offers one or more levels of maintenance services.

Describing the market itself can also be confusing. At the highest level, the civil aircraft market consists of private aircraft and commer-cial aircraft. The commercial side of the market is often broken down into commercial aircraft, regional aircraft, business jets, and rotorcraft. The commercial aircraft market is further subdivided into wide-body aircraft or narrow-body aircraft. Wide-body aircraft are described in terms of twin-aisle or large aircraft that seat between 200-600 passengers. Narrow-body aircraft are often referred to as single-aisle aircraft with a seating capacity of 100-200 people. The regional aircraft market is also subdivided into regional jets that seat between 70-100 people and turbo-props that typically seat less than 100 passengers.5 As a result, it can be difficult to compare numbers prepared by different providers directly.

Given these complexities, estimates for the 2012 commercial air transport market range from approximately $49 billion to $61 billion. Growth estimates for this segment of the market range from three to five percent over the next 10 years, with variance between regions and by type of aircraft. Projecting out to 2020 at a growth rate of four percent, estimates range from $67 billion to over $80 billion. The trendline and numbers in Figure 5.1 represent averages based on esti-mates from at least six different sources.

FIguRE 5.1 Estimated global Commercial Aircraft MRO Market, 2012–2020

53

72

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021


HighAverageLow

Source: Embry-Riddle, based on estimates from multiple sources, March 2013.

72

The maintenance, repair and overhaul of aircraft, and related parts manufacturing and distribution services, play an important role in the U.S. economy. According to a report produced for the Aeronautical Repair Station Association (ARSA) by ICF SH&E, the civil MRO industry employees about 196,000 people in 4,100 firms across the United States. Of this total, over 3,400 firms are small to medium-size enterprises that employ in excess of 41,000 people.6 The same report indicates that California and Texas top the list of states with the most employees engaged in MRO and MRO-related activities.7

Distribution by Type and GeographyFigure 5.2 depicts the geographic distribution of MRO spending in 2012. Even though North America accounts for the largest share today, most experts agree that greatest growth over the next decade will occur in the Asia Pacific region and the Middle East.

Figure 5.2 Commercial Aircraft MrO Spending by region, 2012

As can be seen in Figure 5.3, engine MRO represents the largest single portion of commercial MRO spending.

North America35%

Europe26%

Asia Pacific26%

Rest of World13%


AerospAce InDusTry reporT 3rD eDITIon


FIguRE 5.3 Commercial Aircraft MRO Spending by Activity, 2012

Military Aircraft MROSince governments fund military MRO programs, the key drivers of military MRO are similar, but different, from those that drive commer-cial MRO. Some of the major drivers of military MRO, and the avia-tion sector in particular, include the following:

■n The global economy. As a result of the global financial crisis, many countries have reduced or postponed plans to buy new military systems and have chosen instead to repair and upgrade existing equipment.8 The net result is that some government-funded military MRO budgets are higher than normal.

■n Size of the fleet. One of the biggest factors in determining military MRO needs is the size of the fleet, where the type and quantity of equipment is determined by national goals, available funds, military objectives, and perceived threats to national security.

■n Age and utilization of aircraft. Like their commercial counterparts, military aviation MRO is driven by the age and use of aircraft. Wars in Iraq, Afghanistan, and operations in other locations have taken a toll on existing U.S. systems and have added to demands for MRO services. When military RESET programs are combined with delays in the deployment of new systems like the F-35 Joint Strike Fighter, the MV-22 Osprey and others, near-term field and depot-level maintenance requirements can be expected to increase.

Airframe HeavyMx & Mods

17%

Engine43%

Component21%

Line 18%


74

■n Support strategy. New strategies for supporting systems, like performance-based logistics (PBL), can also influence the shape and delivery of MRO services. Strategic alliances and technology transfer agreements between countries and firms are also being created, making it more cost effective for some governments to deliver domestic military MRO services.9

Scale and Scope of the MarketWhile it is difficult to estimate the size of the commercial aircraft MRO market, the size of military aircraft MRO is even more difficult to determine. This is primarily due to greater variance in the assump-tions—assumptions about country government-driven growth rates; assumptions about what categories of systems should be included such as fighters, transport aircraft, reconnaissance aircraft, bombers, rotor-craft, trainers, unmanned aerial vehicles, etc.; and for the U.S. market, assumptions about the appropriate levels of maintenance, repair, and overhaul for a fleet that is going through a sequestration-driven trans-formation. While doing research for this report, at least five different estimates of military aircraft MRO levels were reviewed. In the end, the highest and lowest estimates of those that seemed most consistent over the years were used to calculate averages for this segment of the market. For 2012, the average was approximately $62.8 billion. Using a compound annual growth rate of two percent, half of that used for the air transport market, the average for military aircraft MRO spending for 2020 is estimated to be almost $74 billion (see Figure 5.4).

Many countries are under pressure to reduce military spending in an effort to balance their budgets. As a result, countries are cutting back on research, development and the acquisition of new systems, while extending the life of existing systems through engineering changes and more scheduled and unscheduled maintenance. In today’s envi-ronment, it is often easier to justify maintaining an aging fleet than to justify the cost of developing and building a new fleet even though the overall lifecycle costs, including MRO, may be higher.

Distribution by Type and GeographyEstimates of worldwide military aircraft MRO spending by region and activity are shown in Figure 5.5 and Figure 5.6. Once again, these numbers represent averages based on data from several sources. North America has the greatest share of the military aircraft MRO market at approximately 45 percent, while field maintenance represents the larg-est share of military aircraft MRO market activity at 47 percent.



FIguRE 5.4 Estimated global Military Aircraft MRO Market, 2012–2020

FIguRE 5.5 Military Aircraft MRO Spending by Region, 2012

62.8

73.6

55.0

60.0

65.0

70.0

75.0

80.0

85.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021


HighAverageLow


North America45%

Asia Pacific 16%

Europe22%

Rest of World

16%


76

FIguRE 5.6 Military Aircraft MRO Spending by Activity, 2012

Trends and Challenges in MROBased on a review of the market, general trends and challenges in the MRO market include:

■n Growing opportunities in the Asia Pacific region and the Middle East.

■n Continued outsourcing by many of the world’s major carriers.

■n OEMs pursuing a greater role in the delivery of MRO services, including the maintenance, repair and overhaul of military systems which, in some cases, will be delivered through performance-based logistics agreements.

■n More joint ventures to deliver one-stop MRO services.

■n MRO services that are more tailored to specific customer needs.

■n Continued consolidation among MRO providers.

■n A continuing struggle to find qualified MRO workers.

Summary and ConclusionsDuring the past year, the overall civil MRO market grew at over five percent. Even though certain regions, countries and sectors may do better than others, most experts predict that the overall commercial

Field Maintenance

47%

Airframe20%

Component17%

Engine17%



77Maintenance RepaiR and OveRhaul

MRO market will continue to grow at a moderate rate of three to four percent a year over the next 10 years. Unfortunately, the same cannot be said for the global military MRO market. Due to a variety of factors, military MRO levels are more difficult to predict. Based on this complex set of factors, it seems reasonable to expect that the military aircraft MRO market will decrease slightly, and then stabilize and grow at a rate of one to three percent for the foreseeable future. The overall business aviation MRO market is also starting to recover although some sectors, such as the larger and more expensive busi-ness jets, are doing better than others. It is also clear that the global business aviation market is not only poised to grow, but is shifting its focus to emerging markets in Africa, South America, India, China and the Asia Pacific region. When this information is combined with the international economic trends reviewed earlier, it is apparent that there are opportunities for new entrants, as well as existing firms, in the domestic and global aviation MRO markets.

chapter endnotes

1 Roche,C.(2012,September19).FedExtotalpackageshipmentspointtosharpdeclineinGDP.Pragmatic Capitalism.Retrievedfromhttp://pragcap.com/fedex-total-package-shipments-point-to-sharp-decline-in-gdp

2 Doan,C.(2012,April).The global MRO forecast, 2012–2022.TeamSAIConsultingServices.Retrievedfromhttp://teamsai.com/media/content/2012_teamsai_global_mro_forecast_120329-print-ver-final.pdf

3 Norris,G.(2011,June24).Boeingwarnsofshortagesforpilots,technicians.Aviation Daily.Retrievedfromhttp://www.aviationweek.com.ezproxy.libproxy.db.erau.edu/awin/ArticlesStory.aspx?keyWord=650,000maintenance&id=/article-xml/avd_06_24_2011_p03-01-340404.xml

4 Majcher,K.(2012,June1).SkillsShortages.Aviation Week & Space Technology. Retrievedfromhttp://www.aviationweek.com/Article.aspx?id=/article-xml/OM_06_01_2012_p37-457712.xml

5 Deloitte&Touche.(2010,October).Global aerospace market outlook and forecast.[AIACPhase3report].Retrievedfromhttp://www.aiac.ca/uploadedFiles/Resources_and_Publications/Reference_Documents/AIAC%20Phase%203%20Report_FINAL.pdf

6 AeronauticalRepairStationAssociation.(2013,March13).Global MRO market economic assessment.[DataprovidedbyICFSH&E].Retrievedfromhttp://arsa.org/wp-content/uploads/2013/04/2013MROStudy.pdf

7 Ibid.,p.39.

8 ICDResearch.(2012,July).The global military MRO market 2012–2022.Retrievedfromhttp://www.airforce-technology.com/downloads/whitepapers/technical-publications/fileglobal-military-aviation-mro-market-2012-2022/

9 Ibid,p.17.

79

The Global Aerospace Marketplace

IntroductionThe U.S. aerospace industry is part of a dynamic and interdependent global marketplace. In 2012, the United States exported $1,546,455,243,556 in goods and services, while importing $2,275,392,482,533 for a net trade deficit of $728,937,238,977.1 The major drivers of the deficit were foreign oil, consumer products, and automobiles—but the aerospace sector sustained a positive trade balance.

This chapter addresses aerospace exports, imports, and the U.S. balance in aerospace trade. It also includes state and regional data on aerospace exports for the past five years. The chapter concludes with a brief discussion about the role of the U.S. Export-Import Bank in the aviation and aerospace industries.

U.S. Aerospace ExportsAccording to the U.S. Department of Commerce, International Trade Administration, U.S. exports of aerospace products and parts totaled

6

80

$105,617,117,330 in 2012.* This represents nearly an 18 percent increase over 2011. Aerospace export data for the last five years are presented in Figure 6.1.

FIguRE 6.1 u.S. Exports of Aerospace Products and Parts

Figure 6.2 is a color-coded display of the recipients of U.S. aerospace exports in 2012. Top-tier export markets are highlighted in red (see map legend). The standout feature of this map is the scale and scope of U.S. aerospace exports.

In 2012, 15 countries accounted for almost 71 percent of total U.S. aerospace exports (see Table 6.1). The top five U.S. export markets were Japan, China, France, the United Arab Emirates, and the United Kingdom. Table 6.1 also reveals that within this list, the countries that had the greatest percentage increase in U.S. aerospace exports in 2012 were the United Arab Emirates, Japan, Mexico, Qatar, and South Korea.

Figure 6.3 is a graph of the trends in the top U.S. aerospace export markets over the past five years. These data points show that in 2012, demand increased in all of the top U.S. aerospace export markets, except the United Kingdom, which decreased by three percent.

* Note: almost all the data in this chapter comes from the International Trade Administration’s TradeStats Express. These numbers often differ from other figures provided by the U.S. Government and other sources, depending on when and where the data was collected, and other factors.

85,681 84,478 81,478 89,379

105,617

-

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012


Source: U.S. Department of Commerce, International Trade Administration, TradeStats Express, March 2013.


81THE GLOBAL AEROSPACE MARKETPLACE

FIguRE 6.2 Map of u.S. Aerospace Export Countries

TABlE 6.1 u.S. Exports of Aerospace Products and Parts

Source: U.S. Department of Commerce, International Trade Administration, TradeStats Express, March 2013. Product of MapXtreme 2008 ® SDK Developer License © 2008 Pitney Bowes MapInfo Corporation.

Millions of u.S. DollarsPercentage

Change 2011–2012

Percent Exports to World2008 2009 2010 2011 2012

World 85,681 84,478 81,478 89,379 105,617 18 100

Japan 6,703 5,511 5,296 5,072 8,468 67 8

China 3,917 5,344 5,764 6,392 8,367 31 8

France 7,326 8,655 7,234 7,142 8,025 12 8

United Arab Emirates 2,775 3,507 1,811 3,655 7,186 97 7

United Kingdom 7,152 6,085 5,971 7,013 6,813 -3 6

Brazil 5,568 4,681 4,479 5,469 6,173 13 6

Germany 5,677 5,515 5,407 5,680 5,712 1 5

Canada 7,245 5,700 5,678 5,893 5,289 -10 5

Singapore 3,902 2,974 3,877 3,925 4,025 3 4

South Korea 2,712 2,026 2,650 2,741 3,635 33 3

Mexico 1,530 1,657 1,620 1,848 2,821 53 3

Hong Kong 1,177 2,199 1,408 2,487 2,496 0 2

Australia 1,749 1,797 1,636 2,002 2,206 10 2

Turkey 1,409 1,240 2,483 2,886 1,911 -34 2

Qatar 742 1,366 1,702 1,203 1,777 48 2


2012 Exports of NAICS 3364

$166,553 : $8,468,264 $10,895 : $166,553 $718 : $10,895 $2 : $718 zero

Thousands of U.S. Dollars

82

FIguRE 6.3 Trends in Top u.S. Aerospace Export Markets

U.S. Military Aerospace ExportsForeign military sales represent another channel for U.S. aerospace manufacturers and service providers. Table 6.2 shows the top 10 nations’ expenditures on military spending in 2012.

TABlE 6.2 Percent gDP Spent on Military, 2012

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012

Japan China France United Arab Emirates United Kingdom



Country

Spending Billions of

u.S. DollarsPercentage Change

2011–2012

Percentage Share of gDP

United States 682.4 -4.0 4.4

China* 166.1 16.2 2.0

Russia* 90.7 26.1 4.4

United Kingdom 60.8 -3.0 2.5

France 58.9 -5.8 2.3

Japan 59.3 0.0 1.0

India 46.1 -5.7 2.5

Saudi Arabia 56.7 16.9 8.9

Germany 45.8 -1.9 1.4

Brazil 33.1 -6.5 1.5

Source: Stockholm International Peace Research Institute (SIPRI), 2013. Spending figures are in current 2012 U.S. dollars.

* SIPRI estimates.



The United States is the world leader in terms of the total amount spent on defense, although it spends much less as a percentage of GDP than many other countries. When measured against GDP, the U.S. level of national defense spending is generally ranked 23rd to 25th depending on the methodology used.2

Even though the United States leads the world in absolute expendi-tures, the percentage rate of growth in military spending in China and Russia now exceeds the growth rate in the United States, which declined in 2012.3

Figure 6.4 highlights the Department of Defense’s planned Total Obligation Authority (TOA) over the next four years. The actual amount budgeted and authorized by Congress nearly always varies from the programmed TOA. The actual budget is currently in flux awaiting the outcome of the sequestration debates in Congress.

FIguRE 6.4 National Defense Total Obligation Authority

At the time of writing, estimated reductions range from $85 to $104 billion per year for the next 10 years, depending on which numbers are used.4 However, some of these cuts may be mitigated by increased demand for military aircraft and systems from outside the United States.

For the first time in several years, U.S. foreign military aerospace sales increased (see Figure 6.5). In 2012, foreign military sales of U.S.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2002 2004 2006 2008 2010 2012 2014 2016

Millions of U.S. Current Dollars

FY 2017(E)567,323

FY 2013(E)614,088

Fiscal Year

Source: National Defense Budget Estimates for FY 2013. E = estimate.

84

aerospace products and services increased by 12 percent and sales accounted for approximately 11 percent of all U.S. aerospace exports.

FIguRE 6.5 Military Aerospace Exports

U.S. Aerospace ImportsU.S. aerospace imports increased by 13 percent in 2012, driven primar-ily by demand for civilian aircraft, civilian aircraft parts, and engines for civilian aircraft (see Figure 6.6).

FIguRE 6.6 Imports of Aerospace Products and Parts

35,453

30,885 31,408

35,849

40,467

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2009 2010 2011 2012



12,819

10,666 10,375 10,051

11,290

-

2,500

5,000

7,500

10,000

12,500

15,000

2008 2009 2010 2011 2012


Source: Aerospace Industries Association, March 2013.



Figure 6.7 is a color-coded display of aerospace imports into the United States for 2012. Those countries from which the U.S. received the most imports are highlighted in bright red.

FIguRE 6.7 Map of u.S. Aerospace Import Countries

In 2012, the United States imported the most aerospace products and parts from France, Canada, Japan, the United Kingdom, and Germany. Figure 6.8 shows that imports increased in all five countries in 2012. Those countries with the greatest percentage change in imports included Israel, Italy, Japan, Mexico, and Poland (see Table 6.3).


2012 Imports of NAICS 3364

$72,930 : $9,685,880 $814 : $72,930 $26 : $814 $2 : $26 zero


86

TABlE 6.3 u.S. Imports of Aerospace Products and Parts

FIguRE 6.8 Trends in Top u.S. Aerospace Import Markets

France Canada Japan United Kingdom Germany

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012




Change 2011–2012

Percent Imports

from World2008 2009 2010 2011 2012

World 35,453 30,885 31,408 35,849 40,467 13 100

France 9,114 7,990 8,791 8,715 9,686 11 24

Canada 7,837 6,805 6,342 7,232 7,862 9 19

Japan 2,666 2,904 3,055 3,841 4,784 25 12

United Kingdom 3,808 3,407 3,428 3,691 3,955 7 10

Germany 2,773 3,144 2,088 2,916 3,195 10 8

Italy 953 952 1,204 1,308 1,658 27 4

Mexico 557 469 689 1,157 1,439 24 4

Brazil 2,296 747 746 936 1,071 14 3

Israel 1,344 761 748 693 949 37 2

Poland 171 178 386 569 679 19 2

China 387 397 498 622 663 7 2

South Korea 371 387 467 598 570 -5 1

Belgium 328 263 268 453 402 -11 1

Netherlands 207 230 299 306 359 17 1

Australia 176 164 164 327 342 5 1




U.S. Military Aerospace ImportsFigure 6.9 highlights trends in military aerospace imports over the past five years. It should be noted that in 2012, military imports increased by 20.4 percent over the previous year and represented about 10.8 percent of all aerospace imports into the United States.

FIguRE 6.9 Military Aerospace Imports into the united States

U.S. Balance of Trade in Aerospace Products and PartsThe United States has had an annual surplus in aerospace trade for more than 50 years, with a generally positive rate of growth. While exports did decline in 2009 and 2010, the overall balance of trade in aerospace products and parts remained relatively stable. As the econ-omy recovered, so did the exports and imports of aerospace products and parts (see Figure 6.10). The balance of trade for aerospace prod-ucts and parts increased by 21.7 percent in 2012.

3,345

2,936

3,331 3,637

4,378

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010 2011 2012


Source: Aerospace Industries Association, March 2013.

88

FIguRE 6.10 Balance of Trade Aerospace Products and Parts

Figure 6.11 is a color-coded map of aerospace trade balances for 2012. Countries listed in red are those with which the United States has the most positive trade balances.

FIguRE 6.11 Map of u.S. Aerospace Trade Balances

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012


65,150

40,467

105,617

Exports Imports Balance of Trade



2012 Balances for NAICS 3364

$51,500 : $7,704,228 $1,368 : $51,500 $2 : $1,368

zero $-2,573,242 : $-4




Approximately 74 percent of America’s positive trade balance is accounted for by its top 15 trading partners (see Table 6.4).

TABlE 6.4 Balance of Trade in Aerospace Products and Parts

Figure 6.12 highlights the fact that aerospace is one of the few catego-ries that maintains a positive trade balance. This particular chart pres-ents data on the trade balance for selected manufactured goods and commodities in 2012.5


Change 2011–2012

Percent of World2008 2009 2010 2011 2012

World 50,228 53,593 50,070 53,530 65,150 22 100

China 3,530 4,947 5,266 5,769 7,704 34 12

United Arab Emirates 2,774 3,506 1,810 3,654 7,185 97 11

Brazil 3,272 3,934 3,733 4,533 5,102 13 8

Singapore 3,567 2,707 3,600 3,670 3,762 2 6

Japan 4,036 2,606 2,242 1,231 3,684 199 6

South Korea 2,341 1,639 2,183 2,142 3,065 43 5

United Kingdom 3,344 2,678 2,543 3,322 2,858 -14 4

Germany 2,904 2,371 3,319 2,764 2,517 -9 4

Hong Kong 1,175 2,197 1,405 2,484 2,491 0 4

Australia 1,573 1,633 1,472 1,675 1,864 11 3

Qatar 742 1,366 1,702 1,203 1,777 48 3

Saudi Arabia 782 1,130 918 523 1,603 207 2

Turkey 1,195 989 2,214 2,603 1,575 -39 2

Indonesia 530 902 1,718 1,179 1,475 25 2

Mexico 973 1,188 931 692 1,382 100 2


90

FIguRE 6.12 Trade Balance for Selected Products, 2012

Regional Aerospace Exporting TrendsEven though data on the value of aerospace products produced in each state is no longer available to the public, it is still possible to assess and compare the value of U.S. aerospace exports by region and state.

Pacific Region Aerospace ExportsFor the purpose of this report, the Pacific region includes Alaska, California, Hawaii, Oregon, and the state of Washington.* Aerospace exports from this region are dominated by deliveries of Boeing’s large civil aircraft. The five year trend for the region has been extremely positive; with 2012 sales totaling $46,067,665,962—a 32 percent increase over 2011 (see Figure 6.13).

* The regions used in this chapter are the same as those used by the International Trade Administration in their TradeStats Express database.

-350 -300 -250 -200 -150 -100 -50 0 50 100

Crude oil

TV's, VCR's, etc.*

Vehicles

ADP equipment and office machines

Clothing

Electrical machinery*

Power generating machines*

Iron and steel mill products

Rubber tires and tubes*

Corn

Petroleum preparations

Coal

Chemicals – plastics

Soybeans

Airplanes, engines, and parts*


* Due to non-disclosure requirements, certain commodity classifications are subject to suppression and require a change in aggregation. For additional information see www.census.gov/ft900.

Source: U.S. Bureau of Economic Analysis, March 2013.



FIguRE 6.13 Pacific Region Aerospace Exports to World

In the case of large civil aircraft, customers typically buy specific production line sequences (slots) for aircraft years in advance of deliv-ery. Consequently, the level of exports typically rises or falls depend-ing on the mix of deliveries in a particular year. Table 6.5 reveals that aerospace exports increased for all Pacific region states except Hawaii between 2011 and 2012.

TABlE 6.5 Pacific Region Aerospace Exports by State

Figure 6.14 is a graphical display of the data in Table 6.5.*

* This is one of several figures that has dual axes. The reason for using two axes is because there is such a large difference in exports between California and Washington and all the other states. The axis on the right applies to California and Washington and the axis on the left applies to all the other states in the region.

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2008 2009 2010 2011 2012


46,068


State

Millions of u.S. Dollars Percentage Change

2011–20122008 2009 2010 2011 2012

Washington 21,493 26,479 23,322 27,163 37,106 37

California 7,865 6,683 6,100 6,800 7,960 17

Oregon 459 369 463 484 625 29

Hawaii 403 197 253 372 308 -17

Alaska 197 30 59 36 69 94


92

FIguRE 6.14 Trends in Pacific Region Aerospace Exports by State

Figure 6.15 illustrates trends in the export of aerospace products and parts from the Pacific region to its top five markets over the past five years. The top recipients of aerospace products from the Pacific region in 2012 were China, Japan, and the United Arab Emirates.

FIguRE 6.15 Trends in Pacific Region Top Aerospace Export Markets

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010 2011 2012

China United Arab Emirates South Korea Hong Kong Japan



Oregon Hawaii Alaska Washington California

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

100

200

300

400

500

600

700

2008 2009 2010 2011 2012

All Others Millions of U.S. Dollars Washington and California




Mountain Region Aerospace ExportsThe Mountain region includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Figure 6.16 indicates that aero-space exports from the Mountain region to the world increased slightly between 2009 and 2011, and posted an impressive 23 percent gain in 2012.

FIguRE 6.16 Mountain Region Aerospace Exports to World

The data in Table 6.6 and Figure 6.17 indicate that Arizona is the dominant aerospace exporter in the region, with Arizona, Idaho and Utah showing solid growth in 2012.

TABlE 6.6 Mountain Region Aerospace Exports by State

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012


3,855


State


2011–20122008 2009 2010 2011 2012

Arizona 2,749 2,148 1,987 2,372 2,579 9

Idaho 19 14 308 24 532 2,078

Utah 483 299 289 241 389 61

Colorado 219 228 252 210 176 -16

Nevada 99 104 127 135 100 -26

New Mexico 66 70 74 114 66 -42

Montana 18 17 42 41 12 -72

Wyoming 2 1 1 1 3 245


94

FIguRE 6.17 Trends in Mountain Region Aerospace Exports by State

Figure 6.18 displays the top five aerospace export markets for the Mountain region. As can be seen in this chart, exports to all of these countries increased in 2012, led by Singapore which grew by 494 percent in a single year.

FIguRE 6.18 Trends in Mountain Region Top Aerospace Export Markets

0

500

1,000

1,500

2,000

2,500

3,000

0

100

200

300

400

500

600

2008 2009 2010 2011 2012

Idaho Utah Colorado NevadaNew Mexico Montana Wyoming Arizona

All Others Millions of U.S. Dollars Arizona

France

100

200

300

400

500

600

700

2008 2009 2010 2011 2012

Singapore Canada United Kingdom Germany






South-Central Region Aerospace ExportsStates included in the South-Central region are Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas.

Aerospace export sales for the South-Central region dropped signifi-cantly following the recession, but have steadily improved over the past two years. The net result was a 23 percent increase in 2012; with the value of aerospace exports totaling $14,211,045,567 for the region (see Figure 6.19).

FIguRE 6.19 South-Central Region Aerospace Exports to World

Aerospace export growth rates were positive for all states in the South Central region in 2012, but were dominated by Texas and Kentucky. However, Arkansas recorded a particularly impressive 281 percent increase during the same period (see Table 6.7 and Figure 6.20).

Sales to all of the region’s top markets were positive in 2012 with the exception of Singapore, which declined by approximately 4 percent. (see Figure 6.21).

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009 2010 2011 2012


14,211


96

TABlE 6.7 South-Central Region Aerospace Exports by State

FIguRE 6.20 Trends in South-Central Region Aerospace Exports by State


2011–20122008 2009 2010 2011 2012

Texas 5,719 4,893 4,487 5,146 5,634 9

Kentucky 4,081 4,721 3,560 3,523 3,837 9

Arkansas 1,410 1,679 585 490 1,867 281

Tennessee 935 1,019 1,115 1,222 1,231 1

Alabama 630 535 425 527 691 31

Oklahoma 359 335 354 360 508 41

Louisiana 87 126 186 148 226 53

Mississippi 76 104 151 147 217 48


-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2008 2009 2010 2011 2012

Arkansas Tennessee Alabama OklahomaLouisiana Texas Kentucky

All Others Millions of U.S. Dollars Texas and Kentucky




FIguRE 6.21 South-Central Region Top Aerospace Export Markets

North-Central Region Aerospace ExportsThe North-Central region includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. As can be seen in Figure 6.22, aerospace exports from the North-Central region dropped in 2009 but have continued to recover over the past three years. Even though sales only increased four percent in 2012, the positive trend led by Ohio has been encouraging (see Table 6.8).

FIguRE 6.22 North-Central Region Aerospace Exports to World

United Kingdom SingaporeBrazil Canada France

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012



2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009 2010 2011 2012


13,352


98

TABlE 6.8 North-Central Region Exports by State

Due to the large number of states in this region, exports by states were broken down into two separate figures (see Figure 6.23 and Figure 6.24).

FIguRE 6.23 Trends in North-Central Region Exports by State (Part I)

OhioIndiana

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012

KansasIllinoisMichiganMissouri




2011–20122008 2009 2010 2011 2012

Ohio 4,755 4,118 4,698 5,422 5,644 4

Kansas 4,324 2,868 2,131 2,132 2,076 -3

Indiana 808 751 960 1,272 1,701 34

Illinois 1,417 1,126 1,037 1,004 1,041 4

Michigan 571 525 944 1,075 952 -11

Missouri 1,151 427 828 653 704 8

Minnesota 379 294 459 504 457 -9

Wisconsin 372 261 245 373 343 -8

Iowa 410 341 275 283 317 12

Nebraska 110 65 32 96 65 -32

North Dakota 17 32 31 28 27 -4

South Dakota 4 5 20 4 25 580




FIguRE 6.24 Trends in North-Central Region Exports by State (Part II)

Within the North Central region’s top markets, a 20 percent increase in aerospace exports to France helped offset declines in exports to Germany and Brazil (see Figure 6.25).

FIguRE 6.25 Trends in North-Central Region Top Aerospace Export Markets

South-Atlantic Region Aerospace ExportsIn addition to the District of Columbia, states in the South-Atlantic region include Delaware, Florida, Georgia, Maryland, North Carolina,

Minnesota Wisconsin Iowa

Nebraska North Dakota South Dakota

100

200

300

400

500

600

2008 2009 2010 2011 2012



France BrazilCanada United Kingdom Germany500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012



100

South Carolina, Virginia, and West Virginia. As illustrated in Figure 6.26, the South-Atlantic region is one of the few regions that main-tained a positive increase in exports each year over the past five years. Aerospace exports for the South Atlantic region totaled $15,319,232,833 in 2012.

FIguRE 6.26 South-Atlantic Region Aerospace Exports to World

Florida and Georgia led the region in exports in 2012 (see Table 6.9). Gains in Florida, North Carolina, Virginia, the District of Columbia, West Virginia, Delaware and South Carolina helped mitigate declines in Georgia and Maryland over the past year (see Figure 6.27). In terms of top markets, China, France and Brazil saw steady increases in 2012 (see Figure 6.28).

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2008 2009 2010 2011 2012


15,319




TABlE 6.9 South-Atlantic Region Aerospace Exports by State

FIguRE 6.27 Trends in South-Atlantic Region Aerospace Exports by State

North CarolinaMaryland District of ColumbiaWest Virginia

South CarolinaDelawareFlorida

1,000

2,000

3,000

4,000

5,000

6,000

7,000

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012

All Others Millions of U.S. Dollars Georgia and Florida

VirginiaGeorgia



2011–20122008 2009 2010 2011 2012

Florida 3,848 3,977 4,471 4,976 5,902 19

Georgia 3,314 3,442 4,547 5,929 5,467 -8

North Carolina 1,066 1,312 1,463 997 1,130 13

Virginia 1,095 849 964 928 1,004 8

Maryland 612 664 522 744 653 -12

District of Columbia 430 521 678 339 502 48

West Virginia 126 118 205 192 283 47

South Carolina 381 124 94 112 214 91

Delaware 142 132 125 77 165 113


102

FIguRE 6.28 Trends in South-Atlantic Region Top Aerospace Export Markets

Mid-Atlantic Region Aerospace ExportsStates in the Mid-Atlantic region include New Jersey, New York, and Pennsylvania. The momentum that began prior to the recession has yet to return to the Mid-Atlantic region. At $4,533,198,542, the region’s exports actually declined by five percent in 2012 (see Figure 6.29).

FIguRE 6.29 Mid-Atlantic Region Aerospace Exports to World

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012


4,533


200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012

Brazil China United Kingdom Singapore France





While Pennsylvania’s aerospace exports actually increased by 16 percent in 2012, New York and New Jersey’s exports decreased (see Table 6.10 and Figure 6.30). Exports to two of the region’s top inter-national markets declined significantly in 2012. In absolute dollars, state exports for the region were relatively flat in 2012. Germany declined by 49 percent and Canada declined by 48 percent, while aero-space exports to Turkey, Israel, and the United Kingdom increased slightly (see Figure 6.31).

TABlE 6.10 Mid-Atlantic Region Aerospace Exports by State

FIguRE 6.30 Trends in Mid-Atlantic Region Aerospace Exports by State


2011–20122008 2009 2010 2011 2012

New York 3,073 2,701 2,428 2,590 2,508 -3

New Jersey 1,552 1,461 1,315 1,313 1,036 -21

Pennsylvania 860 832 988 855 990 16


New York New Jersey Pennsylvania

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010 2011 2012



104

FIguRE 6.31 Trends in Mid-Atlantic Region Top Aerospace Export Markets

New England Region Aerospace ExportsThe New England region includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. Connecticut is clearly the region’s dominant aerospace exporter. Regional aerospace exports increased by four percent in 2012, led by Connecticut, Massachusetts, Vermont, and Rhode Island (see Figure 6.32, Figure 6.33, and Table 6.11).

FIguRE 6.32 New England Region Aerospace Exports to World

6,600

6,800

7,000

7,200

7,400

7,600

7,800

8,000

8,200

8,400

2008 2009 2010 2011 2012


8,152


100

200

300

400

500

600

700

800

900

1,000

2008 2009 2010 2011 2012

Turkey United KingdomIsrael GermanyCanada





TABlE 6.11 New England Region Aerospace Exports by State

FIguRE 6.33 Trends in New England Region Aerospace Exports by State

Within the region’s top markets, the United Arab Emirates, Germany, and South Korea accounted for the bulk of increased exports in 2012 (see Figure 6.34).

5,800

6,000

6,200

6,400

6,600

6,800

7,000

7,200

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012

All Others Millions of U.S. Dollars Connecticut

MassachusettsMaineNew Hampshire

VermontRhode IslandConnecticut



Change 2011–20122008 2009 2010 2011 2012

Connecticut 6,284 6,241 6,811 6,654 6,986 5

Massachusetts 804 835 717 752 762 1

Maine 80 170 107 268 269 0

New Hampshire 79 52 52 67 61 -8

Vermont 49 33 54 58 67 15

Rhode Island 10 9 18 7 7 6


106

FIguRE 6.34 Trends in New England Region Top Aerospace Export Markets

Export-Import Bank of the United StatesAs indicated in the previous section, aerospace exports play an impor-tant role in the U.S. economy. U.S. exporters and foreign customers are often supported by the Export-Import Bank of the United States (commonly referred to as the Ex-Im Bank). The Ex-Im Bank was established in 1934 by President Franklin D. Roosevelt as part of the New Deal.6 In May 2012, the President signed The Export-Import Bank Reauthorization Act of 2012, extending the Bank’s authority through 2014.7

The Ex-Im Bank is the official Export-Credit Agency (ECA) of the United States and a self-sustaining, wholly-owned U.S. government corporation. The Bank’s mission is to:8

Support jobs in the United States by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exports in the global marketplace. Ex-Im Bank does not compete with private-sector lenders, but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012

France Germany United Arab Emirates Canada South Korea





At the present time, the Ex-Im Bank is focused on industries with high export potential. These industries include agribusiness, aircraft and avionics, construction, medical technologies, mining, oil and gas, and power generation, including renewable energy.9

The Ex-Im Bank is a key player in the President’s National Export Initiative (NEI) aimed at doubling exports by 2015. Due in large part to this initiative, Ex-Im Bank funding has grown steadily over the past four years, totaling $35,784,300,000 in FY 2012. The steady growth in Ex-Im Bank funding can be seen in Figure 6.35.

FIguRE 6.35 Export-Import Bank Authorizations

As of September 30, 2012, the Ex-Im Bank had exposure in 178 countries throughout the world totaling $106,646,400,000. The Ex-Im Bank’s largest exposure is associated with air transportation. The aircraft industry has historically been a major recipient of Ex-Im Bank financing, representing 46.3 percent (about $49.4 billion) of the Ex-Im Bank’s total authorizations in FY 2012.10 A breakdown by industry can be seen in Figure 6.36.

Loans Loan Guarantees Insurance

356 3,033 4,261 6,323 11,765 10,179

11,475 13,106

19,400

18,321

3,864

6,513

7,101

7,004

5,699

14,399

21,021

32,727

35,784

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2008 2009 2010 2011 2012

Total Authorized


24,468

Source: Export-Import Bank of the United States, 2012 Annual Report.

108

FIguRE 6.36 Export-Import Bank Exposure by Industry

Summary and ConclusionsThe data in this chapter reinforce AIA’s message that the U.S. aero-space industry is “second to none.” In addition to producing the world’s finest commercial, general aviation, and military aerospace systems, aerospace is one of America’s top export industries and one of the few sectors that maintains a positive trade balance.

This chapter covered exports and imports at the national, regional, and state level and the important role of the Export-Import Bank in financing and supporting international aerospace exports.

The following chapter provides an overview of the aerospace indus-tries in four particularly important countries: Brazil, Russia, India and China.

Chapter Endnotes

1 U.S. Department of Commerce, International Trade Administration. (2013, March). TradeStats Express. Retrieved from http://tse.export.gov/TSE/TSEhome.aspx

2 The CIA World Factbook, for example, rates the U.S. 24th in terms of percent of GDP. CIA World Factbook. (2012). Retrieved from https://www.cia.gov/library/publications/the-world-factbook/rankorder/2034rank.html

13.1%Manufacturing

17.0%

15.5%All Others

46.3%Air Transportation

8.1%Power Projects

Manufacturing

Source: Export-Import Bank of the United States, 2012 Annual Report.



3 Stockholm International Peace Research Institute. (2013). List of countries by military expenditures. Retrieved from http://milexdata.sipri.org/files/?file=SIPRI+military+expenditure+database+1988-2012.xlsx

4 Crenshaw, L. (2012, May 1). 2012 Defense budget outlook: The new certainty. Defense Industry Daily. Retrieved from http://www.defenseindustrydaily.com/2012-Defense-budget-outlook-The-new-certainty-07375/

5 U.S. Bureau of Economic Analysis. (2012, December). U.S. international trade in goods and services. [Exhibit 15]. Retrieved from http://www.bea.gov/newsreleases/international/trade/2013/pdf/trad1212.pdf

6 Export-Import Bank of the United States. (2012). Ex-Im Bank History. Retrieved from http://www.exim.gov/about/whoweare/history.cfm

7 Export-Import Bank of the United States. (2012). President Obama Signs Export-Import Bank Reauthorization Act into Law. Retrieved from http://www.exim.gov/newsandevents/releases/2012/president-obama-signs-export-import-bank-reauthorization-act-into-law.cfm

8 Export-Import Bank of the United States. (2011). Export-Import Bank of the United States 2011 Annual Report. Retrieved from http://www.exim.gov/about/library/reports/annualreports/2011/

9 Ibid, p. 20.

10 Export-Import Bank of the United States. (2012). Export-Import Bank of the United States 2012 Annual Report. Retrieved from http://www.exim.gov/about/library/reports/annualreports/2012/

111

Aerospace and the BRICs

IntroductionOver the past several years, Brazil, Russia, India and China, collectively referred to as the BRIC countries, have received a lot of attention—and for good reason. The BRICs have been experiencing growth rates that exceed those in the United States; they have enormous resources and technical capabilities; and they have each targeted aerospace as a strategic industry.

This chapter provides an overview of the state of aerospace manufac-turing in each country with a focus on opportunities for U.S. aerospace manufacturers and suppliers.

BrazilThe CIA World Factbook describes Brazil as South America’s leading economic power and a regional leader.1 Even though Brazil’s GDP declined in 2012, it is expected to grow by three percent in 2013 and four percent in 2014, while keeping unemployment between 5.5 to 6.5 percent (see Figure 7.1).2

7

112

FIguRE 7.1 Brazilian gDP and unemployment Trends

Like the other BRIC countries, Brazil’s growing economy and expand-ing aerospace industry represent both an opportunity and a threat for U.S. aerospace manufacturers.

OpportunitiesFigure 7.2 and Table 7.1 show the trends in aerospace trade with Brazil between 2008 and 2012. Table 7.1 indicates that the U.S. trade balance with Brazil increased by 13 percent in 2012.

FIguRE 7.2 Aerospace Trade Trends with Brazil

0

500

1,000

1,500

2,000

2,500

3,000

GDP Unemployment

Billions of U.S. Dollars Percent

1,650 1,622

2,143

2,493 2,396

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2008 2009 2010 2011 2012

Source: International Monetary Fund World Economic Outlook Report 2013.

Exports Imports Balance

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2008 2009 2010 2011 2012




113AEROSPACE AND THE BRICS

TABlE 7.1 Aerospace Trade Statistics with Brazil

The demand for aerospace products, parts and services is being driven primarily by Brazil’s steady economic growth. The following factors contributed to the current trade balance:3

■n Brazil is the fifth largest aviation market in the world.

■n Brazil has the seventh largest helicopter fleet in the world.

■n The MRO market in Brazil is significant.

■n Brazilian aerospace manufacturers import a significant amount of parts and components from foreign sources, including the United States.

The 2011 Country Commercial Guide for U.S. Companies doing business in Brazil summarizes the following opportunities:4

As Brazil’s aviation market continues to expand, imports of parts and components will continue to increase, representing good business opportunities for U.S. suppliers. The products expected to have the most potential are: airplane and helicopter parts and components for defense and executive aircraft.

ChallengesAt the same time, however, Brazil is also a strong competitor in aerospace manufacturing.5 According to the Aerospace Industries Association of Brazil (AIAB), Brazilian aerospace firms are now involved in every sector of aerospace including aeronautics, space, and defense—and every phase of the life cycle including design, manufac-turing, support, and related services.6


2011–20122008 2009 2010 2011 2012

Exports 5,568 4,681 4,479 5,469 6,173 13

Imports 2,296 747 746 936 1,071 14

Balance 3,272 3,934 3,733 4,533 5,102 13


114

AIAB describes these segments as follows:7

■n The Aeronautical segment offers a variety of products such as, but not limited to, airplanes, helicopters, structural segments, engines, aircraft and engine parts, on-board systems and equipment, and air traffic control systems.

■n The Defense segment includes aircraft designed to meet specific mission requirements as well as weapon systems, equipment, guided and non-guided weapons, and systems integration.

■n The Space segment includes small satellites, satellite structures, payloads, satellite equipment, ground systems, propulsion, sounding rockets and launchers. It also includes services related to the usage of satellites images, consulting and other specialized services.

■n Other segments include MRO services to civil and military aircraft of all sizes, including the performance of major checks, structural modifications, engine and component overhaul.

Brazil’s largest aerospace manufacturer is Embraer. According to Embraer’s website, the company delivered 106 commercial aircraft and 99 executive jets in 2012.

Over the past several years, Embraer has expanded its global manu-facturing and service footprint. In 2002, Embraer established an assembly plant for regional jets in Harbin, China that it is now expand-ing. In 2011, Embraer opened an assembly plant for executive jets in Melbourne, Florida. Most recently, Embraer acquired control of OGMA, a MRO service provider in Portugal.

For More Information on Doing Business in BrazilThere are a variety of public and private sources for obtaining more information on doing business in Brazil. The U.S. Commercial Service in Brazil has offices in Belo Horizonte, Brasilia, Rio de Janeiro, São Paulo (HQ) and Recife. They also have partnership offices that can provide assistance to U.S. exporters in over 40 additional cities throughout Brazil. For more information on doing business in Brazil, please contact one of the following:

U.S. Commercial Service BrazilDeputy Senior Commercial Officer: Scott Shaw ([email protected]) Phone: 011-55-11-5186-7191; Fax: 011-55-11-5186-7343



Rua Thomas Deloney, 381 Chacara Santo Antonio 04710-041 São Paulo, SP

U.S. Commercial Service Belo HorizonteCommercial Assistant: Robert Pohl ([email protected]) Phone: 011-55-31-3213-1571; Fax: 011-55-31-3213-1575 Rua Timbiras, 1200, 7º Andar 30140-060 Belo Horizonte, MG

U.S. Commercial Service BrasiliaPrincipal Commercial Officer: Devin Rambo ([email protected]) Phone: 011-55-61-3312-7403; Fax: 011-55-61-3312-7656 SES - Av. das Nações, Quadra 801, Lote 0370403-900 Brasilia, DF

U.S. Commercial Service Rio de JaneiroPrincipal Commercial Officer: Alan Long ([email protected]) Phone: 011-55-21-3823-2000; Fax: 011-55-21-3823-2424 Av. Presidente Wilson, 147, 4º Andar 20030-020 Rio de Janeiro, RJ

U.S. Commercial Service RecifeCommercial Specialist: Adierson Azevedo ([email protected]) Phone: 011-81-3416-3075; Fax: 011-55-81-3231-1906 Rua Gonçalves Maia, 163—Boa Vista 50070-060

For more information on aerospace opportunities in Brazil, please contact:

Brian C. Brisson Regional Director—Western Hemisphere Office of International Operations U.S. Commercial Service Tel: (202) 482-2736 E-mail: [email protected]

Useful Links for Doing Business in BrazilA number of useful links for doing business in Brazil can be found at http://export.gov/brazil/links/index.asp

RussiaThe Russian Federation (hereafter referred to as Russia) occupies a landmass that is almost twice that of the United States with a popula-tion of less than 140 million. The CIA World Factbook describes Russia as a centralized, semi-authoritarian state in which the leadership seeks to legitimize its rule through managed elections and economic growth.

116

Figure 7.3 reveals that Russia’s economy has recovered from the worldwide recession quite nicely with GDP topping $2.02 trillion and unemployment declining from 8.4 percent in 2009 to approximately 6 percent in 2012.

FIguRE 7.3 Russian gDP and unemployment Trends

Following the break-up of the USSR in 1991, the Russian aero-space industry struggled, but during Vladimir Putin’s second term as President, things began to change. A 2010 report by the U.S. International Trade Administration describes the transformation of the Russian aerospace industry as follows:8

The Russian aviation industry has undergone a dramatic transformation designed to position it as a formidable competitor to the aviation industries of the United States and the EU. As recently as 2005, the Russian aviation industry could be characterized as a post-USSR era industry comprised of separate state and privately-held manufacturers and design bureaus with limited cooperation in research and development, design, manufacture, sales and marketing. In 2006, however, the Government of Russia began a program to consolidate the majority of the industry’s aerospace companies under a central, state-owned, joint stock company: the United Aircraft Corporation (UAC).

1,661

1,223

1,525

1,899 2,022

-

1

2

3

4

5

6

7

8

9

-

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012

Billions of U.S. Dollars Percent GDP Unemployment

Source: International Monetary Fund World Economic Outlook Report, March 2013.



Today, the Russian aviation industry consists of approximately 300 companies, including 108 manufacturers, and 111 R&D and design bureaus. Key government organizations representing the Russian aero-space industry include the following:9

■n United Aircraft Corporation (UAC). UAC is a holding company consisting of the leading Russian aircraft design bureaus, aircraft manufacturers and services companies structured as specialized divisions for commercial transport, combat, and specialized aircraft. UAC is working to increase the output of commercial aircraft from the current 15 percent to 47 percent by 2025. In order to be competitive internationally, UAC is increasingly entering into collaborative ventures with Western suppliers.

■n United Engine-Building Corporation (UEC). UEC is a subsidiary of OBORONPROM Industrial Holding Company, which controls all Russian helicopter manufacturers and manufacturers of main aggregates and systems, representing the entire model range of the industry. UEC consolidates over 80 percent of Russia’s engine-building assets.

■n Helicopters of Russia Holding is also a subsidiary of OBORONPROM Industrial Holding Company that is focused on the helicopter industry. The holding company incorporates 14 helicopter companies, including design bureaus, manufacturers and service companies.

■n Rostekhnologii (RT) is a super-state corporation that consolidates the assets of 140 industrial enterprises in many industries, including those in aviation such as Helicopters of Russia, United Engine-Building Corporation, Aviation Instrument Making, RT Chemical Composites, RT Metallurgy and others. UAC has a strategic partnership with RT in an effort to raise production efficiency by eliminating competition among domestic manufacturers, and creating other synergies that will allow expanding capabilities in the development and manufacturing of new products.

OpportunitiesOver the years, the United States has maintained a positive trade balance with Russia. The trade balance declined during and immedi-ately after the recession, but has rebounded nicely over the past two years. In 2012, aerospace exports increased 101 percent and the U.S.

118

aerospace trade balance with Russia grew by 139 percent (see Table 7.2 and Figure 7.4).

According to the 2012 Country Commercial Guide for U.S. Companies doing business in Russia, it is anticipated that Russian passenger traffic will increase at a rate of 5.6 percent a year over the next 20 years—and that this new thirst for travel will drive demand for new aircraft, MRO services, and aircraft spare parts.10

FIguRE 7.4 Aerospace Trade Trends with Russia

TABlE 7.2 Aerospace Trade Statistics with Russia

This same report states that the current share of Western aircraft in Russia’s airlines was expected to increase to 80 percent in 2012. Between the increase in demand for travel and the need to replace older aircraft, the overall prospects for the aerospace industry are quite good.

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012

Millions of U.S. Dollars Exports Imports Balance



2011–20122008 2009 2010 2011 2012

Exports 557 422 343 742 1,494 101

Imports 86 117 170 198 197 -1

Balance 471 304 172 544 1,297 139




In addition to the growing demand for new aircraft, the Country Commercial Guide for U.S. Companies doing business in Russia highlights the following areas of opportunity for aerospace manufacturers:11

■n Spare parts for aircraft. This market is estimated to be $600–700 million per year.

■n Heavy maintenance MRO services. Heavy maintenance MRO services in Russia are limited. As a result, many Western aircraft undergo MRO services outside Russia, and even though the airlines already have relationships with a number of MRO providers, they are continuously looking for new providers. One estimate indicates that the cost of Russian MRO services could reach $750 million by 2019.

■n Components for aircraft. The UAC needs a significant amount of parts and components to build and support new and existing aircraft.

■n Components for helicopters. Russia projects an annual growth in helicopter production of 20–30 percent and has expressed interest in helicopter components in a wide range of areas.

■n Manufacturing technologies and machine tools. The demand for new manufacturing technologies and machine tools continues to grow due to the planned modernization of production facilities at aircraft and helicopter production plants. With state funding available for modernization, Russian plants appear to be promising buyers.

■n Advanced materials and integrated solutions. The modernization of special metallurgy and composites, along with integrated solutions from industrial software and machine tool vendors, are expected to increase the productive capacity and quality of the Russian aviation industry. As a result, these segments are a top priority.

ChallengesAlthough local aircraft manufacturers are not able to meet market demand, there appears to be an emerging shift in policy which would decrease foreign imports and increase local manufacturing. The impact of this shift in policy remains to be seen.

For More Information on Doing Business in RussiaThere are a variety of public and private sources for obtaining more information on doing business in Russia. The U.S. Commercial Service

120

in Russia maintains offices in Moscow and St. Petersburg. For more information on doing business in Russia contact one of the following:

U.S. Commercial Service MoscowAmerican Embassy U.S. Commercial Service Bolshoy Deviatinsky Pereulok, 8 Moscow, 121099 Phone: 7-495-728-5580; Fax: 7-495-728-5585 Email: [email protected]

John McCaslin, Senior Commercial Officer Phone: 7-495-728-5474; Fax: 7-495-728-5585 Email: [email protected]

U.S. Commercial Service St. PetersburgU.S. Consulate General U.S. Commercial Service 15 Ulitsa Furshtatskaya St. Petersburg 191028 Russia Phone: 7-812-326-2560; Fax: 7-812-326-2561 Email: [email protected]

Kenneth Duckworth, Principal Commercial Officer Phone: 7-812-326-2563; Fax: 7-812-326-2561 Email: [email protected]

For more information on aerospace opportunities in Russia, please contact:

Vladislav Borodulin U.S. Commercial Services Specialist Tel: 7-495-728-5235 e-mail: [email protected]

Useful Links for Doing Business in RussiaA number of useful links for doing business in Russia can be found at http://export.gov/russia/doingbusinessinrussia/index.asp

IndiaAt approximately 1.2 billion people, India has the second largest popu-lation in the world and a rapidly expanding middle class.12 Despite overpopulation and serious environmental challenges, India’s GDP



grew from 2009 through 2011, but declined slightly in 2012. Between 2011 and 2012, India’s GDP decreased by about one percent, and unemployment ticked up from 9.8 to 9.9 percent (see Figure 7.5).

FIguRE 7.5 India gDP and unemployment Trends

OpportunitiesIndia’s growing population, and particularly the middle class, is creat-ing higher levels of demand for air transportation. As a result, the demand for air travel is expected to grow at 12.5 percent per year over the next several years.13 Similarly, India’s MRO market is expected to grow 10 percent annually and reach $2.4 billion by 2020.14

Opportunities for U.S. exports to India include large civil aircraft, general aviation, military systems, aviation training, and airport infra-structure development. India is also seeking partners to develop its commercial satellite and space launch capabilities.

The 2012 Country Commercial Guide for U.S. Companies doing business in India states that India is the ninth biggest aviation market in the world with the fourth largest domestic market. Despite its size, however, the Country Commercial Guide notes that India is one of the least penetrated aviation markets in the world—representing huge opportunities for U.S. aerospace manufacturers.

The Country Commercial Guide goes on to say:15

1,276 1,259

1,615

1,838 1,825

0

2

4

6

8

10

12

0

200

400

600

800

1,000

1,200

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1,600

1,800

2,000

2008 2009 2010 2011 2012


GDP Unemployment

Source: International Monetary Fund World Economic Outlook Report 2013 and CIA World Factbook.

122

India is ideally positioned as a major aviation hub at the crossroads between Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector for so long has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore hubs for Indian passengers, and they now have a significant head start. However, as India’s airports improve, and its airlines receive international awards for their service, there may be an opportunity to leverage its huge home market to compete with these longer established hubs.

Figure 7.6 and Table 7.3 illustrate the trends in aerospace trade with India over the past five years.

FIguRE 7.6 Aerospace Trade Trends with India

TABlE 7.3 Aerospace Trade Statistics with India

U.S. aerospace exports and the overall aerospace trade balance between India and the United States declined between 2009 and 2011, but recovered nicely in 2012. In 2012, U.S. aerospace exports to India

-

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012

Millions of U.S. Dollars Exports Imports Trade Balance

Source: International Monetary Fund World Economic Outlook Report, March 2013.


2011–20122008 2009 2010 2011 2012

Exports 1,863 2,302 1,318 770 1,377 79

Imports 44 32 32 57 84 46

Trade Balance 1,820 2,270 1,286 713 1,293 81




increased by 79 percent and the aerospace trade balance grew by 81 percent (see Table 7.3 and Figure 7.6). A recent white paper by the aerospace team at the International Trade Administration highlights several particularly important reasons for optimism.16

■n The President of the United States has identified India as a key market for the National Export Initiative (NEI).

■n The United States and India have agreed to cooperate on export controls.

■n India is not a major producer of aircraft or aircraft parts and the United States is the largest source of its aerospace imports.

■n The Investment Commission of India envisions spending up to $110 billion by 2020 with $80 billion spent on new aircraft and $30 billion spent on the country’s airport infrastructure.

To facilitate the transformation of India’s aerospace industry and aviation infrastructure, the U.S. Government and the Government of India entered into agreements in a number of aviation and aerospace-related areas. Some of these include:

■n U.S.–India Aviation Cooperation Program (ACP): A bilateral public-private partnership launched in 2007 to meet the modernization requirements of India’s aviation sector. The ACP is jointly supported by the U.S. Federal Aviation Administration, the U.S. Department of Commerce, the U.S. Trade and Development Agency, and a number of U.S. aviation companies.

■n U.S.–India High Technology Cooperation Group (HTCG): In 2010, the Civil Aviation Subcommittee was added to the HTCG to facilitate discussions and trade in high technology and sensitive areas.

■n U.S.–India Aviation Summits: The United States and India agreed to discuss aviation policy issues that enhance the commercial relationship between the U.S. and Indian civil aviation industries.

■n Major Indian Air Shows: The United States and India agreed to promote and participate in major Indian air shows, such as Aero India in Bangalore and India Aviation in Hyderabad.

■n Open Skies Agreement: The United States and India signed an Open Skies Agreement in 2005 to increase the flow of bilateral air traffic.

124

During the fall of 2011, India announced plans to open a National Aviation University to train pilots, air traffic personnel and other avia-tion staff. Nevertheless, despite the numerous positive steps that have been taken by the government, doing business in India is not without its challenges.

ChallengesThe biggest challenges in India are caused by its limited aviation infra-structure and the government’s lack of transparency in procurement decisions. Tariffs on imports of general aviation aircraft and parts are also an issue and the general aviation flight clearance process can be troublesome.17

For More Information on Doing Business in IndiaThere are a variety of public and private sources for obtaining more information on doing business in India. The U.S. Commercial Service in India has offices in New Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Bangalore, and Hyderabad. For more information on doing business in India, please contact one of the following:

U.S. Commercial Service, New DelhiJudy Reinke, Minister Counselor for Commercial Affairs Margaret Hanson-Muse, Deputy Senior Commercial Officer Greg O’ Connor, Commercial Officer Thomas P. Cassidy, Commercial Officer Olga Ford, Commercial Officer

Bureau of Industry and Security Perry Davis, Export Control Attaché

Patent and Trademark Office Kalpana Reddy, Intellectual Property Attaché

U.S. Commercial Service The American Center 24 Kasturba Gandhi Marg NEW DELHI 110 001 Tel: 91-11-2347 2000; Fax: 91-11-2331 5172 E-mail: [email protected]

U.S. Commercial Service, MumbaiRichard Rothman, Principal Commercial Officer Martin Claessens, Commercial Officer



U.S. Commercial Service American Consulate General C-49, G-Block, Bandra Kurla Complex (BKC) Bandra (East), Mumbai 400 051 Tel: 91-22-2672 4000; Fax: 91-22- E-mail: [email protected]

U.S. Commercial Service, ChennaiJames Golsen, Principal Commercial Officer

U.S. Commercial Service American Consulate General 220 Anna Salai Chennai 600 006 Tel: 91-44-2857 4477; Fax: 91-44-2857 4212 E-mail: [email protected]

U.S. Commercial Service, KolkataRichard Craig, Principal Commercial Officer

U.S. Commercial Service The American Center 38-A, Jawaharlal Nehru Road Kolkata 700 071 Tel: 91-33-3984 6300; Fax: 91-33-2288 1207 E-mail: [email protected]

U.S. Commercial Service, AhmedabadSangeeta Taneja, Commercial Specialist

U.S. Commercial Service JMC House, Suite # 41/42 Ambawadi, Opp. Parimal Garden Ahmedabad 380 006 Tel: 91-79-2656 5210/2656 5216; Fax: 91-79-2656 0763 E-mail: [email protected]

U.S. Commercial Service, BangaloreLeonard Roberts, Commercial Specialist Manjushree Phookan, Commercial Specialist

U.S. Commercial Service S2, 2nd Floor, Red Cross Bhavan

126

26, Race Course Road Bangalore 560 001 Tel: 91-80-2220 6401/2220 6404; Fax: 91-80-2220 6405 E-mail: [email protected]

U.S. Commercial Service, HyderabadP. Radhakishore, Commercial Specialist

U.S. Commercial Service American Consulate General 152, First Floor, Taj Deccan Hotel Road No. 1, Banjara Hills Hyderabad 500 034 Tel: 91-40-2330 5000/2339 3939; Fax: 91-40-2330 0130 E-mail: [email protected]

For more information on aerospace opportunities in India, please contact Pat Cassidy at [email protected].

Useful Links for Doing Business in IndiaA number of useful links for doing business in India can be found at http://export.gov/india/doingbusinessinindia/index.asp

ChinaThe People’s Republic of China (PRC) is a communist state with a population of over 1.34 billion people. In the late 1970s, China’s leaders focused on “market-oriented economic development” and by 2000, its output had quadrupled. Despite strong controls, living standards have improved, and the government of China has started to proactively engage in the global economic community.18

At the macroeconomic level, China has experienced a steady growth in its GDP since 2008, while maintaining an unemployment rate of 4.1 percent (see Figure 7.7).

OpportunitiesAs the Chinese economy and living conditions have improved, the demand for air travel has also increased. Today, “China has the world’s fastest growing domestic aviation industry …” and both “Boeing and Airbus have identified China as the single most important market for sales over the next 20 years …”19



As part of its plan to develop its civil aircraft manufacturing capabili-ties, in early 2008 the Commercial Aircraft Corporation of China (COMAC) was created to manufacture the C919 and manage its exist-ing ARJ21 regional jet program. In late 2008, the central government merged two large aerospace enterprises to create the Aviation Industry Corporation of China or AVIC.20

FIguRE 7.7 China gDP and unemployment Trends

Over the years, U.S. firms and other Western companies have part-nered with China in a number of ways to produce engines, flight control systems, landing gear, and other components for Chinese aircraft. Various arrangements to co-produce aircraft in China have also been attempted with mixed results.

However, as stated in Flight Plan 2011, aviation and aerospace oppor-tunities extend well beyond the production of large aircraft. General aviation is also expected to grow, and some estimate that the general aviation market in China could become the second largest market in the world, behind the United States, by 2015.21

The Civil Aviation Administration of China (CAAC) expects that as many as 230 new airports will be built by 2015 to meet China’s increasing demands for air travel.22 To support these needs, massive investments in new air traffic control systems are also anticipated.

4,520 4,991

5,930

7,322

8,227

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4

4.5

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2008 2009 2010 2011 2012


GDP Unemployment

Source: International Monetary Fund World Economic Outlook Report March 2013.

128

Figure 7.8 and Table 7.4 indicate a steady growth in aerospace trade with China over the past three years. The 2012 Country Commercial Guide for U.S. Companies doing business in China states “opportunities in the civil aviation market include final assembly and tier-one suppli-ers, small niche parts manufacturers, airport design and construction companies, and general aviation among others.”23

FIguRE 7.8 Aerospace Trade Trends with China

TABlE 7.4 Aerospace Trade Statistics with China

ChallengesIt is clear that the aviation and aerospace manufacturing markets in China represent enormous opportunities for U.S. air carriers, as well as general aviation and commercial aircraft manufacturers. However, it is equally apparent that the Chinese market has its own internal challenges. For example, the Country Commercial Guide states that there are three key challenges that threaten to limit growth in China: inadequate infrastruc-ture, overly restrictive airspace, and limited skilled human resources.24

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2008 2009 2010 2011 2012


Exports Imports Balance



2011–20122008 2009 2010 2011 2012

Exports 3,917 5,344 5,764 6,392 8,367 31

Imports 387 397 498 622 663 7

Balance 3,530 4,947 5,266 5,769 7,704 34




In addition to these internal challenges, it is clear that a vibrant Chinese aerospace manufacturing industry could dampen prospects for U.S. manufacturers hoping to export products and services into China, as well as those interested in licensing, joint ventures, or other market entry arrangements. Over time, U.S. manufacturers and other Western companies could also face new competition outside China “as Chinese manufacturers seek to expand their share of the global aircraft market.”25

For More Information on Doing Business in ChinaThere are a variety of public and private sources for obtaining more information on doing business in China. The U.S. Commercial Service in China has offices in Beijing, Chengdu, Guangzhou, Shanghai, and Shenyang. For more information on aerospace opportunities in China, please contact one or more of the following:.

U.S. Commercial Service BeijingContact: Ida Peng No.55 An Jia Lou Road, Chaoyang District Beijing 100600, China Tel: (86 10) 8531-3947; Fax: (86 10) 8531-4343 Email: [email protected]

U.S. Commercial Service ShanghaiContact: Vivien Bao Shanghai Center, Suite 631 1376 Nanjing West Road, Shanghai 200040, China Tel: (86 21) 6279-7630; Fax: (86 21) 6279-7639 Email: [email protected]

U.S. Commercial Service ChengduContact: Cui Shiyang No.4 Lingshiguan Road, Chengdu 610041, China Tel: (86 28) 8558-9642; Fax: (86 28) 8668-9221 Email: [email protected]

U.S. Commercial Service GuangzhouContact: Lena Yang 14F China Hotel Office Tower, Room 1461, Liuhua Road, Guangzhou 510015, China Tel: (86 20) 8667-4011; Fax: (86 20) 8666-6409 Email: [email protected]

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U.S. Commercial Service ShenyangContact: Liu Yang No.52 Shi Si Wei Lu He Ping District Shenyang 110003, China Tel: (86 24) 2322-1198; Fax: (86 24) 2322-2206 Email: [email protected]

Useful Links for Doing Business in ChinaA number of useful links for doing business in China can be found at http://export.gov/china/doingbizinchina/index.asp.

Summary and ConclusionsBrazil, Russia, India and China are unique in a number of ways. They have all experienced significant growth over the past decade; they have all targeted aerospace as a strategic industry; they all have some form of state ownership or support; they all represent enormous opportuni-ties for U.S. aerospace manufacturers and suppliers; and they all could be formidable competitors at some point in the future. Unfortunately, in 2012, the demand for products and services in all four countries slowed as their economies reacted to worsening global economic conditions. Finally, the BRICs all have one additional characteristic in common: a lack of qualified employees who can work on state-of-the-art aircraft, which is the subject of the next chapter.

Chapter Endnotes

1 U.S. Central Intelligence Agency. (2013). The CIA world factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/br.html

2 International Monetary Fund. (2013). World economic outlook database. Retrieved from http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

3 U.S. Department of Commerce, U.S. Commercial Service. (2011). Doing business in Brazil: 2011 country commercial guide for U.S. companies. Retrieved from http://www.buyusainfo.net/z_body.cfm?dbf=ccg1&search_type2=int&avar=19999&country=Brazil&logic=and&loadnav=no and U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2011). Flight plan 2011: Analysis of the U.S. aerospace industry. Retrieved from http://trade.gov/wcm/groups/internet/@trade/@mas/@man/@aai/documents/web_content/aero_rpt_flight_plan_2011.pdf

4 Ibid., p. 16.

5 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2011). Flight Plan 2011: Analysis of the U.S. aerospace industry. Retrieved from http://trade.gov/wcm/groups/internet/@trade/@mas/@man/@aai/documents/web_content/aero_rpt_flight_plan_2011.pdf



6 Aerospace Industries Association of Brazil. (2012). The Brazilian aerospace industry. Retrieved from http://www.aiab.org.br/english/index.php?option=com_content&task=emailform&id=13&itemid=26

7 Ibid.

8 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2010). Flight Plan 2010: Analysis of the U.S. aerospace industry. Retrieved from http://trade.gov/wcm/groups/internet/@trade/@mas/@man/@aai/documents/web_content/aero_rpt_flight_plan_2010.pdf

9 U.S. Department of Commerce, U.S. Commercial Service, (2012). Doing business in Russia: 2012 country commercial guide for U.S. companies. Retrieved from http://www.buyusainfo.net/z_body.cfm?dbf=ccg1%2Cbmr11%2Cmrsearch1&search_type2=int&avar=19999&country=Russia&logic=and&loadnav=no

10 Ibid., p. 40.

11 Ibid., pp. 42-44.

12 The CIA World Factbook.

13 Flight Plan 2010, p. 63.

14 U.S. Department of Commerce, U.S. Commercial Service, (2012). Doing business in India: 2012 country commercial guide for U.S. companies. Retrieved from http://www.buyusainfo.net/z_body.cfm?dbf=ccg1&search_type2=int&avar=19999&country=India&logic=and&loadnav=no

15 Ibid., p. 24.

16 Aerospace Team, U.S. Department of Commerce, International Trade Administration, Office of Manufacturing and Services. (2012, July 18). India Aerospace Sector. Washington, D.C.: Author.

17 Ibid.

18 The CIA World Factbook.


20 Ibid., p. 47.

21 Galbraith, A. (2012, April 17). Small-jet makers flock to China. The Wall Street Journal, p. B6. Retrieved from http://online.wsj.com/article/SB10001424052702303815404577335363327341258.html


23 U.S. Department of Commerce, U.S. Commercial Service. (2012). Doing business in China: 2012 country commercial guide for U.S. companies. Retrieved from http://www.buyusainfo.net/z_body.cfm?dbf=ccg1&search_type2=int&avar=19999&country=China&logic=and&loadnav=no

24 Ibid., p. 36.


133

The Aerospace Workforce

IntroductionThe U.S. aerospace industry has one of the finest workforces in the world. It is, in fact, “second-to-none.” It has propelled the U.S. aero-space industry to its current leadership position and has responded to every challenge. Lockheed Martin’s Joint Strike Fighter, Boeing’s Dreamliner, Northrop Grumman’s X-47B Unmanned Combat Air System, and NASA’s Curiosity are but the latest examples of American ingenuity and superiority in air and space—and behind it all is the U.S. aerospace workforce.

Employee ProductivityThe U.S. aerospace workforce is also one of the most productive workforces in the world. According to a Congressional Research Service report on manufacturing productivity, aerospace manufacturing output in the United States increased by 21 percent between 2000 and 2011, even as overall U.S. manufacturing output decreased by 3 percent during the same period.1 This increase in productivity can be attributed to a number of factors including process redesign, investments in new

8

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manufacturing equipment, and a highly skilled workforce—which is now undergoing its own unique set of challenges.

Workforce ChallengesDespite an enviable record of achievement, high wages, and continu-ously improving productivity, many are worried about the future of America’s aerospace workforce. Older workers are retiring and there are not enough people with the right skills in the workforce pipeline. For firms of all sizes, the lack of qualified workers can slow produc-tion, increase the cost of on-the-job training, reduce productivity, and limit innovation.

At a recent U.S. Senate Aerospace Caucus luncheon, Marion Blakey stated:2

We need a workforce with the necessary skills to compete globally—and to continue driving innovation in the future. In particular, this means we need more bright young people willing to enter and succeed in the science, technology, engineering, and math—STEM—fields.

About 13 percent of America’s college graduates earn STEM degrees. But in many of our competitor nations, it’s closer to 25 percent. So, we have some work to do.

A 2011 study by Deloitte revealed that finding skilled production work-ers, distributors, and technicians to replace retiring employees was a major concern of executives and one of their biggest hiring challenges.3

The results of the Aviation Week 2012 Workforce Study reinforce the scale and scope of the problem.4 Prior to sequestration, aerospace firms estimated that they would need to hire almost 120,000 employees over the next five years to meet their workforce needs in a variety of areas. Figure 8.1 is a breakdown of hiring needs by sector.

According to Aviation Week, the greatest challenge may be replacing production workers, which represent the largest category of aerospace workers that are eligible to retire. Figure 8.2 highlights the percentage of aerospace workers that are eligible to retire, by category, from 2012 through 2015.5 As indicated by the overall trend for engineers eligible to retire, this is clearly a growing problem. Similar trends are apparent in the other job categories as well.


135THE AEROSPACE WORKFORCE

FIguRE 8.1 A&D Hiring Needs, 2012–2016

FIguRE 8.2 Percentage of Workforce Eligible to Retire

AAR Corporation, a leading provider of products and services to the commercial aviation, government and defense industries, commissioned a report that attributes the shortage of workers to the following:6

■n The retirement of highly skilled, but older, workers.

■n A lack of focus on applied STEM education in the nation’s public schools.

12 14

16 18

17 18

20

23

14 16

19

22

18 19

22 24

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2012 2013 2014 2015

Percent

Engineers R&D Program Management Hourly Manufacturing

----- Linear Trend for Engineers

102,786

15,609

1,420

Defense

Commercial

Space

Source: Based on data from Aviation Week & Space Technology, August 2012.

Source: Aviation Week & Space Technology, August 2012.

136

■■ A disconnect between what is being taught in our educational institutions and what the industry really needs.

■■ A negative perception among the general public of manufacturing and maintenance work which discourages job seekers from entering the field.

■■ A shrinking talent pipeline for some aerospace-related occupations such as aircraft mechanics and sheet-metal technicians.

■■ Reliance on workers trained by the military who are no longer entering the industry at the same rate as before.

Furthermore, the AAR report notes that the lack of skilled workers is most challenging for small to medium-size manufacturers that do not have the power and influence of larger corporations.7

Employment StatisticsAt the end of 2012, the U.S. aerospace industry employed 632,700 people (see Figure 8.3). Employment in the aircraft, aircraft parts and equipment and engine manufacturing segments grew, while employ-ment in the missiles, space vehicles, and search, detection and naviga-tion sectors declined.

Figure 8.3 employment in the u.S. Aerospace industry by Segment

Search, detection, and navigation instruments Guided missiles, space vehicles, and partsOther aircraft parts and equipment Aircraft engines and engine partsAircraft

152.3 149.6 142.4 137.0 131.3

79.6 76.9 75.4 73.3 72.1

105.4 95.6 98.2 102.5 106.9

86.7 75.4 75.8 80.0 81.3

240.8 230.1 228.4 237.3 241.1

664.8 627.6 620.2 630.1 632.7

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012

Total Aerospace Products and Parts

Thousands

Source: U.S. Department of Labor, Bureau of Labor Statistics, March 2013.

AEroSpAcE InduStry rEport 3rd EdItIon


Washington State dominated the list of states ranked by employment for aerospace product and parts manufacturing (see Figure 8.4).

Wages and salaries vary greatly depending on the size of the firm and the nature of work performed. Average annual wages and the number of employees for selected occupations are highlighted in Figures 8.5 through 8.10.

FIguRE 8.4 Top 10 States for Aerospace Employment

FIguRE 8.5 Average Annual Wages for Functional Managers, lawyers, and Specialists in Aerospace

14,490

15,783

19,156

21,680

26,435

30,546

32,196

48,391

71,353

86,582

- 20,000 40,000 60,000 80,000 100,000

Missouri

Ohio

Florida

Georgia

Arizona

Connecticut

Kansas

Texas

California

Washington

Number of Employees

Source: U.S. Department of Labor, Bureau of Labor Statistics. *Preliminary as of August 2012.

68

72

76

80

82

91

157

0 20 40 60 80 100 120 140 160 180

Purchasing Agents

Accountantsand Auditors

Logisticians

Financial Analysts

Operations ResearchAnalysts

Market Research andMarketing Specialists

Lawyers


Source: U.S. Department of Labor, Bureau of Labor Statistics, August 2012.

138

FIguRE 8.6 Number of Functional Managers, lawyers, and Specialists in Aerospace

FIguRE 8.7 Average Annual Wages for Engineers in Aerospace

350 1,100

1,920 2,510

3,600

9,340

10,500

-

2,000

4,000

6,000

8,000

10,000

12,000

Lawyers MarketResearch and

MarketingSpecialists

OperationsResearchAnalysts

FinancialAnalysts

Accountantsand Auditors

Logisticians PurchasingAgents

Number of Employees


86

89

90

95

96.7

97.3

80 82 84 86 88 90 92 94 96 98 100

IndustrialEngineers

MechanicalEngineers

EnvironmentalEngineers

MaterialsEngineers

AerospaceEngineers

ElectricalEngineers





FIguRE 8.8 Number of Engineers in Aerospace

FIguRE 8.9 Average Annual Wages for Production Workers in Aerospace

300

4,170

7,410

11,800

16,830

28,340

-

5,000

10,000

15,000

20,000

25,000

30,000

EnvironmentalEngineers

MaterialsEngineers

ElectricalEngineers

MechanicalEngineers

IndustrialEngineers

AerospaceEngineers

Number of Employees


34

41

45

47

49

52

57

0 10 20 30 40 50 60

Electrical and ElectronicEquipment Assemblers

Computer-Controlled MachineTool Operators

Structural MetalFabricators and Fitters

Engine and OtherMachine Assemblers

Aircraft Structure Surfaces Riggingand Systems Assemblers

Milling and Planing Machine SettersOperators and Tenders

Tool and Die Makers



140

FIguRE 8.10 Number of Production Workers in Aerospace

Figure 8.11 is a graph of the age distribution of employees involved in manufacturing aerospace products and parts in 2011. The number of employees involved in this segment of the workforce totaled 438,000 with a median age of 48.0. Fifty-eight percent of the workers were 45 years old or older—reinforcing the need to encourage younger work-ers to enter the profession.

FIguRE 8.11 Age Distribution for Aerospace Products andParts Manufacturing Workforce

2

13

82 86

141

96

18

0

20

40

60

80

100

120

140

160

16–19 years 20–24 years 25–34 years 35–44 years 45–54 years 55–64 years 65 years +

Thousands

1,410 1,930 2,520 3,920 4,470

7,600

33,020

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Milling andPlaning Machine

SettersOperators

and Tenders

Engine andOther

MachineAssemblers

StructuralMetal

Fabricatorsand Fitters

Tool andDie

Makers

Electricaland

ElectronicEquipmentAssemblers

Computer-ControlledMachine

ToolOperators

AircraftStructure

Surfaces Riggingand SystemsAssemblers

Number of Employees

Source: U.S. Bureau of Labor Statistics, Current Population Survey, 2012.




The Workforce as a Supply ChainAt a 2011 hearing of the Committee on Science, Technology, Engineering, and Mathematics Workforce Needs for the U.S. Department of Defense and the U.S. Defense Industrial Base, the committee used a diagram similar to Figure 8.12 to describe the current workforce situation.8

Figure 8.12 indicates that less than five percent of students entering their freshman year in high school will graduate with STEM-related college degrees nine years later. The figure also indicates that the number of non-U.S. students obtaining degrees in science and engi-neering is greater than in the United States and increasing.

FIguRE 8.12 Supply Chain Model of STEM graduates

For many, looking at the workforce from a supply chain perspective makes it easier to assign and track performance metrics; identify and manage sources of variance and risk; and develop creative solutions.

Creative SolutionsAround the country, potential employers, public officials, and orga-nizations such as the Aerospace Industries Association (AIA), the American Institute of Aeronautics and Astronautics (AIAA), the Aerospace States Association (ASA), the National Defense Industries Association (NDIA), the Society for Manufacturing Engineers, the National Association of Manufacturers (NAM), the Manufacturing

Proficient(proficient or

advanced)

Not Proficient(basic or

below basic)

4,013,000Beginning 9th grade

in 2001

STEM Major

2-YearCollege

Graduatewith STEM

Degree

2,799,000Grads in class

of 2005

1,170,000

Enrolled in 4-yearcollege

Elementary Secondary College Career

32%

68%

278,000in 2005

167,000Expected in 2011

S&E DegreesAwarded Per Year

Time

United States Other Countries

Non-STEM Major

ProficientInterested

Not ProficientNot Interested

42%

ProficientNot Interested

Not ProficientInterested

17%

25%

15%

Source: Report of a Workshop on Science, Technology, Engineering, and Mathematics (STEM) Workforce Needs for the U.S. Department of Defense and the U.S. Defense Industrial Base. Based on a figure by

Michael Lach, Special Assistant to the Secretary for STEM, Department of Education, 2011.

142

Institute, and others have been developing and implementing creative solutions to these pressing workforce issues. Some of these ideas include the Business and Industry STEM Education Coalition,9 the Team America Rocketry Challenge,10 the Real World Design Challenge,11 and the Manufacturing Skills Certification program.12

DFW Regional Aerospace Cluster Responds to Changing Workforce NeedsThe Dallas-Ft. Worth (DFW) Regional Aerospace Cluster was launched a decade ago under the direction of the DFW Regional Workforce Leadership Council. Today, the DFW Region is home to nearly 50 percent of the state’s aerospace manufacturing establishments and accounts for 67 percent of state’s employment in the aerospace sector.

The vision and mission of the DFW Regional Aerospace Cluster is to be the regional center of excellence for meeting the education and workforce needs of the Aerospace and Defense Industry. Industry members include American Eurocopter LLC, Bell Helicopter, Lockheed Martin Aeronautics Company, Raytheon, and Triumph Aerostructures—Vought Division. Cluster partners include the Arlington Chamber of Commerce, Fort Worth Chamber of Commerce, Texas Manufacturing Assistance Center, Workforce Solutions for Tarrant County, and the NANO Materials Design & Commercialization Center.

Working together, the members and partners in the DFW aerospace cluster developed and deployed:

■n The first Career Technology Education Directors’ Advisory Committee which includes representatives from 18 school districts, the Fort Worth Chamber, Region XI Service Center and Workforce Solutions for Tarrant County.

■n A 240-hour Aerospace/Manufacturing Training curriculum that was designed by industry to meet industry needs and standards.

■n The “Gotta Jet?” career awareness program to reach students and parents with a clear and concise message through a “student friendly” brochure and companion DVD. The “Gotta Jet?” outreach program distributed 40,587 brochures and 5,125 DVDs; and reached 24,452 students in 146 schools.

In November 2011, the U.S. Department of Labor awarded Workforce Solutions for Tarrant County a four year $5 million grant to provide On-the-Job Training assistance for H-1B level occupations including:

■n Aerospace Engineers

■n Electrical Engineers

■n Industrial Engineers

■n Electronics Engineers

■n Mechanical Engineers and

■n Computer Software Engineers for Systems Software.

In 2012, the members and partners of the DFW aerospace cluster decided to proactively adjust its focus, alter its strategy, and expand its membership to deal with the industry’s changing workforce and training needs.

Source: Bell, J. Workforce Solutions for Tarrant County. Ft. Worth, Texas: DFW Regional Workforce Leadership Council, October 2012.



Business and Industry STEM Education CoalitionThe Business and Industry STEM Education Coalition (BISEC) was established in 2010 to enhance and elevate the U.S. commitment to science, technology, engineering and mathematics, and to facilitate STEM education and workforce development through private and public partnerships.13 The goals of BISEC, a dynamic affiliation of associations representing employers of STEM professionals, are to:

■n Increase the number of STEM graduates from high school through graduate school, such as increasing STEM bachelors’ degrees to 400,000 annually by 2020.

■n Leverage and align activities and resources to achieve meaningful employer engagement in STEM in all 50 states.

■n Improve the quality and impact of business-led or supported STEM programs towards an increase in our nation’s student achievement.

■n Articulate and publicize industries’ scientific and technical achievements and contributions to society to attract our future workforce.

By the middle of 2012, more than 40 business and industry associa-tions had joined the coalition whose purpose is to improve STEM education and develop future jobs and employment specialties that will strengthen America’s competitiveness and national security.

Team America Rocketry ChallengeThe Team America Rocketry Challenge (TARC) is the world’s largest model rocket contest. It is also AIA’s signature STEM program that excites, engages and attracts students into the STEM education and workforce development pipeline for ultimate recruitment into the aerospace industry. In its 11th season, 4,500 students from 44 states, the District of Columbia and the U.S. Virgin Islands competed for the top prize. This year, that prize included a trip to Paris, courtesy of the Raytheon Company; where the winning team from Georgetown, TX, went on to win the International Rocketry Challenge at the Paris International Air Show.

144

According to AIA President and CEO Marion C. Blakey,14

TARC has inspired thousands of bright young minds to expand their interest in science, technology, engineering and mathematics over the past 11 years ... The caliber of these students and the dedication they have shown here today are great indicators that the future of our industry is in good hands.

Real World Design ChallengeThe Real World Design Challenge (RWDC) is an annual competition that provides high school students with the opportunity to work on real world engineering problems in a team environment. In the RWDC program, student teams address challenges faced by America’s lead-ing industries. Students use a variety of tools to develop solutions and must convincingly demonstrate the value of their solutions to a panel of industry experts. The RWDC provides students with the opportu-nity to apply lessons learned from the classroom to real challenges in the aviation and aerospace workplace.

The Real World Design Challenge program, which has grown expo-nentially over the past several years, has the backing of the Aerospace States Association and Embry-Riddle Aeronautical University, as well as numerous other industry leaders and government organizations. Zachary Lemnios, Assistant Secretary for Research and Engineering at the Department of Defense, and keynote speaker at the 2012 event, captured the spirit of the challenge when he stated that “I’m looking for the future that you’re about to showcase.”15

Manufacturing Skills Certification ProgramAccording to the Manufacturing Institute, the Skills Certification program was established to directly address deficits in manufacturing education and training, which are limiting the pool of candidates for high-quality manufacturing jobs. The National Association of Manufacturers-endorsed Manufacturing Skills Certification credentials have real value in the manu-facturing workplace and provide pathways to employment for:

■n Individuals seeking valuable careers in manufacturing.

■n Workers who need to improve their skills to advance to higher level positions.

■n Workers whose jobs may be at risk, or workers who have lost a job and need to return to the workforce.



■n Individuals coming out of the military.

■n People moving out of welfare and into work.

The Manufacturing Skills Certification System is a system of stack-able and portable credentials applicable to all manufacturing sectors to ensure that individuals have both the personal and professional skills necessary for advanced manufacturing. The skill sets are based on the Advanced Manufacturing Competency Model and include four tiers of manufacturing competencies:16

■n Personal effectiveness.

■n Essential academic skills in reading, writing, math, and using and locating information.

■n Core manufacturing competencies.

■n Key technical skills for the production line, welding, machining and metalforming or Computer Numerical Control (CNC) operations.

Other IdeasOther creative ideas that are being implemented by local communities and employers include the following:

■n Engage “cool” and diverse role models that will attract the attention of a broad demographic of youth.

■n Develop and publish stories that create positive visibility for local workers.

■n Use social media such as Facebook, to appeal to younger potential workers.

■n Restore “shop” to high school curricula to expose students to basic manufacturing techniques.

■n Set up tours to local plants to educate students on careers in aerospace manufacturing.

■n Use technology-enabled knowledge management tools to capture the knowledge of older workers.

■n Develop and implement mentoring programs so that older workers can share their insights with younger workers.

146

■n Offer summer internship programs for youth to expose them to the manufacturing environment.

■n Use recruitment and retention bonuses to attract and retain promising workers.

■n Develop career management programs for new manufacturing employees that are similar to career planning methods used by the military.

■n Provide stable long-term funding for colleges and universities so that they can hire the right faculty and develop the right programs to meet industry’s long-term educational needs.

■n Engage students in hands-on, experiential STEM-related projects.

Summary and ConclusionsThe U.S. aerospace workforce is the finest and most talented workforce in the world. Unfortunately, it is being challenged by an aging resource pool, lack of interest in aerospace by the next generation of workers, growing competition from overseas manufacturers, and the yet to be determined impact of sequestration on the U.S. aerospace workforce. Despite these challenges, industry leaders, government organizations, and a variety of associations are taking a number of creative and long-term actions to solve this potentially serious problem.

Chapter Endnotes

1 Levinson, M. (2012, January 5). U.S. manufacturing in international perspective. (CRS Report No. R42135). Washington DC: Congressional Research Service.

2 U.S. Department of Commerce. (2012, July 18). Remarks at Senate Aerospace Caucus Luncheon. Retrieved from http://www.commerce.gov/news/acting-secretary-speeches/2012/07/18/remarks-senate-aerospace-caucus-luncheon

3 Deloitte Development and the Manufacturing Institute. (2011). Boiling Point: The skills gap in U.S. manufacturing. Retrieved from http://www.deloitte.com/assets/Dcom- United States/Local%20Assets/Documents/AD/us_PIP_2011SkillsGapReport_01142011.pdf

4 Hedden, C. (2012, August 20). Sequestered workforce. Aviation Week & Space Technology, pp. 38-41.

5 Ibid.

6 AAR Corporation. (2011). The mid-skills gap in middle America: Building today’s workforce. Retrieved from http://www.aarcorp.com/mid-skills/

7 Deloitte Development and the Manufacturing Institute. Boiling Point, p. 3.



8 National Research Council. (2012). Report of a workshop on Science, Technology, Engineering, and Mathematics (STEM) Workforce Needs for the U.S. Department of Defense and the U.S. Defense Industrial Base. Washington, DC: The National Academies Press, p. 23.

9 For more information on the Business and Industry STEM Education Coalition, see http://www.aia-aerospace.org/issues_policies/workforce/bisec/

10 For more information on the Team America Rocketry Challenge, see http://rocketcontest.org/

11 For more information on the Real World Design Challenge, see http://www.realworlddesignchallenge.org/

12 For more information on the Manufacturing Skills Certification program, see http://www.themanufacturinginstitute.org/Education-Workforce/Skills-Certification-System/Skills-Certification-System.aspx

13 Business and Industry STEM Education Coalition. (2010, March 12). Charter for the Business and Industry STEM Education Coalition Retrieved from http://www.aia-aerospace.org/assets/CHARTER%20HANDOUT.pdf

14 Aerospace Industries Association. (2013, May 11). Texas students take first place in Team America Rocketry Challenge Finals. AIA press release. Retrieved from http://www.aia-aerospace.org/newsroom/aia_news/texas_students_take_first_place_in_team_america_rocketry_challenge_finals/

15 Pardo, N. (2012, April 25). Students take on aeronautical design challenge, get job offers from industry. RWDC press release. Retrieved from http://www.realworlddesignchallenge.org/pdf/Students_Take_on_Aeronautical_Design_Challenge.pdf

16 The Manufacturing Institute. (2012). Overview of the manufacturing skills certification system. Retrieved from http://www.themanufacturinginstitute.org/~/media/04071088345544D086449F2ABFF99754/Overview.pdf

149

Finance and Capital Markets

IntroductionThis chapter begins with an overview of the financial health of the U.S. aerospace industry. Following this review, the chapter addresses recent changes in the capital markets and the impact of these changes on the industry. The chapter also examines trends in financing options, notable merger and acquisition (M&A) activity, and some of the unique challenges facing small to medium-size aerospace manufac-turers (SMMs). Understanding the full range of financial alternatives can help industry leaders ensure that their plant, equipment and other investments are financed in ways that will allow them to most effec-tively meet their short and long-term business goals.

Financial Overview of the U.S. Aerospace IndustryThe financial performance of the aerospace industry is closely related to the ability of aerospace manufacturers to obtain capital at favorable rates. Balance sheets, income statements, and ratios of various types are among the most common tools used to assess the financial well-being of firms and industries. Banks and lenders analyze these and

9

150

TABlE 9.1 Summary Income Statement, Operating Ratios and Balance Sheet Ratios for Aerospace Manufacturers in 2012

Item

All Total Asset Sizes Total Asset Sizes under $25 Million

1Q 2012 2Q 2012 3Q 2012 4Q 2012 Year 1Q 2012 2Q 2012 3Q 2012 4Q 2012 Year

Millions of u.S. Dollars Millions of u.S. Dollars

Net revenue 65,230 67,382 66,586 70,640 269,838 1,019 1,093 1,079 1,043 4,234

Income from operations 6,254 6,853 6,089 6,248 25,444 130 193 127 93 543

Income after income taxes 4,294 5,712 5,195 4,641 19,842 112 175 109 73 469

Income and Operating Ratios

Income from operations as percent of net sales 9.6% 10.2% 9.1% 8.8% 9.4% 12.8% 17.7% 11.8% 8.9% 12.8%

Income after taxes as percent of net sales 6.6% 8.5% 7.8% 6.6% 7.4% 11.0% 16.0% 10.1% 7.0% 11.0%

Income after taxes as percent of total assets 5.4% 6.8% 6.1% 5.4% 5.9% 21.6% 32.4% 18.5% 11.1% 20.9%

Balance Sheet Ratios

Total current assets to total current liabilities 1.4% 1.4% 1.3% 1.3% 1.4% 2.8% 3.2% 3.0% 2.7% 2.9%

Total cash, U.S. Gov’t and other securities, to total current liabilities 0.2% 0.2% 0.2% 0.2% 0.2% 0.4% 0.6% 0.6% 0.5% 0.5%

Total stockholders’ equity to total debt 1.3% 1.1% 1.1% 1.1% 1.2% 2.3% 2.9% 2.6% 2.3% 2.5%

Source: U.S. Census Bureau Quarterly Financial Reports, 2012.

other measures to determine credit worthiness, interest rates, collateral and other financing terms for loans. For publicly-traded firms, these measures also influence stock prices and ratings.

The information in Table 9.1 is based on data published by the U.S. Census Bureau and contains financial data and ratios for corpora-tions in NAICS Manufacturing Industry Group 3364, Aerospace Products and Parts. Since one of the objectives of this report is to highlight the special challenges facing small and medium-size aero-space manufacturers, the table also includes data on firms with assets under $25 million.*

Changing Market ConditionsSince the end of the recession, and even during the past year, there have been a number of significant developments in the aerospace and defense industry. As previously noted, commercial aircraft orders have continued to increase, while uncertainty in the defense sector has grown substantially. In response to the changing market conditions, the value of loans declined during and after the recession, but by the end of 2012, had risen to over $1.5 trillion as depicted in Figure 9.1.

* Additional information on the special challenges facing small to medium-size aerospace manufacturers is included in Chapter 10.


151FINANCE AND CAPITAL MARKETS

Even though interest rates are at historic lows, traditional sources of capital remain scarce for small and medium-size firms, creating an unprecedented environment for this critical segment of the industry.

The production of new commercial aircraft is expected to continue to expand. Boeing and Airbus recently announced production rate increases and some analysts expect production to increase as much

TABlE 9.1 Summary Income Statement, Operating Ratios and Balance Sheet Ratios for Aerospace Manufacturers in 2012

Item

All Total Asset Sizes Total Asset Sizes under $25 Million

1Q 2012 2Q 2012 3Q 2012 4Q 2012 Year 1Q 2012 2Q 2012 3Q 2012 4Q 2012 Year

Millions of u.S. Dollars Millions of u.S. Dollars

Net revenue 65,230 67,382 66,586 70,640 269,838 1,019 1,093 1,079 1,043 4,234

Income from operations 6,254 6,853 6,089 6,248 25,444 130 193 127 93 543

Income after income taxes 4,294 5,712 5,195 4,641 19,842 112 175 109 73 469

Income and Operating Ratios

Income from operations as percent of net sales 9.6% 10.2% 9.1% 8.8% 9.4% 12.8% 17.7% 11.8% 8.9% 12.8%

Income after taxes as percent of net sales 6.6% 8.5% 7.8% 6.6% 7.4% 11.0% 16.0% 10.1% 7.0% 11.0%

Income after taxes as percent of total assets 5.4% 6.8% 6.1% 5.4% 5.9% 21.6% 32.4% 18.5% 11.1% 20.9%

Balance Sheet Ratios

Total current assets to total current liabilities 1.4% 1.4% 1.3% 1.3% 1.4% 2.8% 3.2% 3.0% 2.7% 2.9%

Total cash, U.S. Gov’t and other securities, to total current liabilities 0.2% 0.2% 0.2% 0.2% 0.2% 0.4% 0.6% 0.6% 0.5% 0.5%

Total stockholders’ equity to total debt 1.3% 1.1% 1.1% 1.1% 1.2% 2.3% 2.9% 2.6% 2.3% 2.5%

Source: U.S. Census Bureau Quarterly Financial Reports, 2012.

500

700

900

1,100

1,300

1,500

1,700

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


1,509


FIguRE 9.1 Aggregate level of Commercial and Industrial loans at all Commercial Banks

152

as 35 percent over the next several years.1 Experts attribute much of this demand to the combination of high fuel prices and the availability of newer, more efficient aircraft, as well as low financing rates. Grant Thornton LLP, a global accounting, tax and advisory organization, notes that fuel costs as a percentage of total airline operating costs have risen from 14 percent in 2003 to 30 percent in 2011.2

While escalating production rates may imply larger revenue streams for the major manufacturers, there is growing concern about the ability of the smaller firms in the supply chain to meet this demand.3 More specifically, Tier III through Tier V manufacturers will be challenged to keep pace with production increases,4 as well as potential shortages of specialty raw materials.5 PricewaterhouseCoopers (PwC) conducted a study on the capacity and financial readiness of 93 suppliers across nine different component and systems segments, and concluded, “a fifth of suppliers are at risk of not being able to deliver the ramp-up that is required.”6

NetJets Places largest general Aviation Order in HistoryIn mid-2012, fractional-share provider NetJets ordered up to 425 Bombardier and Cessna jets worth as much as $9.6 billion. The purchase is the largest general aviation aircraft order in history and includes a firm order for 75 Bombardier Challenger 300s (plus options on another 125), a firm order for 25 Challenger 605s (plus options on 50 more), and a firm order for 25 Cessna Citation Latitudes (plus options on an additional 125). Deliveries begin in 2014 for the 300s, 2015 for the 605s and 2016 for the Latitudes. The Bombardier order is worth up to $7.3 billion and the Cessna order up to $2.3 billion.

The NetJets fleet includes a significant number of older airplanes that may soon be retired and replaced by the aircraft NetJets has ordered. These include not only the latest order from Bombardier and Cessna, but also NetJets’s planned purchase of 120 Bombardier Global jets worth $6.7 billion if all options are exercised, and 120 Embraer Phenom 300s, if all options are exercised.

The economic decision wasn’t because of rapidly growing fractional sales, according to NetJets Chairman and CEO Jordan Hansell, but the optional orders allow NetJets some flexibility. “We have a 10-year planning cycle at NetJets that we refresh every year on a rolling basis … and we feel it’s prudent to expand now, to be sure that we’re well positioned to compete over the longer term.”

None of the newly ordered airplanes is intended for the aircraft management operation NetJets is building in China. “These aircraft will be devoted to our U.S. and European fleets,” he said. “At some point we hope that the fractional market in China will be a robust one, but we think that will take some time.”

Commenting on the NetJets order, financial newsletter publisher Stephen Leeb noted that given the slump in private aviation, NetJets is “undoubtedly paying significantly lower than list,” adding that “if ever there was an example of smart money anticipating a turn in a cycle far ahead of the conventional wisdom, this is it … within five years we think Wall Street will view this deal as one of the shrewdest Buffett has ever done.”

Source: Summary of article by Matt Thurber, Aviation International News. For complete article, see Thurber, M. (2012, July1). NetJets makes biggest-ever aircraft order. Aviation International News. Retrieved from http://www.ainonline.com/aviation-news/2012-07-01/netjets-makes-biggest-ever-aircraft-order-0



Small to medium-size aerospace manufacturers are faced with a dilemma—should they expand to meet this historic and potentially unsustainable increase in demand, or defer investing until financial conditions improve? Moreover, if they do decide to invest, what is the best way to finance growth? Although every situation is different, some of the following information may help address this question.

FinancingInterest rates have not been this favorable to borrowers since before the recession. Figure 9.2 shows the dramatic decline in rates as reflected by the benchmark 10-year U.S. Treasury Bond.7

FIguRE 9.2 Yield on 10-Year Constant Maturity Bond

yield on the U.S. Treasury 10-year BondThe 10-year Treasury is less than half the level it was just 10 years ago, theoretically making it an ideal time to borrow. Low Treasury yields are generally a signal of low inflation expectations. Current rates, however, are the result of actions taken by the Federal Reserve to prompt banks to lend—but by the end of 2012, these actions had been relatively ineffective with many smaller firms still struggling to obtain the credit they need.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2002 2003 2004 2005 2006 2007 2009 2010 2011 2012

Percent

1.78


154

Aerospace and Defense Bond yield SpreadFigure 9.3 reflects the Aerospace and Defense (A&D) bond yield spread over the past five years. This chart shows that the spread between the rates paid by aerospace and defense companies has returned to a more normal relationship with the underlying Treasury bond after several years of trad-ing at a significant spread. This is a sign that bond investors (and by exten-sion, lenders) regard the sector as more attractive and credit worthy than over the past several years. This bodes well for borrowers in the sector.

FIguRE 9.3 Aerospace & Defense Bond Yield Spread

Traditional Lending

Loan Value OutstandingConsumer loans have slowly but steadily declined and leveled off since the end of 2009, reflecting household deleveraging.8 However, commercial and industrial (C&I) loans have increased 28 percent since bottoming-out in mid-2010. The total value of loans outstanding over the past five and a half years is shown in Figure 9.4.*

New Commercial and Industrial Loan ValueThe value of new C&I loans increased to over $84 billion in early April 2012 and then dropped, but still managed to end the year at slightly over $80.4 billion (see Figure 9.5).

0

50

100

150

200

250

300

350

400

450

Aug 2007 Aug 2008 Aug 2009 Aug 2010 Aug 2011 Aug 2012

Basis Points

130

Source: Barclays, August 2012.

* The apparent jump in consumer loans in April to May 2010 was caused by a new reporting requirement issued by the Financial Accounting Standards Board.



FIguRE 9.4 Total Value of loans Outstanding

FIguRE 9.5 Total Value of New C&I loans

Small Business Loan ValueWhile the total value of all commercial and industrial loans rose slightly over the past five years, the value of commercial and industrial business loans that are less than or equal to $1 million declined to slightly over $278 billion as of September 30, 2012.9 This reflects the

0

20

40

60

80

100

120

Jan2008

Jul2008

Jan2009

Jul2009

Jan2010

Jul2010

Jan2011

Jul2011

Jan2012

Jul2012

Jan2013

80.4


Commercial and Industrial Loan ValueConsumer Loan ValueAggregate Loan Value

-

500

1,000

1,500

2,000

2,500

3,000

Jan2008

Jul2008

Jan2009

Jul2009

Jan2010

Jul2010

Jan2011

Jul2011

Jan2012

Jul2012

Jan2013


1,121

1,541

2,662



156

generally accepted wisdom in the market that smaller borrowers are having difficulty obtaining traditional bank credit. This assumption is further supported by the declining percentage of small loans shown in Figure 9.6.

FIguRE 9.6 Total Value of Small Business loans

Small Business Loan SizeFigure 9.7 shows the average, small business loan size from 2008 through 2012. Balances appear to have stabilized after declining since 2008. The FDIC notes that a large majority of banks have reported stronger demand for C&I loans, citing increases in funding related to inventories, accounts receivable, investments in plant or equipment, and mergers and acquisitions.10

Increased Willingness to LendDespite the fact that a number of major banks have been downgraded by credit-rating agencies, the Federal Reserve’s April 2013 Survey of Senior Loan Officers indicates an increased willingness to lend. Traditional lending conditions have been growing steadily more favor-able since early 2010. Domestic banks have narrowed the spreads on C&I loan rates and have reduced their use of interest rate floors.11 This is consistent with the trends shown in Figure 9.8, which shows the net percentage of domestic respondents tightening standards for Commercial and Industrial loans for firms of all sizes.

C&I Loans Less Than $1 Million

0

5

10

15

20

25

30

35

250,000

270,000

290,000

310,000

330,000

350,000

370,000

2008 2009 2010 2011 2012

Small Loan Share of all Domestic C&I Loans

Billions of U.S. Dollars Small Loan Share Percent

22

283, 728

Source: FDIC, Loans to Small Businesses and Farms, Quarterly Banking Profile, March 2013.



FIguRE 9.7 Small C&I loan Balances

FIguRE 9.8 Net Percentage Tightening Standards for C&I loans

Smaller Lenders Not LendingThe Small Business Administration (SBA) notes that even though Senior Loan Officers appear to be more willing to lend, the loan markets for small businesses have not yet fully recovered. However, Table 9.2 shows that the market is beginning to open with the number of loans increasing by more than 10 percent in 2012 over the previ-ous year. Although this upward trend is encouraging, lending actually

C&I Loans <$100K C&I Loans $100K–$250K C&I Loans $250K–$1MM

142 134 123 120 120

57 55 50 47 47

137 134

119 116 117

-

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012


Large and Medium FirmsSmall Firms

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

2007 2008 2009 2010 2011 2012 2013

Percent

Source: FDIC, Loans to Small Businesses and Farms, March 2013.

Source: Federal Reserve Bank of St. Louis, Senior Loan Officer Opinion Survey on Bank Lending Practices, April 2013.

158

decreased in banks with under $1 billion in assets—which is the traditional source for most small business loans. The Small Business Administration notes that small businesses are now more willing to borrow, but a new report released by the Office of the Special Inspector General for the Troubled Asset Relief Program (TARP) suggests that there may be other reasons why firms have not been able to obtain credit. According to INC. magazine, over $2 billion, or 80 percent of the funds that were provided to banks to encourage small business lending, were used, instead, to pay back government loans from the TARP program.12

Table 9.2 Number of Small business loans OutstandingFrom Depository lenders by lender Size

Alternative LendingDespite loosening standards, bank loan activity remains lower than historical averages. This has proven to be a substantial problem for small and medium-size businesses seeking traditional bank loans. A survey conducted by the SBA found that 43 percent of small busi-ness respondents that needed extra funds over the past four years were unable to obtain loans. Because of the struggle to find traditional loans, smaller businesses have sought lending from alternative sources.

Asset-Backed LendingThis form of alternative lending is typically used by business-to-business companies who may need access to capital before they receive payment for their services. Asset-backed lending takes place when a company sells its receivables, purchase orders, or contracts to a factoring company.13 The factoring company, in turn, will give the company a percent of the value (typically 80–90 percent) up front,

lenders by Total asset Size

Million of loans Percentage Change

2011–20122008 2009 2010 2011 2012

Less than $100 million 0.41 0.41 0.31 0.28 0.24 -13.0

$100 million to $499.9 million 1.41 1.38 1.23 1.09 1.04 -5.1

$500 million to $999.9 million 1.83 1.85 1.94 1.69 1.58 -6.1

$1 billion to $9.9 billion 5.17 1.22 1.14 1.34 1.42 5.6

$10 billion to $49.9 billion 3.46 3.19 1.56 1.52 1.57 3.8

$50 billion or more 14.95 15.13 16.21 15.41 17.69 14.7

Total 27.22 23.18 22.39 21.33 23.54 10.4

Source: SBA Office of Advocacy, Small Business Lending in the United States, 2005–2012.

AerospAce Industry report 3rd edItIon


and the remainder when the invoices are paid off, thus providing a source of cash flow for working capital. This form of lending is different from more traditional bank lending because it is based on a company’s receivables rather than their credit score. This method of lending works especially well for manufacturers because of their more substantial equipment, products, and orders.

Figure 9.9 shows that the change in asset-based credit commitments improved rather dramatically in the latter half of 2011, but declined almost equally dramatically in the first half of 2012. Commitments increased, once again, in the latter half of 2012 and the fourth quarter results marked the seventh consecutive quarter that asset-based lend-ers increased their total credit commitments for U.S. businesses.14

FIguRE 9.9 Change in Asset-Based Credit Commitments

Cash Flow LendingIn asset-backed loans, the lender can look at a variety of different assets to secure a loan. In a cash flow lending situation, the lender looks at the expected income of the company, as well as its credit rating. Because of this, cash flow lending is more desirable for compa-nies with favorable credit ratings and well-documented, historical cash flows. Borrowers are typically required to meet various finan-cial covenants, such as meeting minimum Earnings Before Interest, Taxes, and Amortization (EBITA) requirements and leverage restric-tions.15 Unfortunately, since the financial crisis, many middle-market

-0.9

0.1

1.3

3.8

1.7

0.2

2.6

2.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

Percent

Source: Commercial Finance Association. March 2013.

160

companies’ revenue streams have become less predictable. This makes meeting such covenants increasingly challenging.

The CDO/CLO MarketCollateralized Debt Obligations (CDOs) are broadly defined as structured financial securities that are collateralized by a pool of bonds, bank loans, and/or other debt instruments.16 Within this broader financial instrument, Collateralized Loan Obligations (CLOs) have rebounded soundly since the implosion of CDOs in 2008. These are generally collateralized by below investment-grade syndicated bank loans. The remaining CLOs are collater-alized by middle-market bank loans.* In more recent years, these financial instruments have been upgraded by rating agencies. More specifically, Standard and Poor’s (S&P) notes that since the fourth quarter of 2010, it has upgraded about 60 percent of its CLO ratings. This is mostly due to increased collateral and transaction performance, with defaults declining from 11 percent in 2009, to less than one-half a percent in January 2012.17

In December 2012, The Wall Street Journal reported that CLO issuance increased by almost 300 percent, an extraordinary rebound from 2009, when almost no CLOs were issued. Experts report that the CLO market may be even bigger next year with issuances expected to range between $60 to $65 billion (see Figure 9.10).18

FIguRE 9.10 New ClO Issuances

15.4 15.1

27.6

46.3

79.8

92.6

19.0

0.3 3.3

12.9

51.1

0

10

20

30

40

50

60

70

80

90

100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Source: Royal Bank of Scotland, Fitch Rating; NAIC Capital Markets Special Report, 2012 and The Wall Street Journal, December 13, 2012.

* These include loans to companies with less than or equal to $50 million operating cash flow and less than $500 million in gross revenue.



While CDOs and CLOs are not of direct importance to small or mid-size borrowers, the availability of loans and liquidity in the CDO/CLO markets is indicative of the general availability of credit.

Private EquityPrivate equity, which refers to equity capital available in non-public markets, has become an increasingly important source of capital for private company expansion. Privately-held companies can use private equity to recapitalize their businesses for a number of purposes, including assistance with succession, the funding of important growth initiatives, or even an outright sale. Because of the constraints and the increasingly unattractive regulatory environment for publicly-held companies, many private companies are choosing to use private sources of equity.

Numerous private equity pools exist and these sources have been exceptionally active in the aerospace sector. Taking advantage of the market slowdown, relatively tight loan requirements, and observed opportunities for growth in the A&D sector, private equity firms increased their activity in loans and acquisitions. According to a Grant Thornton A&D update, U.S. market-wide private equity activity increased by 13 percent in 2011 and was responsible for 17 percent of all transactions.19 According to the same study, within the aerospace and defense sector, private equity players were buyers in 30 percent of the transactions in 2011. Furthermore, private equity providers have become very active in the leveraged loan business as well, providing yet another source of capital to aerospace companies. A credit markets update by KPMG notes that private equity firms also ramped up leveraged buyout loan activity to $465.2 billion in 2012—a 24 percent increase over 2011.20

State of the Equity MarketsThis section includes summary operating and market metrics on the aerospace industry. These metrics represent information for the companies in the Dow Jones Aerospace & Defense Index (Ticker: ITA). This index is comprised of over 30 companies selected by Dow Jones to represent the industry. It is a heavily manufacturing oriented index and relevant to manufacturers in the industry. The iShares Dow Jones U.S. Aerospace & Defense Index Fund includes manufacturers, assemblers and distributors of aircraft and aircraft parts, as well as producers of components and equipment for the defense industry, such as military aircraft, radar equipment and weapons.21

162

Table 9.3 includes information on the mean and median operat-ing metrics for the index as a whole, and for the largest and smallest firms by market capitalization to highlight similarities and differences between the two. While not perfect, these metrics provide useful information on industry performance and valuation. Some of the key insights revealed by these operating statistics include:

■n Smaller companies grew their revenues faster than larger companies, at 7.8 percent versus 5.2 percent.

■n At 52.3 percent, larger manufacturers had a drastically higher return on equity than smaller ones at 16.7 percent.

TABlE 9.4 Dow Jones Aerospace & Defense Index Fund Market Statistics

Share Price

Outstanding Shares (mil)

Market Cap ($ Millions)

Total Debt ($ Millions)

Book Value ($ Millions)

Debt/Equity Ratio

Enterprise Value

($ Millions)

Enterprise Value/ Sales

Enterprise Value/

EBITDAP/E Current

PriceMarket/

Book

Dow Jones Aerospace Index

Mean $58.51 149.099 $11,038 $2,979 $3,673 1.539 $14,408 1.42 8.40 16.55 6.75

Median $50.49 60.500 $2,683 $1,173 $1,339 0.617 $3,848 0.83 7.86 14.28 2.29

Dow Jones Aerospace Index Top-Half by Market Cap

Mean $80.34 241.158 $20,141 $4,346 $5,428 2.288 $21,702 1.80 9.04 16.18 10.01

Median $75.20 141.884 $7,761 $3,733 $2,237 0.658 $11,556 1.47 8.72 16.55 2.96

Dow Jones Aerospace Index Bottom-Half by Market Cap

Mean $36.40 51.219 $1,443 $761 $940 0.476 $2,174 0.75 7.36 17.15 1.89

Median $34.83 39.733 $1,107 $723 $988 0.597 $2,517 0.66 6.40 13.03 1.48

Source: Factset, May 2013.

TABlE 9.3 Dow Jones Aerospace & Defense Index Fund Operating Statistics

TTM Net Rev ($ Millions)

TTM Net Revenues— 1 yr. growth

Annual ROE

TTM EBIT ($ Millions)

TTM EBITDA ($ Millions)

TTM EBITDA/TTM Rev

EBITDA 1 yr. ago

($ Millions)

TTM 1 yr. EBITDA growth

gross Profit

Margin

Operating Profit

MarginNet Profit

Margin

Book Value Per

Share


Mean $12,756 6.31% 37.53% $1,403 $1,741 0.158 $1,468 5.46% 25.81% 13.02% 7.01% 19.62

Median $4,029 4.93% 15.49% $549 $678 0.137 $476 4.25% 22.05% 10.75% 6.14% 14.41


Mean $19,302 5.22% 52.34% $2,148 $2,712 0.180 $2,556 4.58% 27.99% 15.13% 8.41% 19.95

Median $8,382 4.25% 18.97% $1,015 $1,509 0.152 $1,161 3.82% 23.98% 12.39% 7.92% 14.08


Mean $2,977 7.77% 16.73% $260 $346 0.122 $255 5.63% 22.13% 9.39% 4.62% 18.68

Median $2,348 4.93% 12.21% $168 $249 0.116 $198 4.08% 21.52% 8.70% 4.49% 14.41

Source: Factset, May 2013. Note: TTM = Trailing Twelve Months



■n Average EBITDA growth for the larger firms was 4.6 percent, while smaller firms experienced slightly faster EBITDA growth at 5.6 percent.

■n Average operating margins of 15.1 percent were higher for the larger companies than the 9.4 percent operating margins of the smaller companies.

Table 9.4 includes additional statistics on the aerospace market broken down, once again, by market capitalization. Selected insights revealed by these market statistics include:

TABlE 9.4 Dow Jones Aerospace & Defense Index Fund Market Statistics

Share Price

Outstanding Shares (mil)

Market Cap ($ Millions)

Total Debt ($ Millions)

Book Value ($ Millions)

Debt/Equity Ratio

Enterprise Value

($ Millions)

Enterprise Value/ Sales

Enterprise Value/

EBITDAP/E Current

PriceMarket/

Book


Mean $58.51 149.099 $11,038 $2,979 $3,673 1.539 $14,408 1.42 8.40 16.55 6.75

Median $50.49 60.500 $2,683 $1,173 $1,339 0.617 $3,848 0.83 7.86 14.28 2.29


Mean $80.34 241.158 $20,141 $4,346 $5,428 2.288 $21,702 1.80 9.04 16.18 10.01

Median $75.20 141.884 $7,761 $3,733 $2,237 0.658 $11,556 1.47 8.72 16.55 2.96


Mean $36.40 51.219 $1,443 $761 $940 0.476 $2,174 0.75 7.36 17.15 1.89

Median $34.83 39.733 $1,107 $723 $988 0.597 $2,517 0.66 6.40 13.03 1.48

Source: Factset, May 2013.

TABlE 9.3 Dow Jones Aerospace & Defense Index Fund Operating Statistics

TTM Net Rev ($ Millions)

TTM Net Revenues— 1 yr. growth

Annual ROE

TTM EBIT ($ Millions)

TTM EBITDA ($ Millions)

TTM EBITDA/TTM Rev

EBITDA 1 yr. ago

($ Millions)

TTM 1 yr. EBITDA growth

gross Profit

Margin

Operating Profit

MarginNet Profit

Margin

Book Value Per

Share


Mean $12,756 6.31% 37.53% $1,403 $1,741 0.158 $1,468 5.46% 25.81% 13.02% 7.01% 19.62

Median $4,029 4.93% 15.49% $549 $678 0.137 $476 4.25% 22.05% 10.75% 6.14% 14.41


Mean $19,302 5.22% 52.34% $2,148 $2,712 0.180 $2,556 4.58% 27.99% 15.13% 8.41% 19.95

Median $8,382 4.25% 18.97% $1,015 $1,509 0.152 $1,161 3.82% 23.98% 12.39% 7.92% 14.08


Mean $2,977 7.77% 16.73% $260 $346 0.122 $255 5.63% 22.13% 9.39% 4.62% 18.68

Median $2,348 4.93% 12.21% $168 $249 0.116 $198 4.08% 21.52% 8.70% 4.49% 14.41

Source: Factset, May 2013. Note: TTM = Trailing Twelve Months

164

■n The larger companies are significantly more leveraged than smaller companies: 2.3 on average for the larger companies versus 0.5 for the smaller companies.

■n The larger companies are valued at an Enterprise Value/Revenues multiple of 1.8 versus 0.75 for the smaller companies, a significant premium.

■n Smaller companies trade at a lower multiple of EV/EBITDA of 7.4 versus 9.0 for larger companies.

Stock Market Performance of Aerospace CompaniesAs of May 2013, the Dow Jones Aerospace & Defense Index Fund had increased over 10 percent since the end of 2011 and was trading at over $80 a share. Figure 9.11 highlights the market’s perception of the sector’s health, showing the relative price performance of the Dow Jones Aerospace & Defense Index versus the S&P 500 Index.

FIguRE 9.11 Price Comparison S&P 500 Index vs. iSharesDow Jones Aerospace & Defense Index Fund

While the curves are generally similar in shape, since January 1, 2007, the Dow Jones Aerospace & Defense Index Fund has outpaced the broader S&P 500 Index by over 30 percent. The equity markets have clearly rewarded the industry.

DJ A&D Index S&P 500 Index

-60%

-40%

-20%

0%

20%

40%

60%

5/16/2007 5/13/2008 5/11/2009 5/7/2010 5/4/2011 5/1/2012 5/1/2013

Index (3 Jan 2007 = 100)

Source: Fidelity, May 2013.



Price-to-Earnings ComparisonsFigure 9.12 includes the Price-to-Earnings (P/E) ratios for selected publicly-traded A&D companies. Although P/E ratios must be care-fully evaluated, these ratios can tell us a lot about the industry and the economy as well as the performance of individual firms. For example, the P/E ratios for all these firms have remained relatively stable over the past three years. That says a lot about the overall state of the industry. Second, almost all of the ratios have been trending upward since the beginning of 2013. That tells us something about the state of the economy. Finally, most investors appear to view Boeing, with its balanced portfolio spread across commercial, defense and space markets, as a good long-term investment—and its P/E ratio is now higher than most companies in the industry. That tells us a lot about the public’s confidence in Boeing in particular.

FIguRE 9.12 Price-to-Earnings Ratios for Selected Corporations

Mergers and AcquisitionsM&A transactions have the potential to transform companies and expand capacity to meet customer needs. The number of M&A deals in the aerospace and defense sector grew by 20 percent in 2011, and the aggregate value of publicly disclosed transactions increased by more than 60 percent due, in large part, to the acquisition of Goodrich by United Technologies.22

6

8

10

12

14

16

18

20

22

24

December2010

December2011

December 2012

May 2013

United Technologies Lockheed Martin Boeing Precision CastpartsRaytheon Northrop Grumman Rockwell Collins L-3 Communications

Source: Ycharts. Used with permission from YCharts.

166

Industry transactions mostly targeted companies that would allow manufacturers to gain responsibility for more stages of production and increase delivery capacity. The Goodrich deal is expected to add about $8 billion to United Technologies’ annual revenues and boost its presence in the jet aircraft market.23

Table 9.5 is a list of aerospace and defense M&A deals with an enterprise value greater than $1 billion in 2012. According to PricewaterhouseCoopers, the deal value and volume both dropped in 2012 (see Figure 9.13). Initially, deals for the year totaled $19.5 billion, but when the purchase of Hawker Beechcraft by Superior Aviation Beijing was cancelled, the total value M&A deals for 2012 dropped to $17.7 billion—a 59 percent drop from the previous year.24 Despite this drop, 2012 was still a good year for M&A activity in the aero-space industry with 23 transactions at over $100 million in enterprise value each.25

TABlE 9.5 Top Aerospace & Defense M&A Deals in 2012

This decline in deals and value in the A&D industry versus just the aerospace industry can be explained by the uncertainty regarding the sequestration-driven reductions in the defense budget. Aerospace and MRO activity increased by almost 39 percent in 2012, while defense-related M&A activity declined by 78 percent. The market outlook for M&A activity in space is also positive and increased 63 percent in 2012 (see Figure 9.14).

Rank Target Name CountryAcquirer

Name StatusAcquirer Nation

Value of Transaction in Billions of u.S. Dollars

1 Avio SPA Aviation Business Italy General

Electric Pending U.S. 4.30

2 Titanium Metals Corp U.S.

Precision Castparts

CorpCompleted U.S. 2.61

3

Hawker Beechcraft

Acqustion Co LLC

U.S.

Superior Aviation Beijing Co Ltd

Withdrawn China 1.79

Source: PwC Mission Control, Fourth Quarter 2012.



FIguRE 9.13 Number of Aerospace & Defense M&A Deals

FIguRE 9.14 Aerospace & Defense M&A Transactions by Category

Summary and ConclusionsThe financial condition of the overall industry continued to improve in 2012—for large firms as well as small and medium-size manufacturers. But while interest rates have remained low and the number of loans has increased, sources of capital for small and medium-size manufacturers have remained scarce—which could make it difficult for them to meet demand as orders increase and the economy recovers. The number of

23 2311

1931

33 23

57 37 8

44 54

32 44

61

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2008 2009 2010 2011 2012

Space & Other Defense Aerospace & MROPercent

Source: PwC Mission Control, Fourth Quarter 2012.

300

270

309

320

284

0

5

10

15

20

25

30

35

40

45

50

240

250

260

270

280

290

300

310

320

330

2008 2009 2010 2011 2012

Number of Deals Value of Deals

Number of Deals Billions of U.S. Dollars

Source: PwC, Mission Control, Fourth Quarter 2012.

168

mergers and acquisitions in the industry was also lower than normal due, in part, to the uncertainty associated with sequestration.

Chapter Endnotes

1 PricewaterhouseCoopers. (2012). Aerospace & Defense 2011 year in review and 2012 forecast. Retrieved from http://www.pwc.com/en_GX/gx/aerospace-defence/assets/aerospace-and-defence.pdf; and Gursky, J. (2012, August). Buckle Up for Phase 2: Aerospace Recovery Cycle Update. Citigroup Investment Research & Analysis. Retrieved from http://www.factset.com/

2 Grant Thornton. (2012). Aerospace and defense update: mergers, acquisitions and the operating environment. Retrieved from http://www.grantthornton.com/staticfiles/GTCom/Aerospace%20and%20Defense/AD_MA_Update_Spring_2012.pdf

3 The manufacturing supply chain is often described in terms of tiers of suppliers. In general, a Tier I supplier has a direct relationship with the original equipment manufacturer, while subsequent tiers provide goods and services to the tier above them. For example, a Tier I supplier may provide sub-subsystems to the OEM, while the Tier II supplier provides components that go into the sub-systems. Similarly, a Tier III supplier may provide specialized parts that go into the components produced by the Tier II supplier and so forth. For a summary of how aerospace supply chains work, see ATKearney. (2008). Integrated value chains in aerospace and defense. Retrieved from http://www.aia-aerospace.org/assets/smc_wp-valuechains.pdf

4 Ciarmoli, M. (2012, July). Aerospace and Defense: Farnborough Air Show Survey and Recap. Capital Markets Inc., Research Division. Retrieved from http://www.factset.com/

5 PricewaterhouseCoopers. (2012, February). Soaring or stalling: can aircraft manufacturers prevent rate ramp-up problems? Retrieved from: http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=KOCL-8RHS7E&rss=true

6 Ibid.

7 Board of Governors of the Federal Reserve System. (2013, May 6). Selected Interest Rates, Treasury Constant Maturity-10 Year. Retrieved from http://www.federalreserve.gov/releases/h15/20120806/

8 Board of Governors of the Federal Reserve System. (2012, September). Charge-off and delinquency rates on loans and leases at commercial banks, second quarter 2012. Retrieved from http://federalreserve.gov/releases/chargeoff/

9 Federal Deposit Insurance Corporation. (2012, July). Small business and farm loans. Retrieved from http://www2.fdic.gov/QBP/timeseries/SmallBusiness&FarmLoans.xls

10 Ibid.

11 Board of Governors of the Federal Reserve System (2012, May). Senior loan officer opinion survey on bank lending practices. Retrieved from http://www.federalreserve.gov/boarddocs/snloansurvey/

12 Chen, L. (2013, April 10). Small banks used small business lending fund to exit TARP. INC. Retrieved from http://www.inc.com/liyan-chen/banks-used-sblf-to-exit-tarp.html

13 Mount, I. (2012, August). When banks won’t lend, there are alternatives, though often expensive. The New York Times. Retrieved from http://www.nytimes.com/2012/08/02/business/smallbusiness/for-small-businesses-bank-loan-alternatives.html?_r=0



14 Commercial Finance Association. (2013, March 11). Asset-based lending index shows lenders further increasing credit commitments to U.S. businesses. Retrieved from https://www.cfa.com/eweb/docs/Documents/4QCFAABLIndex31113FINAL.pdf

15 Practical Law Publishing Limited and Practical Law Company. (2012, May). Middle Market Lending: Overview: Cash Flow Loans. Retrieved from http://www.jonesday.com/files/Publication/e873a75e-8666-420d-825d-9247ffd1590a/Presentation/PublicationAttachment/53c79fa2-638e-455d-bf6d-d57b1580aa52/middlemarket.pdf

16 National Association of Insurance Commissioners Capital Markets Bureau. (2012, April). Capital markets special report. Retrieved from http://www.naic.org/capital_markets_archive/120611.htm

17 Ibid.

18 Burne, K. (2012, December 13). CLOs: Big in 2012, Likely even bigger in 2013. The Wall Street Journal. Retrieved from http://blogs.wsj.com/deals/2012/12/13/clos-big-in-2012-likely-even-bigger-in-2013/?mod=wsj_streaming_stream

19 Grant Thornton. (2012). Aerospace and defense update: mergers, acquisitions and the operating environment.

20 Global Enterprise Institute. (2013, January 1). KPMG’s Capital Advisory Q4 2012 Credit Markets Quarterly Update. Retrieved from http://www.kpmginstitutes.com/global-enterprise-institute/insights/2012/cf-q4-2012-credit-market-update.aspx

21 iShares Dow Jones U.S. Aerospace & Defense Index Fund. (2012). Index description. Retrieved from http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/fact_sheet/ita.pdf&mimeType=application/pdf

22 Grant Thornton. (2012). Aerospace and defense update: mergers, acquisitions and the operating environment.

23 Ibid.

24 PricewaterhouseCoopers. (2013). Mission control: fourth-quarter 2012 aerospace and defense industry mergers and acquisitions analysis. Retrieved from http://www.pwc.com/en_US/us/industrial-products/publications/assets/pwc-aerospace-defense-mergers-acquisitions-q4-2012.pdf

25 HarrisWilliams&Co. (2013, March). Aerospace M&A update. Retrieved from http://www.harriswilliams.com/sites/default/files/industry_reports/Aerospace_MA_Update.pdf

171

Topics to Watch in 2013 and Beyond

IntroductionThis chapter addresses a number of topics that are relevant to the U.S. aerospace manufacturing industry. The chapter begins with a review of the benefits and changing nature of aerospace clusters, and then turns to the challenges facing small to medium-size aerospace manu-facturers. Supply chain risk management is also addressed followed by a discussion of three very real threats to aerospace supply chains: rare earth elements, counterfeit parts, and the exponential growth in cyber-attacks. The chapter also discusses America’s role in civil space, the integration of unmanned systems into the national airspace system, the impact of sequestration on the aerospace industry, and several other topics that are important to watch in 2013 and beyond.

The Benefits of Aerospace ClustersAs stated in the Aerospace Industry Report (AIR) 2011, “even though industry clusters have been studied for many years, the critical role of clusters did not achieve widespread acceptance until the concept

10

172

was linked to Michael Porter’s work on competitive advantage in the 1990s.”1 According to Porter:2

A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities. The geographic scope of a cluster can range from a single city or state to a country or even a network of neighboring countries.

Today, Professor Porter and his Institute for Strategy and Competitiveness are continuing to add to our knowledge about the value of clusters and what can be done to make them even more effective.

Clusters are ImportantDrawing on last year’s report, aerospace clusters are important because they:

■n Promote efficiencies.

■n Encourage innovation.

■n Enhance product improvements.

■n Promote specialization.

■n Allow members to benefit as if they had greater scale.

■n Attract the attention of universities and Research and Development (R&D) funding.

■n Tend to be more profitable for members of the cluster.

■n Create higher wage jobs.

■n Drive prosperity for the city or region.

■n Sustain and enhance national security.

However, new research from Delgado, Porter and Stern found that the benefits of strong regional clusters are even greater than previously thought.3 For example, strong clusters tend to result in:

■n Higher rates of employment growth.

■n Stronger wage growth.

■n Higher rates of business creation.

■n Greater numbers of patents issued.


173TOPICS TO WATCH IN 2013 AND BEyOND

■n Lower costs of production.

■n Better trading relationships.

■n Higher rates of entrepreneurship.

Furthermore, these authors found that new regional industries tend to be born out of strong regional clusters, whereas narrow industry special-ization is likely to result in fewer opportunities for growth. In summary, the results of Delgado, Porter and Stern’s work suggests that:4

Regional economic performance depends crucially on the cluster composition across nearby regions rather than within narrow political boundaries. The benefits arising from clusters span multiple jurisdictions (and even states). Policies that enhance complementarities across jurisdictions, such as supporting infrastructure and institutions that facilitate access to demand, skills or suppliers in neighboring clusters, are important tools for regional development.

A recent survey of the Lt. Governors of the United States, conducted by Embry-Riddle Aeronautical University–Worldwide on behalf of the Aerospace States Association (ASA), found that the benefits of clusters were widespread (see Figure 10.1). Even though only 13 states responded, the results are consistent with previous claims about the benefits of clusters.

FIguRE 10.1 Benefits of Aerospace Clusters

4.00

4.00

4.00

4.09

4.10

4.10

4.11

4.18

4.36

4.45

4.55

1.0 2.0 3.0 4.0 5.0

Stimulating exports

Generating revenue for the state

Forging new alliances with partners in the U.S.

Creating new businesses

Attracting R&D funds

Creating new products and services forthe aviation and aerospace industries

Generating new patents

Creating a positive brand image orreputation for the local area or region

Creating higher paying jobs

Generating revenue for thelocal community

Creating or maintaining jobs

5 = Very Important

Source: Embry-Riddle Aeronautical University–Worldwide and the Aerospace States Association, 2012.

174

These results provide information that might be useful for leaders inter-ested in promoting or creating clusters. For example, it is clear that leaders from states that have aerospace clusters believe that their clusters help create or maintain jobs, generate revenue for the community and state, and create a positive brand image for their local area or region. Effective clusters also attract R&D funds, generate new patents, and create new businesses, products and services. Finally, the respondents indicated that clusters helped stimulate exports and forge new alliances within the United States—which reinforces the comments made earlier about the importance of reaching out, across boundaries, to enhance cluster performance.

The Role of Location in a Networked WorldGiven the importance of clusters and cluster composition across nearby regions, many would argue that deciding where to locate might be more important than ever. There is ample evidence to support that view. Dennis Donovan, one of the leading specialists in the field of site selection, recently listed a number of drivers for aerospace industry firms. Donovan states aerospace firms that are setting up new sites are looking for:5

■n At least a small critical mass of companies with complimentary interests.

Economic Area2010 Total

Employment2010 Share of

National EmploymentCAgR of Employment

1998–20102010 Employmentlocation Quotient

2010 Average Wages

CAgR** of Average Wages 1998–2010

1 Seattle-Tacoma-Olympia, WA 65,421 19.6 -3.3 12.5 $70,154 DS*

2 Los Angeles-Long Beach-Riverside, CA 42,807 12.8 -7.1 2.2 $82,732 4.3

3 Wichita-Winfield, KS 36,658 11.0 0.5 29.6 $48,632 2.1

4 Dallas-Fort Worth, TX 31,150 9.3 -1.2 3.5 $71,036 2.8

5 New York-Newark-Bridgeport, NY-NJ-CT-PA 22,441 6.7 5.7 0.9 $66,048 3.2

6 Tucson, AZ 18,021 5.4 5.6 17.7 $55,599 DS*

7 San Jose-San Francisco-Oakland, CA 11,065 3.3 -5.1 1.1 $66,747 DS*

8 Hartford-West Hartford-Willimantic, CT 9,943 3.0 -1.9 3.7 $51,057 DS*

9 Denver-Aurora-Boulder, CO 8,369 2.5 -0.3 1.8 $62,909 2.6

10 St. Louis-St. Charles-Farmington, MO-IL 8,358 2.5 -12.3 2.1 $57,242 DS*

11 Atlanta-Sandy Springs-Gainesville, GA-AL 8,105 2.4 -0.4 1.0 DS* DS*

12 San Diego-Carlsbad-San Marcos, CA 7,849 2.4 3.3 2.4 $56,335 0.1

13 Savannah-Hinesville-Fort Stewart, GA 7,680 2.3 5.8 10.8 DS* DS*

14 Phoenix-Mesa-Scottsdale, AZ 7,121 2.1 0.8 1.5 $57,027 3.2

15 Philadelphia-Camden-Vineland, PA-NJ-DE-MD 5,980 1.8 -3.8 0.7 DS* DS*

* DS = Data suppressed. Some wage data is suppressed for confidentiality, see project methodology for further discussion. ** CAGR = Compound Annual Growth Rate Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright © 2012 by the President and Fellows of Harvard College. All rights reserved.

TABlE 10.1 Aerospace Vehicles and Defense Clusters, Top 15 Economic Areas by Employment, 2010



■n A surplus labor market enhanced by technical training and education.

■n Adequate sites or buildings and fast track construction.

■n A right-to-work environment.

■n A superior utility and transportation infrastructure.

■n Enlightened leadership that is willing to invest in the removal of entry barriers, aerospace education and training, physical infrastructure, and partnerships to oversee the industry’s needs.

Donovan indicates that locating next to a customer is often a key require-ment in the aerospace industry.6 These factors tend to reinforce the belief that, despite recent advances in information technology, geography still matters and being located next to one’s partners and suppliers is still preferred and, in some cases, essential. However, as discussed later in this chapter, new forms of collaboration are being explored which may alter our thinking about the role of location and new product innovation.

America’s Leading Aerospace and Defense ClustersTable 10.1 lists the top 15 aerospace and defense clusters in the United States ranked by employment in 2010. Although this information is





2010 Average Wages


1 Seattle-Tacoma-Olympia, WA 65,421 19.6 -3.3 12.5 $70,154 DS*


3 Wichita-Winfield, KS 36,658 11.0 0.5 29.6 $48,632 2.1

4 Dallas-Fort Worth, TX 31,150 9.3 -1.2 3.5 $71,036 2.8

5 New York-Newark-Bridgeport, NY-NJ-CT-PA 22,441 6.7 5.7 0.9 $66,048 3.2

6 Tucson, AZ 18,021 5.4 5.6 17.7 $55,599 DS*

7 San Jose-San Francisco-Oakland, CA 11,065 3.3 -5.1 1.1 $66,747 DS*

8 Hartford-West Hartford-Willimantic, CT 9,943 3.0 -1.9 3.7 $51,057 DS*

9 Denver-Aurora-Boulder, CO 8,369 2.5 -0.3 1.8 $62,909 2.6

10 St. Louis-St. Charles-Farmington, MO-IL 8,358 2.5 -12.3 2.1 $57,242 DS*

11 Atlanta-Sandy Springs-Gainesville, GA-AL 8,105 2.4 -0.4 1.0 DS* DS*

12 San Diego-Carlsbad-San Marcos, CA 7,849 2.4 3.3 2.4 $56,335 0.1

13 Savannah-Hinesville-Fort Stewart, GA 7,680 2.3 5.8 10.8 DS* DS*

14 Phoenix-Mesa-Scottsdale, AZ 7,121 2.1 0.8 1.5 $57,027 3.2

15 Philadelphia-Camden-Vineland, PA-NJ-DE-MD 5,980 1.8 -3.8 0.7 DS* DS*

* DS = Data suppressed. Some wage data is suppressed for confidentiality, see project methodology for further discussion. ** CAGR = Compound Annual Growth Rate Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright © 2012 by the President and Fellows of Harvard College. All rights reserved.

TABlE 10.1 Aerospace Vehicles and Defense Clusters, Top 15 Economic Areas by Employment, 2010

176

somewhat dated, it is still useful to look at the size, scope, and changes that were taking place within the industry at that time. The Seattle-Tacoma-Olympia region topped the list in terms of employment, even though other regions had higher average wages.

In Table 10.2, the Hartford-West Hartford-Willimantic, CT engine cluster had the greatest number of employees in 2010, followed by the Cincinnati-Middletown-Wilmington cluster in southwest Ohio (see Table 10.2).

Figure 10.2 illustrates the percentage change in share of national clus-ter employment from 1998 through 2010 for selected industries. The vertical axis represents the 2010 share of national cluster employment, while the horizontal axis represents the percentage change in share of national cluster employment from 1998 through 2010.

The share of national cluster employment for aerospace engine manu-facturing decreased by almost 17 percent between 1998 and 2010, while national cluster employment for aerospace vehicles and defense decreased by almost 27 percent over the same period. When review-ing these charts, it is important to remember that the past recession





2010 Average Wages


1 Hartford-West Hartford-Willimantic, CT 9,740 11.9 -4.4 14.8 $67,241 1.5

2 Cincinnati-Middletown-Wilmington, OH-KY-IN 8,485 10.4 0.3 12.6 DS* DS*

3 Phoenix-Mesa-Scottsdale, AZ 8,391 10.2 0.7 7.3 $59,280 DS*

4 Boston-Worcester-Manchester, MA-NH 8,086 9.9 -0.7 3.1 $66,413 DS*

5 Indianapolis-Anderson-Columbus, IN 4,420 5.4 -0.3 4.8 DS* DS*

6 New York-Newark-Bridgeport, NY-NJ-CT-PA 3,862 4.7 -3.8 0.6 $66,389 3.0

7 Kansas City-Overland Park-Kansas City, MO-KS 3,790 4.6 54.8 5.0 DS* DS*

8 Washington-Baltimore-Northern Virginia, DC-MD-VA-WV 2,975 3.6 11.9 1.1 DS* DS*

9 Cleveland-Akron-Elyria, OH 2,415 2.9 1.1 1.9 $54,657 1.3

10 Portland-Lewiston-South Portland, ME 2,310 2.8 2.1 8.5 DS* DS*

11 Chicago-Naperville-Michigan City, IL-IN-WI 1,830 2.2 6.9 0.6 DS* DS*

12 Detroit-Warren-Flint, MI 1,759 2.1 6.7 1.1 $63,037 2.7

13 San Diego-Carlsbad-San Marcos, CA 1,750 2.1 -0.3 2.2 DS* DS*


15 Syracuse-Auburn, NY 1,555 1.9 -3.3 3.2 DS* DS*

* DS = Data suppressed. Some wage data is suppressed for confidentiality; see project methodology for further discussion. ** CAGR = Compound Annual Growth Rate Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School Richard Bryden, Project Director. Copyright © 2012 by the President and Fellows of Harvard College. All rights reserved.

TABlE 10.2 Aerospace Engine Clusters, Top 15 Economic Areas by Employment, 2010



officially ended in June 2009, and that the aerospace industry and the overall economy have generally been improving from 2009 to the present.

Cluster Registry FormedIn October 2011, Michael Porter’s Institute for Strategy and Competitiveness and the U.S. Department of Commerce’s Economic Development Administration announced the launch of a new beta site designed to strengthen U.S. competitiveness. The site is a regis-try which has been designed to help firms and government agencies identify other parties with complementary interests. As noted by the Assistant Secretary of Commerce for Economic Development, “the registry is just the first phase of this groundbreaking project to produce an interactive and dynamic geographic map that captures regional clusters and cluster-based initiatives across the nation.”7

The cluster registry site can be found at www.clustermapping.us. This site appears to be particularly well-suited for small to medium-size aerospace manufacturing companies that are interested in connecting with other firms, universities, government agencies or other parties to create or join an existing aerospace cluster.





2010 Average Wages


1 Hartford-West Hartford-Willimantic, CT 9,740 11.9 -4.4 14.8 $67,241 1.5

2 Cincinnati-Middletown-Wilmington, OH-KY-IN 8,485 10.4 0.3 12.6 DS* DS*

3 Phoenix-Mesa-Scottsdale, AZ 8,391 10.2 0.7 7.3 $59,280 DS*

4 Boston-Worcester-Manchester, MA-NH 8,086 9.9 -0.7 3.1 $66,413 DS*

5 Indianapolis-Anderson-Columbus, IN 4,420 5.4 -0.3 4.8 DS* DS*

6 New York-Newark-Bridgeport, NY-NJ-CT-PA 3,862 4.7 -3.8 0.6 $66,389 3.0

7 Kansas City-Overland Park-Kansas City, MO-KS 3,790 4.6 54.8 5.0 DS* DS*

8 Washington-Baltimore-Northern Virginia, DC-MD-VA-WV 2,975 3.6 11.9 1.1 DS* DS*

9 Cleveland-Akron-Elyria, OH 2,415 2.9 1.1 1.9 $54,657 1.3

10 Portland-Lewiston-South Portland, ME 2,310 2.8 2.1 8.5 DS* DS*

11 Chicago-Naperville-Michigan City, IL-IN-WI 1,830 2.2 6.9 0.6 DS* DS*

12 Detroit-Warren-Flint, MI 1,759 2.1 6.7 1.1 $63,037 2.7

13 San Diego-Carlsbad-San Marcos, CA 1,750 2.1 -0.3 2.2 DS* DS*


15 Syracuse-Auburn, NY 1,555 1.9 -3.3 3.2 DS* DS*

* DS = Data suppressed. Some wage data is suppressed for confidentiality; see project methodology for further discussion. ** CAGR = Compound Annual Growth Rate Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School Richard Bryden, Project Director. Copyright © 2012 by the President and Fellows of Harvard College. All rights reserved.

TABlE 10.2 Aerospace Engine Clusters, Top 15 Economic Areas by Employment, 2010

178

The Path to Regional Innovation While there may be no single path to regional innovation, Figure 10.3 illustrates, in general terms, how the process often works. As depicted in this diagram, the process begins with a small group of parties that share similar interests. Over time, a network emerges and a core group is formed. The core group includes firms that have complementary interests and, in many cases, includes government agencies, universi-ties, and other interested parties. As the core group grows and the network matures, a common vision is developed based on knowledge sharing, collaboration, and shared marketing, branding, and infrastruc-ture investments. The final step occurs when participants recognize the benefits of adding complementary activities across jurisdictions and other boundaries to optimize the effectiveness and efficiency of their new regional innovation cluster.

FIguRE 10.2 Percentage Change in Share of National Cluster Employment 1998–2010

-90.0 -80.0 -70.0 -60.0 -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0

Share of National Cluster Employment

Footwear

Textiles

CommunicationsEquipment

Automotive

MetalManufacturing

Plastics

Heavy Machinery Aerospace

Engines

FinancialServices

DistributionServices

Oil and Gas Productsand Services

Transportationand Logistics

Education andKnowledge Creation

Business Services

Percentage Change in Share of National Cluster Employment

Information Technology

Aerospace Vehiclesand Defense

Apparel

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright © 2012 by the President and Fellows of Harvard College. All rights reserved.



Guidelines for Building Effective Regional ClustersThe AIR 2011 report highlighted a number of actions that can be taken by the government, firms, and other institutions to create and build clusters.8 Based on the latest research, Delgado, Porter and Stern offer the following additional guidelines for building effective clusters at the regional level:9

■n Prioritize complementarities across related economic activities rather than trying to attract just any type of investment.

■n Offer incentives that benefit a small number of firms where the region is trying to build strength.

■n Focus on how to leverage a region’s strong clusters since new industries will grow out of the most successful existing clusters.

The Council on Competitiveness provides additional insight when it states that regional leadership is not a one size fits all strategy and thatit is possible to transform a competitive disadvantage into a collaborative advantage. Some additional guidelines suggested by the Council include:10

■n Effective regional leadership requires an on-going intermediary organization to keep regionalism alive.

■n Regions need identities and a story to tell.

FIguRE 10.3 Path to Regional Innovation

Communityof Practice

Cluster of Innovation

Regional Innovation

Cluster

Value

• More jobs• Higher wages• More patents and innovation• Lower costs of production, etc.

• Shared interests identified

• Little knowledge sharing and collaboration

• Network emerges

• Core group formed

• Strategy evolves

• Some knowledge sharing and collaboration

• Common vision created

• Network grows

• Expanded knowledge sharing and collaboration

• Shared investments in branding, marketing, and infrastructure

Time

• Common vision expanded

• Regional network grows across geographic and political boundaries

• Extensive knowledge

sharing and collaboration

• Expanded investments in branding,marketing, andinfrastructure

Communityof Interest

Source: Based, in part, on Morris, E. (2011, February). Presentation on How Regional Innovation Clusters Form: The Case of the Space Coast Energy Consortium. Purdue Center for Regional Development.

180

■n Regional leaders and regional leadership are both made and born.

■n Worry less about defining the region and more about enabling it.

Professor Ernest Wilson, Dean of the Annenberg School for Communication and Journalism at the University of Southern California notes that for regional clusters to be effective, leaders from government, business, civil society (not-for-profit organizations), and academia must work together to:11

Washington State Aerospace Products and Parts ClusterWashington State has one of the most robust and dynamic aerospace clusters in the world. With Boeing as its anchor, this cluster includes approximately 650 aerospace-related companies located in 28 counties. Employment at Boeing and the other aerospace–related firms across the state totaled approximately 96,500 in March 2013. Each job in the industry generates nearly three additional jobs resulting in over 200,000 jobs state-wide that can be attributed to this cluster. The cluster is built around six integral subsectors: airframe manufacturing; avionics; composites; engineering and research; tooling; and interiors.

According to the Washington State Department of Commerce, “the companies within these sectors supply every major OEM in the country.” This cluster is supported by the Aerospace Innovation Partnership Zone, a unique economic development effort that promotes collaboration leading to new technologies, marketable products, company formation, and job creation. Furthermore, the Washington State Aerospace Bulletin distributes information on the cluster, local companies, and emerging technologies. Although aerospace tends to be a capital intensive, high-risk industry, this cluster is doing well. From January 2011 to January 2012, aerospace product and parts manufacturing employment increased by 9,200 and continued to grow in 2013.

Source: Washington State Department of Commerce, 2012 and 2013.

Aerospace Product and Parts Manufacturing Employment in Washington State

Source: Washington State Employment Security Department, 2013. Excludes temporary dips in employment caused by union strikes.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Mar2003

Mar2004

Mar2005

Mar2006

Mar2007

Mar2008

Mar2009

Mar2010

Mar2011

Mar2012

Mar2013

Employment

96,500



■n Construct cross-sector networks that are richer, more diverse, and more deliberately structured than those of the past.

■n Continually reform the way their organizations are managed— creating a climate that fosters innovation, and adjusting the incentives and organizational structures to reward creativity and collaboration.

■n Invest in talented, innovative individuals, attracting, retaining, and empowering the right mix of people who can foster serial innovation.

Wilson also notes that by reviewing lessons learned and following the guidelines listed above, it is possible to accelerate the process of build-ing regional innovation clusters.12

Collaboration Strategies for the Aerospace IndustrySince the 1970’s, the just-in-time demands of industry have often made the co-location of manufacturers and their suppliers an economic imperative. Today, however, there is a small but grow-ing trend toward electronically enabled open collaboration that could fundamentally change how some firms collaborate. For firms that are considering creating or entering into a cluster, Pisano and Verganti (2008) provide some useful guidelines for thinking about different forms of collaboration.13

Pisano and Verganti describe four scenarios for selecting the most appropriate strategy. In the first scenario, a select group of participants is chosen by the company to come up with a solution. The company leading the effort defines the problem and also selects the solution. Decision-making in this environment is hierarchical and the number of participants is limited. Within the aerospace industry, most would agree that this sounds like a reasonably accurate description of the way in which the government works with contractors and the contractors, in turn, often work with their lower-tier suppliers.

In the second scenario, the lead firm may pose the problem, invite anyone to propose solutions, and then choose the solution that works best. In the third scenario, participants jointly select problems, decide how the work will be done, jointly choose solutions, and share the resulting intellectual property with each other. In the fourth and final scenario, any firm can propose problems, offer solutions, and decide which solution to use.

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While some might question whether these more open approaches can be applied within the aerospace and defense industry, there is evidence to suggest that some of the nontraditional approaches described in this framework can lead to faster and better solutions than traditional product development strategies. Even though security and intellectual property rights must still be addressed, DARPA and NASA are explor-ing ways to use crowdsourcing, social networking and prize challenges to develop new systems and solutions.14

The Cincinnati-Dayton Aerospace CorridorAccording to the Cincinnati Ohio Economic Development Agency, the Cincinnati-Dayton region has one of the nation’s greatest concentrations of aerospace engineering expertise. This pool includes 50,000 scientists and engineers within a 50-mile radius of Cincinnati, including 10,000 engineers and scientists at Wright-Patterson Air Force Base alone.

GE Aviation, which has its headquarters in Cincinnati, is one of the world’s leading producers of commercial and military jet engines and components, as well as integrated digital, electric power, and mechanical systems for aircraft. The company also has a global network to service its products.

Source: Cincinnati USA Partnership, City of Cincinnati Economic Development, 2012.

Employment and Establishments in the Cincinnati-Middletown Aircraft Engine and Engine Parts Cluster

Despite the economy, the number of employees producing aircraft engine and engine parts in the Cincinnati-Middletown area has remained relatively stable over the past five years, and the number of establishments has actually grown.

Source: Ohio Labor Market Information, 2012. See OhioLMI.com.

Number of EstablishmentsAverage Annual Wages

24

29

33

36 37

$91,281

$89,879

$98,029

$94,363

0

5

10

15

20

25

30

35

40

$84,000

$86,000

$88,000

$90,000

$92,000

$94,000

$96,000

$98,000

$100,000

$102,000

2007 2008 2009 2010 2011

Average Annual Wage Number of Establishments

$100,089



The UAVForge competition is an example:15

UAVForge is a crowdsourcing competition sponsored by DARPA and the Space and Naval Warfare Systems Center Atlantic to design, build and manufacture advanced small unmanned vehicle (UAV) systems. The goal is to facilitate the exchange of ideas among a loosely connected international community united through common interests and inspired by innovation and creative thought. By using a crowdsourcing competition format, DARPA seeks to lower the threshold to entry for hobbyists and citizen scientists, hoping to yield greater innovation, shorter timelines, better performance, and more affordable solutions. The goal for participants is to win a flyoff competition and the opportunity to work with a manufacturer to build a limited number of systems.

As stated by a DARPA program manager, U.S. firms do not have a monopoly on good ideas, and if companies or government agencies can determine how to access and organize ideas from outside their boundaries, the opportunities for innovation expand tremendously.16 For primes and OEMs, these new forms of collaboration represent new opportunities to source parts and components faster, better, and cheaper than previously possible. For creative small to medium-size aerospace manufacturers, this new paradigm has the potential to significantly expand the number of opportunities available.

The State of Small and Medium-Size U.S. Aerospace ManufacturersThe Center for Aviation and Aerospace Leadership (CAAL) has been concerned about the state of small to medium-size aerospace manu-facturers for a number of years. Firms with less than 1,000 employees account for over 93 percent of the companies that produce aerospace products and parts—while firms with 1,000 or more people employ about 88 percent of the aerospace manufacturing workforce (see Figure 10.4). We also know, from Chapter One, that firms with less than 1,000 employees account for almost 25 percent of domestic Research and Development expenditures, so small to medium-size firms play an important role in the aerospace and defense industry and U.S. economy.

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FIguRE 10.4 Number of Employees and Size of Firm

Figure 10.5 was constructed from data obtained from the U.S. Census Bureau’s Quarterly Financial Reports.17 This figure reveals a troubling trend, which, if not checked, could lead to the loss of an important part of the U.S. aerospace industrial base. Unfortunately, in the latter half of 2012, the gap between the larger and smaller aerospace manu-facturers continued to expand.

FIguRE 10.5 Index of Net Sales by Size of Aerospace Manufacturer

Index 4Q 2000 = 100 Firms with Assets Equal to or Greater Than $25 MillionFirms with Assets Less Than $25 Million

0

20

40

60

80

100

120

140

160

180

4Q 2000

4Q 2001

4Q 2002

4Q 2003

4Q 2004

4Q 2005

4Q 2006

4Q 2007

4Q 2008

4Q 2009

4Q 2010

4Q 2011

4Q 2012

Source: U.S. Census Bureau. Quarterly Financial Report for Corporations in NAICS Manufacturing Industry Group 3364, March 2013.

Number of Employees Percent of Employees Percent of Firms

3.2

3.4

1.8

47.3

44.3

77.9

9.9

2.5

9.2

0.5

0 10 20 30 40 50 60 70 80 90

5,000 or More

1000 to 4,999

500 to 999

10 to 499

1 to 9

Source: U.S. Census Bureau, March 2013.



Two additional indicators of the health of firms are the Income from Operations Ratio and the Net Income after Tax Ratio (see Figures 10.6 and 10.7). What these figures tell us is that even though the sales gap between large and small to medium-size aerospace manufacturing firms may be growing, the income ratios of SMMs have improved dramatically over the last two years.

FIguRE 10.6 Income from Operations Ratio

FIguRE 10.7 Net Income After Tax Ratio

Firms with Assets Equal to or Greater Than $25 MillionFirms with Assets Under 25 Million

01.02.03.04.05.06.07.08.09.0

10.011.012.013.014.0

2008 2009 2010 2011 2012

Percent



0.0

2.0

4.0

6.0

8.0

10.0

12.0

2008 2009 2010 2011 2012

Percent


186

Two additional ratios that are useful for assessing this issue are Total Current Assets to Total Current Liabilities and Total Cash, U.S. Government and other Securities to Total Current Liabilities. As can be seen in Figure 10.8, the ratio of Total Current Assets to Total Current Liabilities for both large and small firms is above 1.0. At the risk of over-simplification, this indicates that these firms, both large and small, are relatively liquid and have the cash and other assets to pay off their short-term obligations. It is also interesting to note that the ratios for small to medium-size aerospace manufacturers were at least double those of the larger manufacturers in four out of the last five years.

FIguRE 10.8 Total Current Assets to Total Current liabilities

When comparing Total Cash, U.S. Government and other Securities, to Total Current Liabilities, the difference between small firms and large firms is even greater (see Figure 10.9). While the U.S. Census Bureau provides no clear explanation for these differences, one reason may be the lack of credit available to SMMs, forcing them to maintain and use relatively more cash than their larger counterparts.

Given the challenges of the recession and the nation’s current economic situation, another good indicator is the number of days that firms are late in paying their commitments. Experian tracks this type of information using a statistic called days beyond contracted term or DBT. With the exception of the very smallest of firms, companies of all sizes reported fewer days late in 2011 than in the previous year.*


1.13 1.22 1.29 1.36 1.35

2.48 3.03

2.60 2.56

2.90

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2008 2009 2010 2011 2012

Ratio


* The upturn in the ratio for larger firms on the right side of Figure 10.10 is usually attributed to the use of more sophisticated cash management strategies. At the time of printing, the data for 2012 had not yet been released.



FIguRE 10.9 Total Cash, u.S. government and OtherSecurities to Total Current liabilities

FIguRE 10.10 Days Beyond Terms

While some of these signs are encouraging, small and medium-size firms still have their challenges.


0.09 0.12

0.16 0.16 0.16

0.50

0.70

0.55

0.34

0.54

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2008 2009 2010 2011 2012

Ratio


7.13

8.39 8.52 8.12

7.54 7.65 8.22

8.68 8.14

8.5 7.9

6.7

5.24.4 4.4

4.8 5.4

7.5

0

1

2

3

4

5

6

7

8

9

10

1–4 5–9 10–19 20–49 50–99 100–249 250–499 500–999 1000or More

Days Beyond Terms

Number of Employees

Dec 2010 Dec 2011

Source: Experian Benchmark Reports. Reproduced with permission, July 2012.

188

Challenges Facing Aerospace SuppliersIn an article about some of the issues facing aerospace suppliers, Lee Mason, a Vice President at Clarke Gear Company, observed that the preferred strategy used by prime aerospace manufacturers to reduce costs is to apply pressure on suppliers to reduce their prices with an understanding that those who fail to meet their new productivity goals will eventually be dismissed.18

Even though Mason’s article was written in 2004, her list of challenges facing small to medium-size manufacturers remains valid today. Some of these challenges include the following:

■n Continuous pressure to reduce costs and improve productivity.

■n Pressure to hold inventory while meeting the just-in-time needs of the primes.

■n Pressure to move manufacturing to lower labor cost countries.

■n The increasing cost of doing business in the United States.

■n Technology-enabled changes in how, where, and when people work.

To respond to these pressures, the author provides a number of recommendations. They include the following:

■n Seek to become a true low-cost supplier by reducing costs and applying best practices. The goal is not to shift your position on an existing cost curve, but to move to another cost curve altogether.

■n Use manufacturing technologies that make comparisons difficult.

■n Use critical components in complex systems, which make it harder for the OEMs to resource.

■n Be careful with multi-year contracts that demand annual downward price adjustments.

■n Maintain a positive relationship with your prime, regardless of pressure.

■n Model your manufacturing processes after those which are considered best in class.

■n Know your metrics and teach your people how to make the continuous adjustments that may be necessary to meet your goals.



Opportunities and Challenges in Civil SpaceFor some, America’s current vision for space is a controversial topic. This section addresses three opportunities and challenges associated with America’s role in civil space: restoring America’s human access to space; maintaining America’s leadership in space science and earth observation; and preserving America’s weather satellite capabilities.

Restoring Human Access to SpaceIn the years following the NASA Authorization Act of 2010, NASA’s human spaceflight program has made steady progress in restoring inde-pendent, U.S. domestic access to space. NASA’s approach develops new capabilities for exploration beyond Earth’s orbit, as well as new systems for transportation to the International Space Station (ISS).

The 2010 Act established a capabilities-based plan for human explora-tion beyond Earth’s orbit that supports the development of the Orion Multi-Purpose Crew Vehicle and the Space Launch System (SLS). While a definite path has not been widely agreed upon for human space exploration destinations in the out years, the Act establishes Orion and SLS as the building blocks for NASA to go beyond Earth’s orbit, no matter the destination. Orion will be the astronaut-carrying spacecraft that rides on top of the SLS heavy-lift launch vehicle.

Several key milestones for the development of new systems are planned for the near-term. Orion is expected to makes its first test launch into space in 2014 on a Delta IV launch vehicle. This mission will produce important test data needed for a spacecraft returning from beyond Earth’s orbit. Work on the SLS is also well underway, with a target flight test scheduled in 2017. Technical review of the core stage design of the SLS has already been completed. The first crewed flight of the SLS is scheduled for 2021.

As work continues on Orion and SLS, NASA’s Commercial Crew program industry partners are also building capabilities for transporta-tion to the International Space Station. NASA intends to utilize the ISS until at least 2020, and may extend its use well beyond that date. NASA’s Commercial Crew Program has held multiple competitions since 2010 that fund demonstration of industry capabilities for crew transportation to the ISS. The latest round of Commercial Crew competition finances the development of several fully-integrated crew transportation systems through May 2014—with the option to go beyond that period, leading up to fully operational systems. Restoration of domestic crew access to the ISS is targeted by NASA

190

for 2017, but it is not yet clear how many Commercial Crew providers NASA will ultimately fund for full ISS transportation.

Maintaining Leadership in Space Science and Earth Observation Another area of special attention is NASA’s science program. NASA’s priority science mission, the James Webb Space Telescope (JWST), continues to meet key objectives ahead of its scheduled launch date in 2018. As the successor to the Hubble Space Telescope, JWST will be NASA’s premier telescope for answering bold, paradigm-shifting ques-tions, including questions about the origin and nature of the universe, galaxies, stars, and planets. In August 2012, NASA landed its largest Mars rover to date, the Mars Science Lab, better known as Curiosity. Curiosity is capitalizing on the successes of the Spirit and Opportunity Mars rovers and uncovering new insights on Mars’ past and current capacity to support life.

Recently, pressure has been placed on the JWST and NASA Mars science program to cut costs and accelerate development, despite unprecedented technical challenges. Many such science missions must also grapple with the limited capacity of affordable, domestic space launch systems to low Earth orbit. When these challenges are coupled with an occasional launch failure and annual budget constraints, an environment has been created in which space science missions face a daunting future. The National Research Council recently reported, “the nation’s earth observing system is beginning a rapid decline in capability, as long-running missions end and key new missions are delayed, lost, or cancelled.”19 In this increasingly difficult environment, it is critical for the U.S. government to maintain its cadence of future missions to protect the unique skills and industrial base required to continue America’s leadership in space science and Earth observation.

Preserving Weather Satellite CapabilitiesAs the primary provider of satellite-based environmental observa-tion systems for the public and private sector, the U.S. government funds and operates key satellite networks that enable the high fidelity weather forecasts and natural observations that America depends on daily. Space-based environmental observation programs at NASA, NOAA, and the USGS, enable scientists and reporters to develop and deliver routine weather forecasts, as well as advanced warning of deadly storms—often days in advance.



The need for prediction and response systems for natural disasters could not be more evident. In 2011, there were 14 weather events that inflicted at least $1 billion in damage and in 2012, there were 11 such events.

Alarmingly, a number of U.S.-based environmental observation satel-lites are past their planned life span. With an average life of 15 years for environmental observation satellites, and development spans on the order of seven to eight years, advanced planning and commit-ment is needed to avoid near-term data gaps in daily weather forecasts, as well as weather research and modeling. If there were to be addi-tional funding shortages and delays to the NOAA Joint Polar Satellite System, Geostationary Operational Environmental Satellite – R series, or the USGS Landsat Program, the United States could see gaps in weather and environmental data collection. Such gaps could signifi-cantly degrade our ability to accurately forecast the timing and location of major weather events and natural disasters.

Weather forecasting is not a given, it is the product of continuous investment. Steadfast support and funding from the U.S. government will be crucial to maintaining America’s weather forecasting capabili-ties in the years to come.

Integrating UAS into the U.S. National AirspaceCommercial applications for Unmanned Aircraft Systems (UAS) are growing exponentially.* This section addresses recent legislation affect-ing the approval and control of UAS operations, anticipated commer-cial uses of unmanned systems, and issues and benefits associated with the integration of unmanned aircraft into the U.S. National Airspace System (NAS).

Recent Legislation and Anticipated ApplicationsIn February 2012, the President signed into law legislation requir-ing the integration of unmanned aircraft into the NAS.20 Unmanned aircraft systems have tremendous potential to contribute to the economic, technological, and competitive well-being of the United States. Realizing this, Congress put forth specific provisions in the FAA Modernization and Reform Act of 2012 mandating integration of UAS into non-segregated airspace by 2015. The legislation is timely since the FAA predicts there will be approximately 10,000 commercial

* Throughout this chapter, the acronym UAS is used to refer to both Unmanned Aircraft Systems and Unmanned Aerial Systems. The term Unmanned Aerial Vehicle (UAV) is also used and refers to the vehicle that is part of the Unmanned Aerial System.

192

UAS operating in the United States within five years.21 Some of the most commonly cited uses for UAS include law enforcement, pipe and power line surveillance, traffic monitoring, flood mapping, disas-ter response management, damage assessment, aerial news coverage, atmospheric and weather research, mail and freight transport, critical infrastructure monitoring, real-estate mapping, aerial photography, wildlife monitoring, sporting event coverage and others.

At the present time, however, there are two critical issues that are delaying the implementation of UAS into the national airspace.

■n First, the FAA believes that unmanned aircraft might not be as safe as manned aircraft and should require special permission to fly.

■n Second, privacy advocates are demanding new safeguards regarding the collection and use of surveillance data.

To address the first concern, the FAA established a Certificate of Authorization (CAO) process to ensure that UASs are safely integrated into the national aerospace system. As the number of requests has grown, the FAA has been working with its government partners and other stakeholders to streamline the COA process. A July 2012 report by the U.S. Government Accountability Office, states that between January 1, 2012 and July 17, 2012, the FAA issued 201 COAs to 106 federal, state, and local government entities and academic institutions, plus eight special airworthiness certifications to four UAS manufactur-ers.22 Solutions to the second concern are still being debated.

Need for a National Plan and Benefits of IntegrationIntegrating UAS into the NAS could create tremendous economic opportunities. For example, the Association for Unmanned Vehicle Systems International (AUSVI) estimates that 23,000 new jobs and $1.6 billion in wages will be generated over a 15-year period at an aver-age wage of almost $70,000 per year.23

As UAS capabilities continue to evolve, however, it has become clear that a national plan for the operation of UASs is needed. Such a plan is currently being developed. Key elements of the plan include the goals, objectives, capabilities, priorities, and guidelines for operation.

Once completed, this plan will specify the policies, procedures and global harmonization actions required. It will also lay the foundation for more productive government-industry collaboration. Delaying integration into the national airspace system could negatively impact


193Topics To WaTch in 2013 and Beyond

the U.S. economy and the UAS market as other countries develop their own systems and standards for UAS operation.

Managing Risk in aerospace supply chainsToday’s supply chains are more complex than ever because suppliers are not constrained to a city, state, or country. As a result, managing supply chains can be a daunting task where a single disruption can adversely affect the entire supply chain. This section addresses the topic of risk in aerospace supply chain networks.

In the financial industry, risk management has been used for years to identify, assess, prioritize risks, and to use internal and external resources to mitigate, monitor, and control the impact of uncertain events. Similar techniques are now being used to manage risks in modern supply chain networks. Today, this practice is referred to as supply chain risk management (SCRM).

Why Risk is an issue in supply chain networksIn recent years, supply chain managers have put more emphasis on making supply chains more efficient with little concern for the expo-sure and vulnerability of their supply chains. Svensson described this vulnerability as “exposure to serious disturbance, arising from risks within the supply chain as well as risks external to the supply chain.”24 According to the Department of Defense definition, “risk is a measure of future uncertainties in achieving program performance goals and objectives within defined cost, schedule and performance constraints.”25 By relying on outside providers, organizations can reap the benefits of their suppliers’ core competencies but, at the same time, such dependencies often put them at greater risk.

Supply chain disruptions can be caused by a number of natural and man-made disasters. Some of the major drivers of supply chain risk are globalization, lean supply chain management, outsourcing, and single sourcing. Risks associated with globalization include those associated with transportation, cultural differences and misunderstandings, exchange rate fluctuations, government policy changes, and others disturbances which can lead to delays or disruption in a supply chain. The President’s Comprehensive National Cybersecurity Initiative (CNCI) recognized that the majority of transactions among supply chain partners inside and outside the United States are electronic, and that safeguarding these chains is very important to maintain a smooth flow of information and materials between partners. As stated in a 2008 study by the Aberdeen

194

Group, 99 percent of the companies surveyed had a supply chain disrup-tion in 2007 and 58 percent suffered financial losses.26

The focus of lean supply chain management is on streamlining supply chain processes and reducing inventory levels by collaborating with suppliers to deliver components more frequently and in smaller batches. But low inventory levels with little safety stock make supply chains vulnerable to even minor disruptions. Similarly, outsourcing increases dependency and complexities in the network and the more complex a network is, the higher the vulnerability. Finally, single sourcing makes a firm dependent upon the financial condition of the sole supplier, which can cause disruption in the event of the supplier’s insolvency.

In addition to supply disruptions, phenomena such as the bullwhip effect and counterfeit components can also adversely impact supply chains. The bullwhip effect is a well-known concept that refers to the increasing amplification of inventory levels as an order moves from the customer to the retailer, and further up into the supply chain. Counterfeit components are another risk faced by companies, as outsourcing increasingly moves into emerging economies where anti-counterfeiting laws are not as strict as in the United States. A 2008 BusinessWeek report noted that counterfeit microchips made in China had entered the supply chains of several major U.S. defense contrac-tors.27,28 Furthermore, a 2012 report by the Senate Armed Services Committee concluded that many of the country’s supply chains are now contaminated, and that counterfeit parts are threatening the performance and reliability of some of America’s state-of-the-art aerospace systems.29 A number of actions are being taken at both the federal and corporate level to proactively respond to this particular threat. These actions are addressed in more detail later in the chapter.

SCRM is characterized by the identification and reduction of risks associated with three different types of flows: material flows, financial flows, and informational flows. Though risk management practices have been used extensively in the financial industry for some time, the application of these principles to supply chain risk management is still relatively new.

Examples of “Risk Events” and Their ImpactExamples of disruptions in these three flows abound, but the follow-ing examples illustrate the scale and scope of the problem.



Material Flows■n A 15 day Teamsters’ strike in 1997 had a severe impact on UPS’

logistics operations.30

■n A fire at Ericsson’s sole supplier of memory chips led to an estimated loss of $400 million to Ericsson.

■n Within a few days of the September 11, 2001 terrorist attacks, Ford had to discontinue production due to import delays at the Canadian and Mexican borders.31

Financial Flows■n PricewaterhouseCoopers found that in a study of 14 aerospace

and defense companies that reported supply chain failures, they experienced an average drop of 4.5 percent in their stock values in the two days following the disruptions. A year later, these firms were performing nine percent below the unaffected group.32

■n Another study of 519 publicly announced disruptions revealed that shareholders lost 10 percent of the stock’s value over a two-day period.33

■n Due to the weak dollar, Volvo cars reported a 28 percent reduction of overall sales in 2008.34

Informational Flows■n A glitch in the demand planning software at Nike caused a supply

disruption for Air Jordan shoes that cost the company $100 million.

■n The 2006 earthquake in Taiwan adversely impacted the Internet due to breaks in the undersea cables, which led to extended delays for the containers sitting in Shanghai’s seaport.35

Risk Management ConceptsTo avoid or mitigate the impact of such risks, a number of risk management models have been proposed by industry, DOD, and the academic community. Juttner, Peck, and Christopher describe four constructs for managing supply chain risk: risk sources, risk drivers, risk consequences, and risk mitigation strategies.36 These constructs are highlighted in Figure 10.11.

196

FIguRE 10.11 Model of Supply Chain Risks and Consequences

A similar model by the DOD, called the Risk Management Process Model, includes the following key activities performed on a continuous basis: risk identification, risk analysis, risk mitigation planning, risk mitiga-tion plan implementation, and risk tracking.37 These steps are illus-trated in Figure 10.12.

There are other models that are variants of the two models presented above. The major activities in each of the models include identifying the risk, assessing the risk, planning to mitigate the risk, mitigating the risk, and tracking the risk as part of a continuous improvement process.

Characteristics of Aerospace Supply Chain RiskSinha, Whitman, and Malzahn discuss a generic Supply Chain Operations Reference model for the aerospace industry to aid in evaluating and understanding how Tier One or Tier Two suppliers and OEMs interact.38 Based on this model, the following observations were made:

■n Aerospace supply chains operate in a make-to-order environment.

■n There was no overall planning; each company planned in isolation and the supply chain was not integrated.

■n There was an overlap in the metrics that were serving the same purpose, but from a different perspective.

Supply ChainRisk Mitigation

Strategies

Supply Chain Risk Consequences

Supply ChainRisk Sources

Supply ChainRisk Drivers

Source: Juttner, Peck, and Christopher. Supply Chain Risk Management: Outlining an Agenda for Future Research, 2003.



These authors developed a methodology for mitigating these risks and others that are common to the aerospace industry. The methodology differentiates between foreseen, perceived, controllable, and uncon-trollable risks and prioritizes risks so that resources can be used more efficiently. This methodology is good for deciding what actions to take to mitigate risks once identified.

Lessons Learned in Aerospace Supply Chain ManagementGiven the critical role of supply chains in designing, manufacturing, and supporting complex systems, some of the lessons learned in aero-space supply chain management include:

■n Major outsourcing decisions must be thoroughly examined. The outsourcing of specialized components is sometimes necessary due to a lack of in-house expertise or cost efficiencies, but outsourcing the entire design process is usually not advisable. It is often less risky to keep supply chain operations inside until the product and its associated supply chain processes reach maturity.

Risk Analysis

RiskIdentification

Risk MitigationPlanning

Risk MitigationPlan

Implementation

Risk Tracking

Source: Department of Defense. Risk Management Guide for DOD Acquisition, 2006.

FIguRE 10.12 Risk Management Process Model

198

■n Collaboration among partners is important. OEMs should strive to have a presence in every major supplier’s facilities.

■n Constant communication with suppliers can prevent unexpected delays. OEMs should establish some form of central command to track the progress of key parts and communicate their status to appropriate stakeholders.

■n Single sourcing of critical components puts a company at high risk. Risk should be shared between multiple suppliers both within the country and outside.

Best Practices in Managing RiskGenerally speaking, risk management techniques can be divided into four categories: risk avoidance, risk reduction, risk transfer, and risk retention.

Risk avoidance is the simplest way to manage risk. As the name implies, it refers to avoiding risk-related activities. For example, if there is evidence of a trend in receiving counterfeit components from a supplier, the simple solution would be to ban that supplier.

Risk reduction techniques involve managing risk by sharing it with partners, such as distributing the supply of critical components among multiple suppliers.

Risk transfer techniques are used when a company deems a problem too difficult or time consuming to manage. Insurance, outsourcing, or other approaches can be used to transfer risk.

Risk retention techniques are used to deal with risks that have a low probability of occurrence, or that will not have a significant impact on the supply chain. In this situation, the organization itself retains the risk. A 2005 study by the Aberdeen Group, shows organizations which manage their risk proactively tend to out-perform others in a number of performance measures as illustrated in Figure 10.13.39

To effectively manage risk, Tang suggests four basic approaches including Supply Management, Demand Management, Product Management, and Information Management.40 The four approaches are intended to enhance collaboration among the supply chain partners to improve supply chain operations (see Figure 10.14).



FIguRE 10.13 Percentage Change in Key Performance Areas

FIguRE 10.14 Approaches to Supply Chain Risk Management

For Supply Management, the main issues involve network design, supplier relationships, supplier selection processes, supplier order allo-cation, and supply contracts. To be effective at supply chain manage-ment, a firm must collaborate with its upstream partners to ensure the efficient flow of materials. A study by AlixPartners notes:41

40.5

31.5

40.7

28.6

12.2

7.3 11.1 9.6

4.6 1.1

-6.6

9.3

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Supplier QualityImprovement

Improvement inLead-Times

Improvement inOn-Time Delivery

Reduction inSupply Crises

Best in Class Norm LaggardsPercent

Source: Aberdeen Group, September 2005.

Supply Chain Risks

Information Management

Demand Management

Supply Management

Product Management

Source: Tang. Perspectives in Supply Chain Risk Management, 2006.

200

While order books look healthy and Tier One equipment suppliers are expected to do well, OEMs should be worried about whether their supply chains will be able to keep up. OEMs, such as Boeing and Airbus, and engine suppliers such as GE/Safran, Rolls Royce and Pratt & Whitney, will need to considerably ramp-up their supply chains. To mitigate their risk, AlixPartners says OEMs should be driving greater integration of their operational environments—working far more closely with suppliers, putting in place early-warning systems to improve response time to issues, and getting ready to provide operational and financial support to suppliers—even for acquisitions as a last resort.

Some of the main issues for Supply Management include:

■n Managing exchange rate fluctuations in multiple countries with multiple suppliers can help a company reduce costs and operate more efficiently. This can also make supply chains more resilient during major financial and exchange rate-related disruptions.

■n Revenue-sharing contracts can also make supply chains more efficient and resilient as partners share information about demand and potential financial risks.

For Demand Management, a firm can collaborate with downstream part-ners to influence demand in a beneficial manner. Such strategies can shift demand across time, markets, and products. Some of the more robust strategies for managing demand include:

■n Responsive pricing strategies, which enable a company to increase profits by shifting demand across products, which can also improve resiliency.

■n Demand postponement, which gives a partner the capability to shift some demand to a later period, which can help manage both operational and disruption risks.

For Product Management, a firm can modify the product or process to make it easier to match supply with demand. Strategies in this category include:

■n Product substitution.

■n Process sequencing.

■n Postponement.



In terms of robustness, postponing product customization provides manufacturers with the opportunity, but not the obligation, to custom-ize products at a later date, resulting in less rework and unsold inven-tory, which, in turn, lowers costs.

For Information Management, supply chain partners can improve collabo-ration by sharing information. This is referred to as Collaborative Planning, Forecasting, and Replenishment (CPFR). CPFR helps part-ners work together to develop mutually agreeable demand forecasts, resulting in more accurate forecasts of future demand for each supply chain partner.

Developing an Adaptive EnterpriseAll of these techniques can help firms be more adaptive. Mukherjee offers the following four principles to help senior executives develop adaptive businesses.42

■n Embed sense-and-respond capabilities within normal plan-and-execute processes. The focus here is on detecting a problem early and reacting effectively as part of a daily routine to achieve competitive advantage.

■n Adopt strategies that promote collaboration among network partners. This principle emphasizes collaboration between partners to improve visibility into the competitive landscape.

■n Value and nurture organizational learning. This principle emphasizes the need to collect, analyze, and share knowledge across networks about what works and what does not.

■n Deploy technologies that enable intelligent adjustment to major environmental shifts. The focus here is on the need to deploy information technologies that can support the other three principles.

The increase in globalization of aerospace supply chains has led to lower costs for customers, but higher risks for manufacturers. As a result, organizations have acknowledged the need to develop systems, protocols, and processes to track and manage supply chain risks. Planning, monitor-ing, and managing these risks can reduce or avoid losses in the long term, and is far cheaper than resolving the effects of unplanned supply chain disruptions. Managing these threats by proactively tracking foreseen, perceived, controllable, and uncontrollable risks, generally results in lower costs and better performance. Most companies that have embraced these principles have seen significant improvements in performance.

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The Continuing Threat of Counterfeit Parts In early 2012, the Senate Armed Services Committee released a summary of findings from a year-long investigation into the growing threat of counterfeit electronic parts in the U.S. defense supply chain.43

Performance, Reliability, Safety and Security ThreatenedAccording to the report, such parts threaten the performance and reliability of some of the military’s state-of-the-art systems and are a direct threat to the security of the United States and our military personnel. In addition to affecting the performance and reliability of systems, counterfeit parts can result in the loss of intellectual property, revenue, and jobs. As stated in the study’s findings, the Semiconductor Industry Association estimates that counterfeit electronic parts cost the U.S. semiconductor industry more than $7.5 billion in lost revenue each year and nearly 11,000 jobs. Perhaps even more sinister is the knowledge that, in some cases, these parts can be used to collect and transmit critical information to potential adversaries.

Scale, Scope, and Primary Source of the ProblemAlthough the full scale and scope of the problem is not well known, it is significant. For example:

■n Counterfeit parts have been found on military helicopters, fighters, transport aircraft, UAVs, and missile systems;

■n The Senate Armed Services Committee report estimates that the number of counterfeit parts in the DOD supply chain could exceed one million;

■n The Defense Logistics Agency reports that at least one suspect counterfeit part has been used in 176 different weapon systems; and

■n When over 100 suspected counterfeit parts were traced back through the supply chain, more than 70% of the parts appeared to come from China.44

Industry Actions to Address the IssueWell before the Senate Armed Services Committee released their 2012 report, the Aerospace Industries Association and its member compa-nies formed a Counterfeit Parts-Integrated Project Team (CP-IPT) to proactively address how to deal with this issue in the aerospace and defense supply chain. The CP-IPT included representatives from relevant industries and government institutions and following two



years of intense work, the team published recommendations in each of the following areas:45

■n Procurement/supplier selection;

■n Suspected counterfeit part reporting;

■n Counterfeit part disposition;

■n Component obsolescence;

■n Counterfeit parts control plan;

■n Standards for mechanical parts and materials;

■n Training;

■n Duties of importers; and

■n Disposal of electronic waste.

Today, many of these recommendations have been incorporated into a broader multi-industry, risk-based, quality-assurance framework for detecting and disposing of counterfeit parts using commercial innova-tion and state-of-the-art technologies.

Rare Earth Elements and the Aerospace IndustrySince this topic was introduced in the AIR 2011 report, concerns about rare earth elements (REEs) have declined somewhat, but their impact on the aerospace industry is still significant. Even though it is estimated that DOD only accounts for 5% of domestic consump-tion,46 REEs are used to produce a variety of aerospace components including avionics, jet engines, missile guidance systems, magnets, satellites, actuators and airframes.

Rare Earth Applications for Aerospace and DefenseSome of the more specific aerospace and defense applications that rely on the use of rare earth elements include:47

■n Guidance and control systems for Tomahawk cruise missiles, smart bombs, Joint Direct Attack Munitions, and Predator unmanned aircraft.

■n Electronic warfare systems such as jamming devices, the electromagnetic railgun, long-range acoustical devices, and area denial systems.

204

■n Laser targeting systems, air-based lasers, counter improvised explosive device (IED) lasers, and photonic disruptors.

■n Electric drive motors for the Joint Strike Fighter, the Zumwalt 1000 guided missile destroyer, and the Future Combat Vehicle.

■n Surveillance and detection systems such as sonar transducers, radar, enhanced radiation detection systems, and multipurpose integrated chemical agent alarm devices.

Since the U.S. defense industry is dependent on the rare earth elements that go into these systems, Congress, through the National Defense Authorization Act for FY 2011, directed the Secretary of Defense to assess the impact of REEs on the Department’s supply chain and to develop a plan for addressing any vulnerabilities. The purpose of the assessment was to identify rare earth materials that would be:48

■n Critical to the production, sustainment, or operation of significant United States military equipment; or

■n Subject to interruption of supply, based on actions or events outside the control of the Government of the United States.

For every rare earth material that met these criteria, the Secretary of Defense was also tasked to develop a plan for assuring the long-term availability of materials for critical defense applications.

DOD’s Response and Other U.S. ActionsIn March 2012, the Department of Defense responded by reporting that seven of the 17 REEs met the criteria specified above, but the U.S. could produce enough REE material to meet DOD’s needs, with the exception of yttrium.49 In April 2012, the Defense Department confirmed that they were closely monitoring the REE market for any projected shortfalls—and suggested that if shortages were projected, the Department of Defense would seek congressional approval to stockpile materials, or use other measures, if necessary, to meet their requirements.50

During this same period, the United States joined with the European Union and Japan to ask the World Trade Organization (WTO) to assist in resolving their disputes with China over its limits on rare earth exports. Subsequently, the U.S. has submitted at least two reports to the WTO claiming that China has failed to comply with its commit-ments to the World Trade Organization and that China should adjust its policies to conform to WTO protocols.



Impact on Small to Medium Aerospace ManufacturersAny limitations on the supply of rare-earth materials are likely to affect small to medium-size aerospace manufacturers first because the REEs are generally used in products made by lower tier suppli-ers. Larger prime contractors generally do not purchase rare earth elements directly, but REEs are included in many products that go into major systems and subsystems. This makes it more difficult to forecast shortages given the dispersion of demand.

Options for Dealing with Rare Earth Element IssuesSome of the options being considered by Congress to deal with rare earth elements include the following:

■n Convene defense suppliers to discuss supply chain issues;

■n Convene the Strategic Materials Protection Board;

■n Require stockpiling of specific materials;

■n Fund the downstream supply capacity;

■n Fund rare earth research;

■n Institute a new Critical Minerals Program; and

■n Develop partnerships with allies to diversify the supply source.

More detail on these options can be found in the 2012 Congressional Research Service report on Rare Earth Elements in National Defense referenced earlier.

Outlook for Rare Earth Elements in the Foreseeable FutureAt the present time, the U.S. Geological Service estimates that rare earth reserves total more than 110,000,000 metrics tons. Figure 10.15 reflects a breakdown of the reserves by country.51

Until alternatives for rare earth elements can be developed, world demand for REEs is expected to increase. The good news is that U.S.-based Molycorp Inc. has reopened its Mountain Pass mine in California and has also discovered new deposits of some of the rarest of these elements. In June 2012, Molycorp also announced that it had acquired Neo Material Technologies of Toronto, Canada which, among other things, should provide the company with additional access to raw materials in China.52 Furthermore, new mines are being opened in Canada, Greenland, South Africa, Australia and other

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countries, which should increase the availability of these critical, but limited, resources over the next two to five years.53 Collectively, these actions have reduced concerns about the price and availability of rare earth elements in the foreseeable future, but it is also likely that REEs will continue to be a topic to watch in the years to come.

International Specifications for Technical DocumentationThe Aerospace and Defence Industries Association of Europe (ASD), Airlines for America (A4A), and the Aerospace Industries Association (AIA) have been working together for over a decade to encourage the adoption of S1000D™ International Specification for Technical Publications Utilizing a Common Source Database. Although its roots are in the avia-tion industry, the specification can be used for authoring, storing, and publishing maintenance and operational information for any type of air, land, or sea system.

The benefits of S1000D include the following:

■n Reduced support costs through content modularity and reuse.

■n Improved data sharing across different computing platforms.

■n The ability to view electronic documentation via a common web browser or text viewer.

AIA and ASD are also collaborating on:

11.4%1.4%

48.3%16.7%

2.7%

19.3%

U.S.Australia

ChinaCIS

India

Other Countries

Source: U.S. Geological Survey. Mineral Commodity Summaries, January 2012.

FIguRE 10.15 Rare Earth Element Reserves



■n SX000i International Guide for the use of the S-Series Integrated Logistics Support (ILS) Specifications.

■n S2000M International Specification for Materiel Management–Integrated Data Processing.

■n S3000L International Specification for Logistics Support Analysis–LSA.

■n S4000M International Specification for Developing Scheduled Maintenance Programs.

■n S5000F International Specification for Operational and Maintenance Data Feedback.

■n S6000T International Specification for Training.

■n S9000D Dictionary for the S-Series ILS Specifications.

S1000D facilitates the exchange of information between manufacturers and their customers, as well as end-users. From a military perspective, it is well known that net-centric warfare will require data interoperability that can only be achieved through industry standards and specification. The Army, Navy, and Air Force are in various phases of review and implementation. From a commercial point of view, Boeing and Airbus have adopted S1000D, and it is anticipated that this specification will have numerous additional commercial and military applications.

Lead-Free ElectronicsThe global legislation of hazardous substances, such as the Restrictions of Hazardous Substances (RoHS), continues to affect the A&D indus-try. The banning of lead in consumer electronics sold in the European Union is particularly troublesome. Under RoHS, lead, mercury, cadmium, hexavalent chromium and flame-retardants, such as polybrominated biphenyls or polybrominated diphenyl ethers, were to be restricted in their use. These substances are used routinely by the aerospace industry, and alternatives may not presently exist for all of their uses.

AIA and the Pb (lead)-free Electronics Risk Management Consortium (PERM), a group sponsored by the AIA Technical Operations Council and supported by TechAmerica, the U.S. Department of Defense, and other agencies, are working to help industry cope with this situ-ation. However, funding for lead-free electronics research is needed to develop the industry’s ability to identify alternatives for the tin-lead solder that has traditionally been used in electronic parts for aerospace and defense systems.

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The shift to lead-free electronics is impacting the use of commercial-off-the-shelf (COTS) electronics in aerospace and defense because industry does not presently have the technical knowledge or data necessary to measure and test the reliability of lead-free alternatives. Furthermore, A&D systems tend to have a longer service life and operate in harsher environments where the consequences of failure can be high (see Figure 10.16).

The two, basic reliability issues are:

■n The potentially higher probability of failure due to tin whiskers in applications involving pure tin finishes on part terminations.

■n Reduced joint reliability in applications employing assembly solder alloys with significantly different material properties than the traditional tin-lead alloys.

These challenges make it difficult for electronics manufacturers to transition to lead-free materials that comply with European Union directives for electrical waste and hazardous substances. To meet this need, AIA and the other members of PERM have developed a multi-year strategy for reducing lead-free electronics. Deliverables from this project include the following:

Expected Operational Service Life (Years)

Har

shne

ss o

f Ser

vice

Env

ironm

ent

Low

High

5 . . . 10 1 20 3 30

Cell Phones

Major Home Appliances

Cars

Satellites

Medical Equipment

Desktop PCs

Network Servers

62%

8% <1%

29%

Industrial Products

Missiles

Aircraft

Ground Vehicles Ships

Submarines

Con

sequ

ence

s of

Fai

lure

Low

High

Source: AIA. Technical Briefing on the Pb-free Electronic Risks Mitigation Project. January 30, 2012.

FIguRE 10.16 lead-free Electronics Operating Environment



■n Detailed design guidelines for the use of lead-free COTS electronics.

■n Validated life-prediction models based on the physics of failure.

■n Methodologies for assessing new materials.

■n Assembly and repair process definitions.

A multi-year budget has been developed for this project, but given the scope and complexity of the issue and the current economic environ-ment, mitigating the risks of lead-free electronics may be a topic to watch for years to come.

Cyber-Warfare and the U.S. Aerospace and Defense IndustryAnother topic to watch is the growing threat of cyber-warfare. The Department of Defense has been battling individual hackers and state-sponsored cyber-terrorists for years. Air Force Magazine states that DOD’s networks are probed almost 10,000,000 times a day and that the attacks are becoming more numerous and sophisticated.54

A recent report by the U.S. Office of the National Counterintelligence Executive makes it clear that cyber-warfare is not only a threat to the nation’s military, but is now a very real threat to the broader economic interests of the United States. The aerospace and defense industry is at the top of the target list for cyber-terrorists. The Executive Summary of the report states that:55

Foreign economic collection and industrial espionage against the United States represents a significant and growing threat to the nation’s prosperity and security. Cyberspace—where most business activity and development of new ideas now takes place—amplifies these threats by making it possible for malicious actors, whether they are corrupted insiders or foreign intelligence services (FIS), to quickly steal and transfer massive quantities of data while remaining anonymous and difficult to detect.

Information targeted by hackers includes sales figures, financial reports, strategic plans, and virtually everything associated with new product development, including R&D data, blueprints, manufacturing specifications and software.

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Primary Aggressors and Main Areas of InterestThe National Counterintelligence report states that many nations today view economic espionage as an essential tool in achieving national security and economic prosperity. At the present time, China and Russia are the most aggressive collectors, but the list is growing.56 The U.S. aerospace and defense industry, UAVs, and advanced mate-rials and manufacturing techniques are among their main areas of interest,57 but the very nature of supply chains means that virtually every supplier and end-user could be vulnerable.58 Unfortunately, the United States is not the only country that is under attack. Sky News, an international television broadcaster located in the U.K., reports that Internet spies have targeted the European aerospace industry as well.59

Within the United States, one of the most publicized attacks on the aerospace industry occurred in 2011 when RSA, one of the world’s premier providers of network encryption devices, was attacked. Whoever carried out the attack used data collected from RSA to duplicate Lockheed Martin employee credentials and subsequently penetrate the company’s network.60 Aerospace Corporation was also a victim of industrial espionage that originated from China.61 These attacks were a wake-up call for the industry. Lockheed Martin is now collaborating with the DOD to assist in fighting this growing threat to America’s national security and economic interests.

Impact on Small to Medium-Size Aerospace ManufacturersUnfortunately, such attacks have not been limited to large firms or the government. New evidence suggests that over one-third of all cyber-attacks are now directed at businesses with less than 250 employees.62

Best Practices in Data Protection and Due Diligence for CorporationsTo deal with this emerging crisis, the Office of the National Counter-intelligence Executive (ONCIX ) provides the following guidelines for protecting corporate data.63

Information StrategyDevelop a transparency strategy that determines how closed or open the company needs to be, based on the services provided.



Insider Threat Programs and Awareness■n Institute security training and awareness campaigns. Convey

threats to company information accessed through portable devices and when traveling abroad.

■n Establish an insider threat program that consists of information technology-enabled threat detection, foreign travel and contact notifications, personnel security and evaluation, insider threat awareness and training, and reporting and analysis.

■n Conduct background checks that vet users before providing them company information.

■n Implement non-disclosure agreements with employees and business partners.

■n Establish employee exit procedures. Most employees who steal intellectual property commit the theft within one month of resignation.

Effective Data Management■n Get a handle on company data. This includes data in databases,

e-mail messages, individual computers, and web portals. Such data must be categorized and classified, using the most appropriate set of controls for each class of data. Finally, someone must determine which data should be kept and for how long. Understand that it is impossible to protect everything.

■n Establish compartmentalized access programs to protect unique trade secrets and proprietary information and centralize intellectual property data. This will increase security and facilitate information sharing.

■n Restrict distribution of sensitive data. Establish a shared data infrastructure to reduce the quantity of data held by the organization and discourage unnecessary printing and reproduction.

Network Security, Auditing, and Monitoring■n Conduct real-time monitoring and auditing of the networks.

Maintain thorough records of who is accessing servers, and modifying, copying, deleting, or downloading files.

■n Install software tools for content management, data loss prevention, and network forensics on individual computer

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workstations to protect files. Encrypt data on servers and password-protect company information.

■n Incorporate multi-factor authentication measures such as biometrics, PINs, and passwords combined with knowledge-based questions, to help verify users of information and computer systems.

■n Create a formal, corporate policy for mobility. Develop measures for centrally controlling and monitoring which devices can be attached to corporate networks and systems and what data can be downloaded, uploaded, and stored on them.

■n Formalize a social media policy for the company and implement strategies for minimizing data loss from on-line social networking.

Contingency Planning■n Establish a continuity of operations plan. Back up data and

systems, create disaster recovery plans, and plan for data breach contingencies.

■n Conduct regular penetration testing of the company infrastructure, as well as third-party shared service-provider systems.

■n Establish document creation, retention, and destruction policies.

Resources for HelpContact ONCIX at http://www.ncix.gov/or the FBI for assistance in developing effective data protection strategies. If a data breach is suspected, contact the FBI or other law enforcement organizations for help in identifying and neutralizing the threat.

Fuel Efficiency and the Aviation IndustryThrough the design and development of fuel-efficient aircraft, aero-space manufacturers play a crucial role in improving aviation’s carbon footprint. After safety, fuel efficiency is often cited as the most impor-tant design criteria for jet aircraft—averaging over a quarter of the operating costs for airlines, and this number is increasing. As a result of this strong market incentive, engine and airframe manufacturers design and produce the most fuel-efficient aircraft possible.

Airports, commercial airlines, business aviation and private pilots also reduce carbon dioxide (CO2) emissions by employing fuel-efficient operational procedures. Air navigation entities, such as the Federal Aviation Administration and the European Union’s Eurocontrol,



contribute to aviation’s overall fuel efficiency by implementing state-of-the-art communications, satellite surveillance, and performance-based navigation procedures. Thus, advances in air traffic management and flight procedures play an important role in reducing the industry’s greenhouse gas emissions.

Commercial Aviation’s Strategy to Reduce Global CO2 EmissionsIn 2008, airlines, manufacturers, and air navigation service providers took the unprecedented step of setting three global commitments for reducing aviation emissions. The timeline for these three commit-ments are as follows:

■n Today through 2020: 1.5 percent efficiency improvement per year—Operational, technological, and infrastructure measures should increase fuel efficiency by 17 percent over the coming decade.

■n From 2020: Carbon neutral growth—The aviation sector has committed to cap its net emissions at the 2020 level.

■n By 2050: 50 percent of 2005 Level Emissions—The civil aviation industry also has adopted a long-term, aspirational emissions reduction goal that will take advantage of further advancements in engine and aerodynamic design, air traffic management systems and sustainable biofuels.

The civil aviation industry is one of the few economic sectors with a coordinated, global approach to reducing emissions. Each step of the plan is defined by its contribution to improving fuel efficiency. The steps include advances in systems, airframes, engines and technologies; transformational air traffic management (ATM) investments, like the Next Generation Air Transportation System (NextGen); more efficient air carrier operations; and sustainable aviation biofuels. The net effect of these changes on CO2 emissions is illustrated in Figure 10.17.*

Technology and InnovationSince the first generation of commercial jet engines came into wide-spread use in the 1950s and 1960s, the aviation industry has consis-tently introduced new technologies and innovations to improve aviation’s environmental performance (see Figure 10.18). Jet aircraft and engines are over 70 percent more fuel-efficient and 90 percent quieter than the first jet aircraft.64 During this same period, passenger

* There are several versions of this figure. See ICAO Environment Report 2010, p. 94 or Boeing’s Current Market Outlook 2012–2031, p. 10.

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and cargo traffic increased more than six-fold, making the industry an extremely efficient economic driver.

FIguRE 10.17 Key Drivers of Emissions Reduction

FIguRE 10.18 Fuel Efficiency gains Since the Early Jet Age

CO

2E

mis

sion

s

Carbon Neutral Timeline

Baseline

Low Carbon Fuels

Forecasted Emissions Growth without Reduction Measures

Ongoing Fleet Renewal / Technology Development

ATM Investments / Improvements

2050 2006

Source: Aerospace Industries Association, August 2012.

100.0

90.0

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.01950 1960 1970 1980 1990 2000 2010

Year of Model Introduction

Per

cent

of B

ase

(Com

et 4

)

Comet 4

DC-8-63

747-400

747-100

A380

787

A380 777-300 ER

777-300 ER

777-200

777-200

787

Engine Fuel Consumption

Aircraft Fuel Burn per Seat

49%

82%

707-120

Source: Aerospace Industries Association and ICAO Environment Report 2010, p. 72.



These environmental improvements have been achieved through technological advances in aerodynamics, materials, systems, engines, and design integration. Today’s aircraft are designed for more than a 15 percent improvement in fuel burn than comparable aircraft of a decade ago, and will deliver 40 percent lower emissions than aircraft previously designed.65

The airlines also have undertaken a range of operational, maintenance and planning procedures to ensure that today’s aircraft fly at opti-mal levels of efficiency. Such measures include continuous descents and tailored arrivals where available, flying aircraft slower and using delayed flap approaches, reverse idle thrust on longer runways, single engine taxi-in, reducing the use of auxiliary power units, and just-in-time fueling.66

Air Traffic ManagementThe successful deployment of NextGen is a key component of the United States’ plan for reducing aviation-related CO2 emissions. NextGen combines operational and technological advancements to reduce fuel burn and CO2 emissions by eliminating airport congestion and en route delays through an evolving system that is safe, secure, and more efficient than the present network of legacy systems and capabilities.

Sustainable Aviation BiofuelsBiofuels are produced from renewable resources, such as plant mate-rial, animal fats and municipal solid waste, rather than traditional fossil fuels like coal, oil and natural gas. There has been a great deal of success in the area of sustainable aviation biofuels. Though testing continues, several biofuels have already been approved for commercial use. These fuels will help the industry reach the International Civil Aviation Organization (ICAO) goal of carbon neutral growth by 2020.

Sustainable aviation biofuels are expected to provide up to an 80 percent reduction in overall CO2 life cycle emissions compared to fossil fuels.67 Aviation uses only newer generation biofuels, which can be derived from non-food crop sources and do not compete with food supplies. Bio-derived oil, sourced from sustainable crops such as algae, jatropha, halophytes and camelina, or from other sources such as municipal waste, can be processed to make high-quality jet and diesel fuels.

Next-generation biofuels have already been used on a limited number of passenger flights with several airlines planning to use them for

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regular routes in the near future. The aviation industry is committed to ensuring that biofuels are sustainable and have a positive impact on local communities and the global environment.

International CoordinationAviation is an inherently global activity. It provides an interconnected network of air services that spans continents and crosses national jurisdictions on a daily basis. Even flights within state boundaries can have implications for international aviation, as domestic flights often serve as critical feeders for the international network. To avoid a patchwork of overlapping and potentially conflicting national and regional policies, a framework for addressing aviation CO2 emissions must be developed at the global level.

The fundamental principle protecting the integrity of the international aviation system is Article 15 of the Chicago Convention, which limits the ability of any one country to impact the flying rights of another country. The European Union’s unilateral decision to subject non-EU aviation to its Emissions Trading System (ETS) puts this principle at risk and preempts the international treaty rights of other countries.

In addition to the European Union, specific countries like the U.K., Germany and Austria have started imposing a myriad of climate change-related operating restrictions, taxes and charges on airlines, passengers and freight. This is a detriment to the development of global solutions to environmental issues and can impair aviation and economic growth. The United States must remain committed to an ICAO-led, global-sectoral approach to reducing aviation’s CO2 emissions.

The industry conducts internationally coordinated efforts under its dedicated United Nations agency, the ICAO. This agency is currently working to implement a global plan for reducing civil aviation emis-sions with support from the international community. Recognizing the specific nature of the aviation sector, governments at the 37th ICAO Assembly in October 2010 demonstrated that multilateral, global collaborative action is the most appropriate mechanism to effectively address international aviation emissions in a post-2012 framework. International aviation was the first sector with a shared global commit-ment to the environmental goals of increasing fuel efficiency and stabilizing its global CO2 emissions in the medium-term.

U.S. leadership in ICAO, combined with the technical expertise of the Committee on Aviation Environmental Protection (CAEP), provides a framework to ensure that U.S. aviation environmental issues are well



represented in the global aviation community. U.S. commitment to support ICAO as the preeminent global body responsible for all civil aviation environmental matters is essential to the industry.

U.S. participation in ICAO’s development of international aviation standards and recommended practices should guide U.S. policies. As such, any environmental measures affecting aviation should be in conformity with the policies being developed cooperatively by the 190 contracting states of the Chicago Convention through ICAO.

Greenhouse Gas EmissionsAviation emissions were officially brought into the European Union’s Emissions Trading Scheme (EU ETS) on January 1, 2012. This required that operators pay for their carbon emissions for each trip that departs or arrives in an EU country, even for portions of the trip that do not occur over their airspace. Additionally, because the EU ETS creates a tax for actions occurring outside of EU territory, there is a sovereignty issue. This unilateral action threatens a global environ-mental plan being developed by the ICAO.

International opposition to the EU ETS has been steadily increas-ing. At the beginning of 2013, the European Union announced that it would put a one-year hold on some countries’ compliance with the EU ETS, giving credit to the work done within ICAO on Market-based Measures (MBMs). Flights still covered under the scheme are from the European Economic Area states of the EU, plus Iceland, Liechtenstein, Norway, Switzerland, and Croatia. The European Commission, however, has threatened that if there is not enough progress on the matter during the 2013 ICAO Assembly, it will rein-state the scheme on non-EU countries by January 1, 2014. MBMs are just one of the many elements of a comprehensive mitigation strategy to address greenhouse gas (GHG) emissions from international avia-tion being discussed by the industry.

Recent Actions■n Indian and Chinese airlines have refused to comply with EU ETS

and have not submitted any data to the European Union. U.S. carriers, however, have.

■n The Moscow Declaration of February 2012 was signed by the ‘Coalition of the Unwilling’ and describes eight possible measures that the signatory countries could take in retaliation, including filing an Article 84 dispute under ICAO, prohibiting carriers from

218

taking part in the scheme, and mandating that EU carriers submit flight details (similar to what the U.S. DOT has demanded), as well as other options.

■n Perhaps the most impactful move by a country since the Declaration was the recent suspension of Airbus orders by China. This move is estimated to be worth over $12 billion.

■n The CEOs of Airbus, Safran and MTU Aero Engines, plus major European flag carriers such as Air France, Lufthansa, Iberia, British Airways, Virgin Atlantic, and Air Berlin, have written letters to the Prime Ministers of France, Germany, Spain and the United Kingdom warning of the growing probability of a trade conflict with China and other major nations over the EU ETS.

■n A House resolution passed last year (HR. 2594) forbids flights departing the United States from participating in the EU ETS, and a similar resolution is being considered in the Senate.

■n Some airlines are urging the U.S. government to file a complaint under Article 84 of the Chicago Convention. An Article 84 allows ICAO members to file a complaint against other members for violating “the cardinal principle of state sovereignty” outlined in the Convention on International Civil Aviation (the Chicago Convention).

Many industry experts believe that any MBMs should be implemented under the direction of the ICAO, and progress has been made within ICAO by an Ad hoc Working Group on Market-Based Measures. The Ad hoc Working Group has been tasked to come up with a single, market-based mechanism and an implementation framework in prepa-ration for the next ICAO Assembly in late 2013. This plan will be underpinned by the 15 guiding principles adopted by the 37th Session of the Assembly, listed below.68

ICAO Guiding Principles for Market-Based Measures1. MBMs should support sustainable development of the

international aviation sector.

2. MBMs should support the mitigation of GHG emissions from international aviation.

3. MBMs should contribute toward achieving global aspirational goals.

4. MBMs should be transparent and administratively simple.



5. MBMs should be cost-effective.

6. MBMs should not be duplicative, and international aviation CO2 emissions should be accounted for only once.

7. MBMs should minimize carbon leakage and market distortions.

8. MBMs should ensure the fair treatment of the international aviation sector in relation to other sectors.

9. MBMs should recognize past and future achievements and investments in aviation fuel efficiency and other measures to reduce aviation emissions.

10. MBMs should not impose inappropriate economic burden on international aviation.

11. MBMs should facilitate appropriate access to all carbon markets.

12. MBMs should be assessed in relation to various measures—on the basis of performance measured—in terms of CO2 emissions reduction or avoidance, where appropriate.

13. MBMs should include de minimis provisions.

14. Where revenues are generated from MBMs, it is strongly recommended that they should be applied in the first instance to mitigating the environmental impact of aircraft engine emissions, including mitigation and adaptation, as well as assistance to and support for developing States.

15. Where emissions reductions are achieved through MBMs, they should be identified in States’ emissions reporting.

The ICAO Ad hoc Working Group on Market-Based Measures has been working on several framework proposals to the Council, with the final selection going into effect after 2020. The Group has narrowed the list to the following approaches: global offsetting that would have operators paying for their emissions to a central fund that will finance the offsets; global emissions trading in a cap-and-trade system; and emissions trading scheme through a baseline-and-credit model.

Two issues still remain to be addressed: How revenues raised through the sale of offsets or emissions-trading credits would be applied to greenhouse gas mitigation, and who would administer the program with ICAO. The full body of ICAO still must vote to adopt it at the next meeting, which occurs in the fall of 2013.

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Meanwhile, in July 2012, the ICAO’s Committee on Aviation Environmental Protection agreed on a metric system and certification procedures that will be used to define a global CO2 standard for new commercial aircraft. CAEP is now working on the Standard’s scope of applicability.69

The Impact of SequestrationOne of the biggest challenges facing the U.S. aerospace and defense industry at this time is adjusting to the changes caused by seques-tration. When Congress and the White House agreed to address the nation’s debt-ceiling, a poison pill was embedded in the Budget Control Act of 2011 (BCA). The agreement called for a congressional Joint Select Committee on Deficit Reduction (sometimes called the Super Committee) to produce a deficit reduction bill with $1.2 trillion in budget cuts over the next 10 years. The Super Committee deadlocked, and the automatic, mandatory sequestration cuts were implemented on March 1, 2013.

These cuts will require a $500 billion reduction in defense spending from FY 2013 through FY 2021, and an additional $500 billion reduc-tion in non-defense spending during the same period. The remaining savings are due to come from reduced debt service costs. All of these cuts are in addition to $487 billion in defense cuts that were previously agreed to—and which are being implemented—regardless of whether Congress acts to repeal sequestration.

To achieve the $487 billion in defense cuts, the Pentagon plans to trim $259 billion in military inefficiencies, restructure the armed forces, and adjust personnel costs. The remaining $228 billion in savings will be accomplished by repositioning the Department’s presence overseas and resizing its current fleet of ships, planes, tanks, and other vehicles and equipment.

Using data from the Congressional Budget Office (CBO), Figures 10.19 and 10.20 graphically illustrate their view of GDP growth and unemployment through the end of 2022—including the impact of sequestration.70 In their Budget and Economic Outlook for Fiscal Years 2013 to 2023, the CBO states that they expect the GDP to grow at just 1.4 percent in 2013 but to increase to 3.4 percent in 2014.



FIguRE 10.19 Congressional Budget Office Estimated Impactof Sequestration on gDP growth

FIguRE 10.20 Congressional Budget Office Estimated Impactof Sequestration on unemployment

The CBO expects unemployment to remain above 7.5 percent through 2014, which will make it the sixth consecutive year that unemploy-ment has exceeded 7.5 percent—the longest such period in the past 70 years.71 However, the CBO also expects new housing construction to increase, real estate and stock prices to rise, and credit to open up,

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resulting in faster growth in employment, income, consumer spending, and business investment over the next few years—which all bode well for the economy.72

Former Secretary of Defense Leon Panetta raised the alarm about sequestration defense cuts, noting they would be “devastating” for the Department of Defense. “Facing such large reductions, we would have to reduce the size of the military sharply,” Secretary Panetta wrote to Senator John McCain last year. “Rough estimates suggest after 10 years of these cuts, we would have the smallest ground force since 1940, the smallest number of ships since 1915, and the smallest Air Force in its history.” Panetta added, “We would also be forced to terminate most large procurement programs in order to accommodate modernization reductions that are likely to be required.”73

Sequestration will also impact federal agencies that oversee and manage civil aviation and aerospace programs. For example, NASA’s FY 2013 budget top line will be $16.9 billion, roughly $1.2 billion below its FY 2012 funding level. Future sequestration cuts could slow the develop-ment of the next generation of launch vehicles and spacecraft and delay commercial crew services well beyond the time when our leaders said we would no longer be reliant on the Russians for transportation to space. Sequestration will also strain NASA’s efforts to launch impor-tant Earth science, planetary exploration and astrophysics missions, and hinder NASA’s critical aeronautical research programs.

The Federal Aviation Administration’s $12.7 billion budget (exclud-ing FAA’s budget-protected Grants-in-Aid for Airports program) will be cut by $600 million in FY 2013 as a result of sequestration. Responding to public outcry about air transportation delays, Congress acted in April 2013 to ensure that air traffic controllers will not be furloughed and air traffic control towers will not be closed due to sequestration. However, future sequestration cuts could still negatively affect the traveling public and air cargo services. The cuts might also impact improvements to the nation’s air transportation system. An Econsult Corporation study conducted for AIA estimates $80 billion in lost economic output by 2035 if upgrades to the NextGen program are delayed beyond the planned 2025 completion date.74

Despite the imposition of sequestration, in March 2013, Congress provided the National Oceanic and Atmospheric Administration (NOAA) nearly $2 billion to keep the Joint Polar Satellite System (JPSS) and other weather satellite programs on track. However, “NOAA is also supposed to use some of the funding to figure out



how to fill a 17- to 53-month-long gap in data provided by the satel-lites, which could begin as early as 2014.”75 Sequestration in FY 2014 and beyond could slow down NOAA’s weather satellite programs, but in the wake of Superstorm Sandy and other severe storms, Congress has apparently gotten the message that the public greatly values the services these satellites provide and does not want to have their capa-bilities degraded.

SummaryThe aviation, aerospace, and defense industries are dynamic and vital to the U.S. economy and national defense. As a result, there are a number of topics that are important to watch in 2013 and beyond. First, there is a growing awareness of the potential benefits of regional aerospace clusters. By working together, industry and community lead-ers can create more jobs, generate more income, and produce more products and services than might otherwise be possible. The launch of the Cluster Registry by the Institute for Strategy and Competitiveness and the U.S. Economic Development Administration could play a significant role in promoting regional clusters in the aerospace and defense industry.

Small to medium-size aerospace manufacturers also play a critical role in the U.S. aerospace industry and national economy. These compa-nies account for thousands of high-paying jobs and are an important source of new ideas in an industry that is dependent on creativity and innovation. Unfortunately, there is evidence which suggests that the sales gap between small to medium-size manufacturers and the larger manufacturers is growing. This gap increased during the latter half of 2012, as the SMMs struggled to find qualified workers and affordable credit while complying with new regulations, high taxes, and other industry challenges.

Other areas that were addressed included America’s role in civil space, integrating UAS into the national airspace, fuel efficiencies and CO2 emissions, lead-free electronics, and international specifications for technical publications.

The management of supply chain risk was also covered, and several concepts and best practices for managing risk were presented. Following the discussion of supply chain risk, three very specific examples of risk were addressed including REEs, counterfeit parts, and the growing threat of cyber-enabled economic espionage—all of which are significant challenges for the U.S. aerospace and defense industry.

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The last topic, and perhaps the most controversial, was the issue of sequestration. Although sequestration was officially implemented on March 1, 2013, the full impact on the U.S. economy is not yet known. What is known is that it will have a significant impact on the outlook for the aviation, aerospace, and defense industries—which is the subject of the next chapter.

Chapter Endnotes

1 Chadwick, W. A., Ellis, B. W. C., Mansfield, R. E., & Materna, R. [Equal Contributors] (2011). Aerospace Industry Report 2011: Facts, figures & outlook for the aviation and aerospace manufacturing industry. Washington, D.C.: Aerospace Industries Association and the Center for Aviation & Aerospace Leadership at Embry-Riddle Aeronautical University–Worldwide, pp. 118-126.

2 Porter, M. E. (1998). On Competition. Boston, MA: Harvard Business School Press, p. 199.

3 Delgado, M., Porter, M. E., & Stern, S. (2010). Clusters and entrepreneurship. Journal of Economic Geography, 10(4), 495-518; and Delgado, M., Porter, M.E., & Stern, S. (2011, March 11). Clusters, convergence, and economic performance. Institute for Strategy and Competitiveness. Retrieved from http://www.isc.hbs.edu/econ-clusters.htm

4 Delgado, Porter & Stern. (2011). p. 33.

5 Donovan, D. J. (2011, 12 May). Aerospace site selection trends. Retrieved from http://www.tradeandindustrydev.com

6 Ibid.

7 Atwood, J. (2011, October 6). U.S. EDA announces registry to connect industry clusters across the country. Retrieved from http://cluster mapping.us/index.html

8 Chadwick, Ellis, Mansfield & Materna. (2011). pp. 124-125.

9 Delgado, Porter & Stern. (2011). p. 33.

10 Council on Competiveness. (2010). Collaborate. Leading regional innovation clusters. Retrieved from http://www.compete.org/publications/detail/1384/leading-regional-innovation-clusters

11 Wilson, E. J. III. (2012, Spring). How to make a region innovative. Strategy+Business, (66). Booz & Company Inc. [Reprint 12103].

12 Ibid., p. 2.

13 Pisano, G. P., & Verganti, R. (2008, December). Which kind of collaboration is right for you? Harvard Business Review, 86(12), 78-86.

14 Warwick, G. (2010, November 8). Can crowd-sourcing spur aerospace ideas? Aviation Week. Retrieved from http://www.aviationweek.com

15 DARPA Tactical Technology Office. (2012, March 19). UAVFORGE. Retrieved from http://www.darpa.mil/Our_Work/TTO/Programs/UAVForge.aspx

16 Ibid.

17 U.S. Census Bureau. (2013, March). Quarterly financial report for Manufacturing, Mining, Trade, and Selected Service Industries 2012, Q4. Retrieved from http://www2.census.gov/econ/qfr/current/qfr_pub.pdf



18 Mason, L. (2004, January). Staying aloft as an aerospace supplier. [White Paper]. Retrieved from http://www.gearsolutions.com

19 The National Academies. (2012, May 2). Report warns of rapid decline in U.S. earth observation capabilities; Next-generation missions hindered by budget shortfalls, launch failures. Retrieved from http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=13405

20 Hinton, M. (2012, July 19). Unmanned aircraft industry backs privacy legislation. The Association for Unmanned Vehicle Systems International. Retrieved from http://www.auvsi.org/news/#USPR2012

21 U.S. Department of Transportation. (2012). FAA aerospace forecast Fiscal Years 2012–2032. (2012). Washington, D.C.: Federal Aviation Administration, p. 57.

22 U.S. Government Accountability Office. (2012, July 19). Unmanned aircraft systems: use in the national airspace system and the role of the department of Homeland Security. Retrieved from http://www.gao.gov/assets/600/592667.pdf

23 Association for Unmanned Vehicle Systems International (2010). An assessment of the impact on job creation in the U.S. aerospace industry. Retrieved from http://uas.usgs.gov/pdf/0510JobsReport.pdf

24 Svensson, G. (2002). Dyadic vulnerability in companies’ inbound and outbound logistics flows. International Journal of Logistics and Research Applications, 5(1), 13-44.

25 Department of Defense (2006). Risk management guide for DOD acquisition (6th Edition). Retrieved from http://www.dau.mil/pubs/gdbks/docs/RMG%206Ed%20Aug06.pdf

26 Sadlovska, V., Spinks, M., & Shecterle, R. (2008). Supply chain risk management: building a resilient global supply chain. Boston, MA: Aberdeen Group.

27 Grow, B., Tschang, C., Edwards, C., & Burnsed, B. (2008, October 1). Dangerous fakes. how counterfeit, defective computer components from China are gettinginto U.S. warplanes and ships. BusinessWeek. Retrieved from http://www.businessweek.com/magazine/content/08_41/b4103034193886.htm?chan=magazine+channel_top+stories

28 Brady, G., Kinman, B., Lekstutis, M., & Hampson, N. (2009, January). How to fortify your supply chain through collaborative risk management. PricewaterhouseCoopers, White paper. Retrieved from http://www.pwc.com/us/en/aerospace-defense/assets/pwc-aerospace-scrm-012008-rdt.html

29 U.S. Senate Armed Services Committee. (2012, May 21). Senate Armed Services Committee releases final report on counterfeit electronic parts in defense supply chain. Retrieved from http://www.armed-services.senate.gov/

30 Basu, G., Ben-Hamida, M., Butner, K., Cope, E., Dao, H., Deleris, L., … & Torpy, J. (2008, February). Supply chain risk management: a delicate balancing act. IBM White Paper. Retrieved from ftp://ftp.software.ibm.com/common/ssi/rep_wh/n/GBW03015USEN/GBW03015USEN.PDF

31 Sheffi, Y. (2001). Supply chain management under the threat of international terrorism. The International Journal of Logistics Management, 12(2), 1-11.

32 Brady, et. al. (2009, January). How to fortify your supply chain through collaborative risk management.

33 Hendricks, K. B., & Singhal, V. R. (2003). The effect of supply chain glitches on shareholder wealth. Journal of Operations Management, 21, 502-522.

34 Tang, O., & Musa, S. N., (2011). Identifying risk issues and research advancements in supply chain risk management. International Journal of Production Economics, 133(1), 25-34.

35 Ibid.

226

36 Juttner, U., Peck, H., & Christopher, M. (2003). Supply chain risk management: outlining an agenda for future research. International Journal of Logistics: Research and Applications, 6(4), 197-210.

37 Department of Defense. (2006). Risk management guide for DOD acquisition (6th Edition). Retrieved from http://www.acq.osd.mil/se/docs/2006-RM-Guide-4Aug06-final-version.pdf

38 Sinha, P. R., Whitman, L. E., & Malzahn, D. (2004). Methodology to mitigate supplier risk in an aerospace supply chain. Supply Chain Management, 9(2), 154-168.

39 Sadlovska, V., Spinks, M., & Shecterle, R. (2008). Supply chain risk management: building a resilient global supply chain. Aberdeen Group. Retrieved from http://aberdeen.com/Aberdeen-Library/4185/RA-global-supply-risk.aspx; or The Supply Chain Council Risk Research Team. (2008, June). Managing risk in your organization with the SCOR methodology. Retrieved from http://supply-chain.org/f/Supply%20Chain%20Risk%20Project%20Report.pdf

40 Tang, C. S. (2006). Perspectives in supply chain risk management. International Journal of Production Economics, 103(2), 451-488.

41 AlixPartners. (2012). Aerospace supply chain faces harsh reality of having to deliver huge backlog of orders following a boom in commercial aircraft orders in 2011. Retrieved from http://www.alixpartners.com/en/MediaCenter/PressReleaseArchive/tabid/821/articleType/ArticleView/articleId/262/Aerospace-supply-chain-faces-harsh-reality-of-having-to-deliver-huge-backlog-of-orders-following-a-boom-in-commercial-aircraft-orders-in-2011.aspx

42 Mukherjee, A. S. (2008). The spider’s strategy: creating networks to avert crisis, create change, and really get ahead. FT Press. Retrieved from http://www.ftpress.com/store/spiders-strategy-creating-networks-to-avert-crisis-9780137126651

43 U. S. Senate Committee on Armed Services. (2012, May 21). Senate armed services committee releases report on counterfeit electronic parts. Retrieved from http://armed-services.senate.gov/

44 Fulghum, D., Sweetman, B. & Dimasco, J. (2012, June 4/11). China Chips: counterfeit components reveal political hype and bureaucratic muddle in Washington. Aviation Week & Space Technology, 174(20), 68-69

45 Aerospace Industries Association. (2011, March). Counterfeit parts: increasing awareness and developing countermeasures. Retrieved from http://www.aia-aerospace.org/assets/counterfeit-web11.pdf

46 Ratnam, G. (2012, April 9). Rare earth shortage would spur Pentagon to action. Retrieved from http://www.bloomberg.com/news/2012-04-09/rare-earths-shortage-would-spur-pentagon-to-action.html

47 Grasso, V. B. (2012, September 5). Rare earth elements in national defense: background, oversight issues and options for Congress. Washington, DC: Congressional Research Service.

48 Ibid., p. 3.

49 Kendall, F. (2012, March 12). Report to Congress—rare earth materials in defense applications. Washington, D.C.: U.S. Department of Defense.

50 Ratnam, G. (2012, April 9). Rare earth shortage would spur Pentagon to action.

51 U.S. Department of the Interior. (2012, January). U.S. geological survey, mineral commodity summaries. Retrieved from http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2012-raree.pdf

52 Molycorp. (2012, June 11). Molycorp announces successful close of Neo Materials acquisition. Retrieved from http://www.molycorp.com/molycorp-announces-successful-close-of-neo-materials-acquisition



53 Humphries, M. (2012, June 8). Rare earth elements: The global supply chain. Washington, DC: Congressional Research Service.

54 McCullough, A. (2012, June). At a cyber crossroads. Air Force Magazine, 95(6), 54.

55 Office of the National Counterintelligence Executive. (2011, October). Foreign spies stealing U.S. economic secrets in cyberspace. Report to the Congress on Foreign Economic Collection and Industrial Espionage. 2009–2011. Washington, D.C. Author.

56 Ibid., p. 4.

57 Ibid., p. 8.

58 Krekel, B., Adams, P., & Bakos, G. (2012, March 7). Occupying the information high ground: Chinese capabilities for computer network operations and cyber espionage. Prepared for the U.S.-China Economic and Security Review Commission. Northrop Grumman Corporation, p. 11.

59 Cyber spies target Euro aerospace industry. (2012, June 21). Sky News. Retrieved from http://www.myfoxdc.com/story/18846955/cyber-spies-target-european-aerospace- industry-uk-experts-claim

60 Krekel, Adams & Bakos. (2012, March 7). Occupying the information high ground. p. 103.

61 Riley, M., & Walcott, J. (2011, December 14). China-based hacking of 760 companies shows cyber cold war. Bloomberg. Retrieved from http://www.bloomberg.com/news/2011-12-13/china-based-hacking-of-760-companies-reflects-undeclared-global-cyber-war.html

62 More Than a Third of Global Cyber Attacks Aimed at Small Businesses, Research Shows. (2012, July 17). Based on a report from Symantec. Retrieved from http://www.supplychainbrain.com/content/nc/industry-verticals/aerospace-defense/single-article-page/article/more-than-a-third-of-global-cyber-attacks-aimed-at-small-businesses-research-shows/

63 Office of the National Counterintelligence Executive. (2011, October). Foreign Spies, pp. A4-A5.

64 Rahman, S. (2011, October 23). Flying Green. Gulfnews Retrieved from http://gulfnews.com/business/features/flying-green-1.913738

65 International Civil Aviation Organization. (2010). Environmental report. Retrieved from http://www.icao.int/environmental-protection/Pages/EnvReport10.aspx

66 Ibid.

67 Air Transport Action Group. (2009, May). Beginner’s guide to aviation biofuels. Retrieved from http://www.enviro.aero/Content/Upload/File/BeginnersGuide_Biofuels_WebRes.pdf

68 See ICAO Resolution A37-19.

69 International Civil Aviation Organization. (2012, July 11). New Progress on aircraft CO2 standard. Retrieved from http://www.icao.int/Newsroom/Pages/new-progress-on-aircraft-CO2-standard.aspx

70 Congressional Budget Office. (2013, February 5). The budget and economic outlook: Fiscal Years 2013 to 2023. Retrieved from http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf

71 Ibid., p. 1.

72 Ibid., p. 35.

73 Sonmez, F. (2011, November 14). Debt-panel failure would result in ‘devastating’ defense cuts, Panetta says. The Washington Post. WP Politics. Retrieved from http://www.washingtonpost.com/blogs/2chambers/post/debt-panel-failure-would-result-in-devastating-defense-cuts-panetta-says/2011/11/14/gIQAW1u5LN_blog.html

228

74 Econsult Corporation. (2012, August 13). New report: sequestration will ground air travelers, cargo and the U.S. economy. Report prepared for the Aerospace Industries Association. Retrieved from http://www.aia-aerospace.org/newsroom/aia_news/new_report_faa_sequestration_will_ground_air_travelers_cargo/

75 Mervis, J. (2013, March 25). Congress completes work on 2013 spending bill. Science Insider. Retrieved from http://news.sciencemag.org/scienceinsider/2013/03/congress-completes-work-on-2013-.html


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Industry Forecasts and Outlook

IntroductionThere are numerous forecasts that attempt to predict what the future may hold for the aerospace industry. Taken together, they provide a reasonably clear view of what an economy, industry or a particular firm’s performance may look like in the near term, as well as decades into the future. Like virtually all forecasts, the further the horizon, the less accurate the forecast. Yet, without some understanding of what may lie ahead, poor decisions can be made and opportunities missed.

Within the aerospace industry, multiple organizations provide esti-mates of future demand. These forecasts are routinely updated based on actual experience and changing conditions to improve their usefulness in planning and decision-making. An understanding of the demand for aerospace products and services that drive the industry is essential.

This chapter includes a review of the major forecasts by government agencies, consulting firms, major aerospace and defense businesses, and industry associations. This information is then combined with data

11

230

from previous chapters to provide an overall outlook for the industry in the next several years as well as twenty years into the future.1

Industry OverviewThe U.S. aerospace industry has been a bit of a bright spot in the national and global economy over the past two years. Although the general aviation (GA) sector has struggled, the General Aviation Manufacturers Association (GAMA) reported an increase in both shipments and billings in the first quarter of 2013. Commercial avia-tion is poised for significant growth as the demand for passenger travel and the movement of high-value air cargo increases. In addi-tion to the growth in demand for passenger travel, the scheduled air carriers will need to replace aging fleets and less fuel-efficient aircraft. Military aviation is at an inflection point, and there are not likely to be many new, manned military aviation programs coming into produc-tion in the near term. However, there are some areas where growth can be expected, such as the production of unmanned aircraft and the commercial space sector.

General AviationAccording to GAMA, general aviation “encompasses the manufacture and operation of any type of aircraft that has been issued a certificate of airworthiness by the FAA, other than aircraft used for scheduled commercial air service (airlines) or operated by the U.S. military.”2 In this section, the forecasts and outlook for GA are reviewed using data obtained predominately from the GAMA, Bombardier, and Honeywell.

The scope of GA is broad. GAMA reports that there are over 360,000 GA aircraft worldwide, and of that number, 223,370 are in the United States. In 2012, the U.S. portion of GA contributed more than $150 billion in sales to the economy, and employed more than 1.3 million people. Of the 25 million GA hours flown, over two-thirds were for business purposes, and 166 million passengers were carried. Aircraft flown include single-engine and multi-engine piston, turboprop, jet engine, rotorcraft and light sport aircraft, as well as some experimen-tal aircraft. GAMA data shows that GA aircraft operate from some 5,194 paved runways in the United States, compared to less than 500 airports used by scheduled air carriers. Also, GA is increasingly being used by young aviators as a path to becoming commercial airline pilots as the pool of transitioning military pilots continues to decline.3


231INDUSTRy FORECASTS AND OUTLOOK

Figure 11.1 shows only a 0.6 percent increase in the number of GA aircraft shipped and a 0.9 percent decline in billings worldwide between 2011 and 2012.4

FIguRE 11.1 Worldwide gA Shipments and Billings

Weak economic conditions over the past two years have dampened the expected recovery of the GA market. However, things began to turn around in the first quarter of 2013. GAMA reported shipments of 458 units during the first three months of 2013. This represents a 9.6 percent increase in shipments over the first quarter of 2012. And, as shipments rose, so did the value of those shipments. In the first quar-ter of 2013, billings increased by 32 percent compared to the same quarter in 2012. According to GAMA, shipments of piston-driven aircraft increased by 3.8 percent; single-engine turboprop airplane shipments were up 14.6 percent; shipments of multi-engine turboprop aircraft increased by 78.9 percent; and business jet shipments increased by 4.0 percent (see Figure 11.2).5

Within the United States, piston-driven aircraft represent the larg-est segment of the general aviation market (see Figure 11.3). Overall, the U.S. accounts for about 50 percent of the worldwide market for piston-driven aircraft, turboprops, and business jets (see Figure 11.4).

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232

FIguRE 11.2 Comparison of Shipments and Billings for Q1 2012 to Q1 2013

FIguRE 11.3 Active u.S. general Aviation Aircraft by Type, 2010

Given this data for GA manufacturers and service providers, the implications appear to include the following:

186 193

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Experimental

Light Sport Aircraft





FIguRE 11.4 global Market Distribution of general Aviation Aircraft, 2012

■n Near market saturation in the single-engine and multi-engine piston engine population. The production of new airframes in the piston category will be problematic at best and this sector is unlikely to be profitable. However, the demand for piston engine aircraft for flight schools will probably increase as the global demand for air travel grows.

■n The population of GA aircraft will continue to age, and aging airframes tend to require more regular maintenance along with maintenance engineering (upgrades and structural modifications) to keep older aircraft airworthy.

■n The performance differences between existing general aviation single-engine and multi-engine aircraft populations and newly built airframes are minimal. Key differences between the existing GA population and new build aircraft generally do not reside in aerodynamics, but in integrated communications, navigation, identification, cabin entertainment, data-link, and other electronics.

■n Growth for GA will be found in turboprops and jet engine GA aircraft. While emerging markets will grow at an increased rate, the North American and European markets will account for most of the demand. Medium and large category aircraft are likely to dominate.

■n The global economy will slowly recover through 2013 and beyond. The GA sector of the industry will recover in relationship to global economic conditions.

North America ∆ Jets 50% -.6% Turboprops 49% -7.6%Pistons 50% -12.7%

Latin America ∆ Jets 12% +14.9%Turboprops 15% +6.6%Pistons 10% -3.0%

Europe ∆ Jets 21% +3.0%Turboprops 13% -10.6% Pistons 20% +63.3%

Asia Pacific ∆ Jets 12% -8.5%Turboprops 17% +20.8% Pistons 16% +4.5%

Middle East/Africa ∆ Jets 6% -10.3% Turboprops 7% +30.2% Pistons 4% -10.9%

Source: General Aviation Manufacturers Association. State of the Industry Presentation, February 12, 2013.

234

Commercial Aviation

Large Commercial AircraftThe global market for Large Commercial Aircraft (LCA) is dominated by Boeing in the United States and Airbus in Europe. Every year both manufacturers prepare new forecasts and outlooks for twenty years into the future. The most current are Boeing’s Current Market Outlook 2012–2031 and Airbus’ Global Market Forecast 2012–2031. These forecasts have become quite detailed over the years and today are very comprehensive. They use models, information, and analyses from multiple sources to develop estimates of future demand for their products. Embraer, while not a maker of LCA, also reviews the total demand for air travel in their Market Outlook 2012–2031. The conclusions drawn by these firms are very similar and can be useful to aerospace manufacturers, service providers, and others seeking avia-tion and aerospace-related business opportunities.

These forecasts provide good information on the “drivers of demand” discussed earlier. Boeing, for example, considers economic growth and global trade to be the primary drivers of travel demand (see Figure 11.5).

FIguRE 11.5 Boeing’s Drivers of Air Travel

As has been the trend, the emerging markets are projected to grow faster than North America and Europe, with the Asia Pacific region generally poised to become the largest market by 2031. The Embraer

60%–80% 20%–40%

Travel demand

Additional travel demand

Value of service

Global trade

Economic growth

Fuel Capability

Environment Infrastructure Safe, efficient,

competitive industry

Airline strategies Emerging markets

Market evolution Market

liberalization

Source: Boeing. Current Market Outlook 2012–2031.



Market Outlook makes the generally recognized forecast that, “from 2012 to 2031, the center of gravity of aviation will move east-ward, most notably to Asia and, to some extent, southward to Latin America.”6 All forecasts point to the same conclusion and this infor-mation, in turn, points to significant opportunities for aerospace manufacturers and service providers (see Figure 11.6).

FIguRE 11.6 Projected Worldwide RPK growth, 2012–2013

The overall growth in demand will result in a considerable increase in the production of airplanes. The production of passenger aircraft forecast for the next twenty years varies somewhat by the different types of aircraft included in the forecasts. Boeing’s analysis includes smaller regional aircraft where Airbus excludes passenger aircraft with less than a 100-seat capacity.

Boeing points out that global economic growth is the best indicator of future demand for air travel and air freight. The Boeing Company expects global economic growth to average 3.2 percent over the forecasted period resulting in a projected fleet size of nearly 40,000 airplanes by 2031 (see Figure 11.7).7

2,079

1,201

1,286

3,544

0 500 1000 1500 2000 2500 3000 3500 4000

Other Areas

Europe

North America

Asia Pacific

Billions of RPK

Source: Japan Aircraft Development Corporation. Worldwide Market Forecast for Commercial Air Transport, 2012–2031.

236

FIguRE 11.7 Fleet Development 2011–2031

By 2031, Boeing expects approximately 69 percent of new deliver-ies will be for single aisle airplanes—many destined for emerging markets. Twin aisle aircraft are expected to account for approxi-mately 23 percent of the fleet in 2031, with regional jets and 747 or larger aircraft making up the remainder. It is also important to note the number of new aircraft needed to support new growth and the replacement of older aircraft will be substantial (see Figure 11.8).

FIguRE 11.8 Boeing’s Estimate of New Deliveries by 2031

3%

21%

68%

8% 3%

23%

69%

5% 4%

19%

63%

14%

747 or Larger Twin Aisle Single Aisle Regional Jets

19,890 airplanes

29,610 airplanes

39,780 airplanes

2011 2021 2031

40,000

30,000

20,000

10,000

0

2031 Airplanes

39,780

2011 Airplanes

19,890

Fleet growth Fleet replacement Fleet retained

34,000

19,890 — 59%

5,780

14,110 — 41%





The Airbus Global Market Forecast 2012–2031 has a somewhat differ-ent view, but projects similar growth over the next 20 years (see Figure 11.9). Worldwide, Airbus projects traffic to grow at a rate of 4.7 percent per year.8 In terms of market size, Airbus expects that China will become the largest market in 2031 with 10.4 percent of all RPKs flown; surpassing the United States, which will become the second larg-est market also with 10.4 percent of all RPKs flown (see Table 11.1).9

FIguRE 11.9 Airbus Predicted Demand for 2012–2031

Urbanization of the world’s population is a growing driver of the demand for air travel and air freight. As stated in the Airbus report:10

Cities have become a major driver of globalisation. The world will have more and more large urban centres. In 2025, the 90 largest cities will represent 1 billion people, one eighth of the world’s population. The largest 500 cities will represent 2 billion people, one quarter of the world’s population. The share of the world’s population in just the top 100 cities will equal more than 13 percent in 2025.

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Beginning 2012 2031

Fleet Size

Growth

10,352

16,995

5,204

New aircraft27,347

32,551

15,556

Stay in service& recycled

Replaced

Source: Airbus. Global Market Forecast 2012–2031, Navigating the Future.

238

TABlE 11.1 Airbus Forecast of Top 10 Countries inNew Passenger Aircraft Deliveries, 2012–2031

Futhermore, the Airbus Global Market Forecast reports that the number of Avation Mega-cities, or the number of cities with 10,000 or more daily long-haul passengers, will increase from 42 today to 92 by 2031.

Since one of the key variables in predicting air traffic demand is GDP growth, Figure 11.10 provides useful insight into the growing impor-tance of large urban centers.11

FIguRE 11.10 gDP Comparison Between large urban Centers and Countries

Passenger Aircraft Demand By u.S. $ Value (Billions)

1 US 5,289 1 China 634.0

2 China 4,272 2 US 544.0

3 India 1,232 3 UAE 223.9

4 Germany 986 4 India 173.7

5 UK 979 5 Germany 138.1

6 Russia 958 6 UK 129.8

7 UAE 882 7 Russia 113.7

8 Brazil 781 8 Australia 102.1

9 Ireland 702 9 Brazil 100.1

10 Australia 652 10 Japan 98.2


Billions of Dollars (2008 PPP)

2,288 2,176

1,542 1,479 1,456 1,406 1,214

792 763 672

574 565 564

0

500

1,000

1,500

2,000

2,500Countries Cities

Russia UK

Mexico

Toky

oSpa

in

New Yo

rk City

Canad

a

Los A

ngele

s

Austra

lia

Poland

Chicag

o

Lond

onPari

s

Source: PricewaterhouseCoopers. UK Economic Outlook. November, 2009.



Given these large aircraft forecasts, the implications for aerospace manufacturers and service providers include the following:

■n The large commercial aircraft population will grow considerably over the next twenty years. The growth will be global, with emerging economies driving a significant portion of the opportunity. LCA fleets could double, creating opportunities for multiple manufacturers, and new entrants will continue to challenge established firms.

■n The most important factor to achieve forecasted growth is a healthy global economy—particularly the economies of the United States, China, and the EU.

■n Fuel costs, should they rise appreciably, could dampen growth. While increased fuel costs have driven the industry to develop more fuel-efficient aircraft and cut costs, the impact on the demand for air travel could hinder growth.

■n Political turmoil and economic uncertainty in various parts of the world could impact growth in some regions.

Regional AircraftFor the purpose of this section, regional aircraft are defined as single-aisle airframes with less than 120 passenger seats. The Embraer Market Outlook 2012–2031 estimates the demand for 6,795 new aircraft in the 30–120 seat segment over the next two decades, with a market value of $315 billion (see Table 11.2). Over the next decade, 3,005 new aircraft will be delivered, with 3,790 deliveries between 2022–2031. Overall, the 91–120 seat segment will be the largest with 3,765 aircraft (55 percent), followed by the 61–90 seat segment at 2,625 (39 percent), followed by the 30–60 seat segment with 405 aircraft (six percent).

TABlE 11.2 Embraer Outlook for 30–120 Seat Commercial Jet Delivery by Seat Segment, 2012–2031

Commercial Jet Demand by 30–120 Seat Capacity 2012–2021 2022–2031 2012–2031

30–60 0 405 405

61–90 1,325 1,300 2,625

91–120 1,680 2,085 3,765

Total 3,005 3,790 6,795

Source: Embraer. Market Outlook 2012–2031.

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During this same 20-year time frame, the world’s fleet of regional aircraft is expected to grow from approximately 6,220 to approxi-mately 10,610 units, reflecting a compounded annual growth rate of 2.7 percent (see Table 11.3).

TABlE 11.3 Embraer Outlook for World Fleet in Service by Seat Segment and Type of Aircraft

Boeing sees the global, regional jet fleet being approximately six percent of the total new aircraft delivered, and accounting for 2,020 new deliveries with a value of $80 billion (see Figure 11.11).

FIguRE 11.11 New Aircraft 2012–2031

6%

68%

24%

2%

Twin Aisle 747 and Larger Single Aisle

2011Airplanes19,890

2031Airplanes39,780

2012–2031New Airplanes

34,000

Share of FleetDelivery Units

World Regions

Market Value $4,470 Billion

Regional Jets

0%

25%

50%

75%

100%

World Fleet by 30–120 Seat Capacity and Type 2011 2031

30–60 Seat Turbo Prop 1,275 800

60+ Seat Turbo Prop 795 2,435

Total Turbo Prop 2,070 3,235

30–60 Seat Jet 1,620 625

61–90 Seat Jet 1,095 2,730

91–120 Seat Jet 1,435 4,020

Total Jet 4,150 7,375

Total Regional Aircraft in 30–120 Seat Category 6,220 10,610

Source: Embraer. Market Outlook 2012–2031.




Bombardier’s Commercial Aircraft Market Forecast 2012–2031 provides a comprehensive outlook at the under 150-seat regional market, and breaks the market into three segments: 20 to 59 seats; 60 to 99 seats; and 100 to 149 seats. Consistent with the other OEM forecasts, their forecast describes the economic environment and key factors they believe drive and influence the demand for air travel. Bombardier notes that while profitability for the airlines was fragile in 2011, it was a record year for aircraft orders. They point out that the “growing backlog in the large single-aisle aircraft segment remains a concern, as a sharp increase in traffic demand would be required to absorb the excess capacity represented by these orders.”12

During the forecast period, Bombardier’s predicts that the 20 to 59 seat segment will shrink from 3,600 aircraft to approximately 1,200 in 2031 (see Figure 11.12). While 300 new aircraft are expected to be delivered in this segment, 2,700 are expected to be retired. Bombardier sees significant growth in the 60 to 90 seat segment, with the number of aircraft jumping from 2,500 to a fleet of 6,800 between 2012 and 2031. In this segment, there will be 5,600 new aircraft and 1,300 retire-ments. In the 100 to 149 seat segment, the current base of roughly 5,100 will grow to a fleet of about 9,000; with 6,900 new deliveries and 3,000 retirements. The forecast sees an overall fleet growth of 52 percent by 2031 with new aircraft deliveries reaching 12,800 at a value of more than $630 billion.13

FIguRE 11.12 Regional Fleet Size, 2011 to 2031

3,600

2,500

5,100

1,200

6,800

9,000

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

20–59 Seat 60–99 Seat 100–149 Seat

2011 Fleet 2031 Fleet

Number of Aircraft

Source: Bombardier. Commercial Aircraft Market Forecast 2012–2031.

242

Civil Cargo AircraftBoeing estimates air cargo traffic is likely to grow at 5.2 percent over the next 20 years.14 Global economic growth and the need to replace aging aircraft will create a requirement for 2,760 freighter deliveries over the period (see Figure 11.13). Of these, approximately two-thirds (1,820) will be passenger-to-cargo conversions. Boeing believes that the relatively low acquisition and modification costs associated with passenger-to-cargo conversions makes them attractive for low-demand, standard-body requirement routes. The balance, approxi-mately 940 airframes, will be new aircraft.

FIguRE 11.13 Boeing Air Freighter Forecast

Airbus expects the market for cargo aircraft will show an average growth rate of 4.9 percent through 2031. To meet this growth, the world’s cargo aircraft inventory is forecast to expand from approxi-mately 1,615 aircraft to 2,938 by 2031. Of the total, Airbus expects more than 851 will be newly-built freighters (see Figure 11.14).15

New Converted New Converted

More than 80 tonnes Large

New Converted

Less than 45 tonnes Standard

2011Freighters

1,740

40–80 tonnes Medium

2031Freighters

3,200

2012–2031 Freighters 2,760

0%

25%

50%

75%

100%

Share of Fleet

1,120

260 450

680

250

Delivery Units

Air Cargo Market

940 New and 1,820 Converted




FIguRE 11.14 Airbus Freighter Forecast growth, 2012–2031

Given these large aircraft forecasts, there are several important impli-cations for aerospace manufacturers and service providers, including the following:

■n Growth in the cargo segment beyond 2012, particularly in the all-cargo aircraft category, will offer opportunities for manufacturers.

■n Air cargo’s sensitivity to economic conditions indicates that in domestic markets, ground transportation will continue to be a significant competitor. Improving economic conditions may reverse this to some degree.

■n The passenger-to-cargo conversion of older airframes represents a business opportunity for design, engineering, and certification companies along with the Part 145 maintenance providers that will supply the labor for conversions.

Unmanned Aircraft SystemsAn Unmanned Aircraft System (UAS) is much more than the vehicle itself.* It is a set of components that allows the vehicle to be used for its intended purposes and outcomes (see Figure 11.15). As stated in an unpublished white paper produced by the Aerospace Industries Association:16

411 440 523

847

423

-

200

400

600

800

1,000

1,200

1,400

Small Jets Regional & Long Range Large

ConversionsNew Freighters

Number of Aircraft


* The terms UAS and UAV are often used interchangeably. However, as noted above, the term UAS is used to describe unmanned aircraft systems, while the term UAV refers to the unmanned aerial vehicle itself.

244

In the broadest terms, UAS includes three components–the unmanned aircraft (UA), the ground control station (GCS), and the communications link between the UA and the GCS. This distinction between UAS and UA is important because a single UAS can contain multiple UAs. For example, some UAS consist of four UAs but only one GCS.

Clearly, there are some common characteristics that define these aircraft. The first is self-evident–they have no human pilots aboard. Second, in contrast to radio-controlled model aircraft, most UAS can automatically fly along preprogrammed routes. Although a ground-based pilot can always intervene, there is seldom a need to continuously hand fly the aircraft. This advanced technology allows most modern UAS to operate beyond radio line-of-sight (BLOS) through a communications satellite, which gives them much longer range than radio-controlled aircraft flown within radio line-of-sight (LOS) of the GCS.

FIguRE 11.15 Common Elements of an unmanned Aircraft System

Source: Aerospace Industries Association. Unmanned Aircraft Systems: Perceptions & Potential, 2013.



Almost every forecast sees the uses and numbers of UAS increasing, and this rapidly evolving segment of the industry is creating multiple opportunities for innovators, designers, software developers, manu-facturers and service providers. However, given the infancy of the UAS industry, the scale and scope of potential applications is not well understood. At the present time, there are three market segments for UAS: military, civilian and commercial.

Military SystemsFor classification purposes, the Department of Defense (DOD) categorizes UASs based upon maximum take-off weight, normal oper-ating altitude, and speed as follows:17

■n Group 1: These are usually hand-launched, self-contained, portable systems weighing less than 20 pounds that are typically employed for a small unit or base security. They are capable of providing over the hill or around the corner reconnaissance and surveillance. They operate within visual range and are analogous to radio-controlled model airplanes as covered in the FAA’s Advisory Circular 91-57.30.

■n Group 2: These small to medium-size systems weigh less than 55 pounds and usually support brigade and intelligence, surveillance, reconnaissance, and target acquisition requirements. They predominately operate from unimproved areas and are launched via catapult. Payloads may include a sensor ball with electro-optic/infrared (EO/IR) and laser range finder/designator (LRF/D) capability. They typically perform special purpose operations or routine operations within a specific set of restrictions.

■n Group 3: These systems are lighter than Group 4 and Group 5 systems and operate at medium altitudes with medium-to-long range and endurance. Their payloads may include a sensor ball with EO/IR, LRF/D, signal intelligence (SIGINT), communications relay, and chemical biological radiological nuclear explosive detection. They usually operate from unimproved areas and may not require an improved runway.

■n Group 4: These are relatively large in size, weigh over 1,320 pounds, and operate at medium-to-high altitudes with extended range and endurance. They normally require improved areas for launch and recovery, beyond line-of-sight (BLOS) communications, and have stringent airspace operations requirements. Payloads may include EO/IR sensors, radars, lasers,

246

communications relay, SIGINT, automatic identification system, and weapons.

■n Group 5: These are the largest systems, which operate at medium-to-high altitudes, and have the greatest range, endurance, and airspeed capabilities. They weigh over 1,320 pounds and require improved areas for launch and recovery, BLOS communications, and the most stringent airspace operations requirements. Group 5 UAS perform specialized missions such as broad area surveillance and penetrating attacks.

More detail and examples of each group are displayed in Figure 11.16.

FIguRE 11.16 DOD Categories of uAS

uAS groups

Maximum Weight

(lbs) (MgTOW)

Normal Operating Altitude

(ft)Speed (kts) Representative uAS

Group 1 0–20 <1200 AGL 100

Raven (RQ-11)

WASP

Group 2 21–55 <3500 AGL

<250

Scan Eagle

Group 3 <1320

<FL 180

Shadow (RQ-7B)

Tier II/STUAS

Group 4

>1320 Any Airspeed

Fire Scout (MQ-8B, RQ-8B)

Predator (MQ-1A/B)

Sky Warrior ERMP (MQ-1C)

Group 5 >FL 180

Reaper (MQ-9A)

Global Hawk (RQ-4)

BAMS (RQ-4N)

Source: Joint UAS Center of Excellence. Concepts of Operations, Joint Concept of Operations for Unmanned Aircraft Systems, Chapter 2, Version 1.5, 2011.



The U.S. military has taken the lead in the research, development and use of UAVs and UASs. In 2000, the U.S. DOD had fewer than 50 systems,18 yet today has in excess of 7,000.19 The majority of DOD vehicles are less than 20 pounds in size. Figure 11.17 summarizes the military’s UAS inventory by model and group.

FIguRE 11.17 DOD uAS Inventory by Model and group

The military has demonstrated the efficiency of using UASs in a vari-ety of ways. Military applications for unmanned aerial systems include:

■n Targets and Decoys

■n Intelligence, Surveillance and Reconnaissance

■n Search and Rescue

■n Security and Force Protection

■n Air Refueling

■n Communications

■n Logistics Missions

■n Munitions Delivery

7

13

13

30

45

89

128

227

322

499

912

916

6,987

1 10 100 1,000 10,000

A160T Hummingbird

EUAS

Fire Scout MQ-8B

Global Hawk RQ-4

Hunter MQ-5

Reaper MQ-9

Scan Eagle

Predator/Gray EagleMQ-1 B/C

T-Hawk RQ-16

Shadow RQ-7

Puma

WASP

Raven RQ-11

Number of Aircraft

Group 1 Group 2 Group 3 Group 4 Group 5

Source: DOD. UAS Integration Program Briefing, Aug 9, 2012.Note: Color coding refers to DOD Group classifications of UAVs.

248

The market for military UASs is likely to be reasonably strong in the near term, but the civilian market for UASs could be even greater.

Civil and Commercial SystemsWhile the military has been the early adopter of UASs, there is a grow-ing interest in the civil and commercial sectors. In fact, greater use of UASs may well come from outside of the military as UAS technology advances and the infrastructure grows.

Civil and commercial applications include:

■n Fire Fighting

■n Power and Pipeline Monitoring

■n Agriculture

■n Search and Rescue

■n Border Surveillance

■n Imagery and Mapping

■n Communications

■n Pollution Monitoring

■n Disaster Relief

■n Atmospheric and Oceanographic Monitoring

■n Wildlife Monitoring and Management

■n Advertising and Sky Banners

■n Science and Research

■n Entertainment and News Media

■n Maritime and Shipping Monitoring

■n Law Enforcement and Investigation

■n Traffic Monitoring

■n Mail/Freight

The civil/commercial UAS market has the potential to be a very dynamic growth sector in the aerospace industry. Globally, their uses will develop at varying rates, but the market potential for civil/commer-cial uses is likely to be greater than those of the military over time.



The Teal Group’s 2012 Market Forecast estimates that total world-wide spending on UASs could top $89 billion by 2022, despite cuts in defense spending. WinterGreen Research estimates that:20

Survey Indicates High level of Awareness of Non-Military use of unmanned Aircraft SystemsIn June, 2013, the Christian Science Monitor conducted a survey of readers on the potential for increased non-military use of Unmanned Aircraft Systems (UAS). The survey was sponsored by the Aerospace Industries Association and represented a broad range of views from almost 5,000 respondents across the U.S., Canada, Asia, and Europe. The purpose of the survey was to assess the level of awareness of readers regarding the issues associated with the non-military use of UAS and top areas for non-military use.

The results of the survey revealed a high level of awareness of the issues surrounding the non-military uses of UAS. Within the U.S., 81% of the respondents indicated that they were at least somewhat aware of the issues, while 76% of the non-U.S. respondents said that they were aware of the issues.

Based on the survey results, the respondents’ top two issues are individual privacy (60%), and safety of those on the ground (57%). If these issues are addressed, fully 74% do not oppose increased non-military use of UAS.

Readers see today’s top areas for non-military UAS use as:

■n Border protection

■n Law-enforcement support

■n Search and rescue

■n Severe-weather monitoring

The study also revealed that a majority of readers (60%) sees no difference between manned and unmanned aircraft in terms of protecting individual privacy; and that non-US respondents are even more supportive of increased UAS use than U.S. respondents.

Top Issues that Need to be Addressed

Source: Aerospace Industries Association and the Christian Science Monitor. (2013). Reader survey on the potential for increased non-military use of Unmanned Aircraft Systems (UAS). [PowerPoint Presentation.]

9%

30%

31%

57%

60%

0% 25% 50% 75%

Interference withtelecommunication signals

Safety of other aircraft

Keeping terrorists from gettingUAS technologies

Safety of people & propertyon the ground

Individual privacy

250

Unmanned aircraft systems promise to achieve a more significant aspect of commercial presence. Markets at $363.7 million [2012] are anticipated to reach $2.8 billion by 2018. Growth will come as the lighter and less expensive devices are performing commercial tasks remotely, with less cost and more versatility than is available in any other manner.

While the outlook for civil/commercial UASs has significant potential, there are challenges. First and foremost, is the use of the National Airspace System (NAS) which is controlled by the government. In the United States, the FAA is working with state and local governments and the aerospace and defense industry to ensure safe access to the NAS. With the recent passage of the FAA Reform and Modernization Act of 2012, there is now a legal mandate to accomplish UAS integra-tion into the nation’s airspace by 2015. The FAA announced in May 2012 that it is making progress in expediting the FAA Certificate of Waiver or Authorization (COA) process to fly UASs in the NAS.21

Access to the NAS, and streamlining of the COA process, are impor-tant milestones in the continuing development of the UAS market. Much of the strength of the market and innovations in UASs has come as a result of the conflicts in Iraq and Afghanistan. As the United States draws down its forces in these areas, limitations on the airspace for UAS operations could greatly dampen the growth of the industry.22

The implications of UAS on the aerospace and defense industry are as follows:

■n The military market will remain the leading user of UASs, but the civil/commercial market will continue to grow. The greatest challenge for the civil and commercial market will be access to the NAS. Access will be influenced by the command and control capabilities of UASs and the speed with which regulatory agencies can promulgate policy.

■n Since the civil/commercial UAS segment is still developing, there is plenty of room for growth by firms currently in the market, as well as for new entrants.

■n Advances in computers, communications, navigation, and identification systems will make UASs less expensive and expand their use in a variety of non-military applications.



■n Universities have, and will continue to develop, education and training programs for development and use of UASs. Research in multiple areas of UAS use will grow.

■n Competition among established firms will increase, as will competition from global competitors. Specialty products are likely to be developed to meet specific UAS uses.

■n Overall, the future for Unmanned Aircraft Systems looks promising. Nevertheless, users must demonstrate that they are more cost efficient and effective than current systems, at least as safe as manned systems, and able to deliver capabilities that do not exist today.

Commercial SpaceIn June 2007, Wired Magazine ran a feature story called “Rocket Boom,” which heralded “the dawn of the private space age.”23 The article provided a glimpse into the activities of one firm in particular, Space Exploration Technologies (SpaceX) and its Falcon rocket. On May 22, 2012, under contract to NASA, the SpaceX Falcon 9 rocket launched their Dragon spacecraft toward the International Space Station (ISS), and on May 25, the Dragon successfully berthed with the ISS. Five months later, a Dragon spacecraft conducted the first commercial cargo resupply mission to the International Space Station.

The commercial resupply mission was years in the making and was part of NASA’s Commercial Orbital Transportation Services (COTS) program, which launched in 2005. But this is not a new concept. Commercial initiatives like the current public-private partnership between NASA and SpaceX and Orbital Sciences in the COTS program have existed from almost the very beginning of the U.S. space program. Possibly the first commercial space venture was the experimental communications satellite, Telstar, launched in the early 1960’s. Today, satellite telecommunications is a multi-billion dollar industry, which has enabled new business concepts, such as cable and direct-to-home broadcast systems to expand and flourish.

More recently, commercial space activity got a boost when President Obama released the National Space Policy of the United States of America. The President’s policy, announced in June 2010, emphasizes increasing commercial participation in low earth orbit resupply and crew rotation to the ISS, while NASA focuses on missions beyond Earth orbit.

252

The National Space Policy includes a number of principles, goals and guidelines that provide a framework for U.S. activities in space. Those specifically related to commercial space include:24

Principle: The United States is committed to encouraging and facilitating the growth of a U.S. commercial space sector that supports U.S. needs, is globally competitive, and advances U.S. leadership in the generation of new markets and innovation-driven entrepreneurship.

Goal: Energizing competitive, domestic industries to participate in global markets and advance the development of satellite manufacturing, satellite-based services, space launch, terrestrial applications, and increased entrepreneurship.

Guidelines:*

■n Purchase and use commercial space capabilities and services to the maximum practical extent when such capabilities and services are available in the marketplace and meet U.S. Government requirements.

■n Modify commercial space capabilities and services to meet government requirements when existing commercial capabilities and services do not fully meet these requirements and the potential modification represents a more cost-effective and timely acquisition approach for the government.

■n Actively explore the use of inventive, nontraditional arrangements for acquiring commercial space goods and services to meet U.S. Government requirements, including measures such as public-private partnerships, hosting government capabilities on commercial spacecraft, and purchasing scientific or operational data products from commercial satellite operators in support of government missions.

■n Develop governmental space systems only when it is in the national interest and there is no suitable, cost-effective U.S. commercial or, as appropriate, foreign commercial service or system that is or will be available.

* As stated on the U.S. Department of Commerce website on space policy, these guidelines define “commercial” space as referring to goods, services, or activities provided by private sector enterprises that bear a reasonable portion of the investment risk and responsibility for the activity, operate in accordance with typical market-based incentives for controlling cost and optimizing return on investment, and have the legal capacity to offer these goods or services to existing or potential non-governmental customers.



■n Refrain from conducting U.S. Government space activities that preclude, discourage, or compete with U.S. commercial space activities, unless required by national security or public safety.

■n Pursue potential opportunities for transferring routine, operational space functions to the commercial space sector where beneficial and cost-effective, except where the government has legal, security, or safety needs that would preclude commercialization.

■n Cultivate increased technological innovation and entrepreneurship in the commercial space sector through the use of incentives such as prizes and competitions.

■n Ensure that U.S. Government space technology and infrastructure are made available for commercial use on a reimbursable, noninterference, and equitable basis to the maximum practical extent.

■n Minimize, as much as possible, the regulatory burden for commercial space activities and ensure that the regulatory environment for licensing space activities is timely and responsive.

■n Foster fair and open global trade and commerce through the promotion of suitable standards and regulations that have been developed with input from U.S. industry.

■n Encourage the purchase and use of U.S. commercial space services and capabilities in international cooperative arrangements.

■n Actively promote the export of U.S. commercially developed and available space goods and services, including those developed by small- to medium-sized enterprises, for use in foreign markets, consistent with U.S. technology transfer and nonproliferation objectives.

254

Commercial Space Outlook

Federal Aviation AdministrationUnlike other sectors of the aviation and aerospace industry, there are few readily available resources from which to gain a full perspective on the outlook for commercial space. This is partly because commercial space is still an immature market. However, there are a few sources that can provide some insight to the future of this important market.

The Federal Aviation Administration, through its Office of Commercial Space Transportation, and the Commercial Space Transportation Advisory Committee, provides a review of recent commercial space activity and a 10-year forecast into the future.

Figures 11.18 through 11.23 show both geosynchronous (GSO) and non-geosynchronous (NGSO) launches and payloads between 2012 and 2021. These forecasts are based on survey data from global satel-lite operators, manufacturers and service providers.25

FIguRE 11.18 Total Forecasted launches

Launches NGSO LaunchesGSO Launches

19 16 15

18 16 15 15 15 17 17

11 13 13

15

13 17 12 11

12 11

0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: FAA. 2012 Commercial Space Transportation Forecasts, May 2012.



FIguRE 11.19 Total Forecasted Payloads

FIguRE 11.20 Forecasted gSO launches

19

16 15

18 16 15 15 15

17 17

0

2

4

6

8

10

12

14

16

18

20

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Launches


NGSO Satellites GSO Satellites

23 21 20 23 21 20 20 20 22 22

37 44

28

35 42 49

16 15 16

0

10

20

30

40

50

60

70

80

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Satellites

15


256

FIguRE 11.21 Forecasted gSO Payloads

FIguRE 11.22 Forecasted NgSO launches by Type

3

4

5

6 6

8 8

8 8 8

1 3

0 1 1

6 1 4

4

3

3 3

3 3 3 2 2

2

1

3 1

1 3 2

2

3

3

0

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Launches Commercial Telecommunications Commercial Remote SensingScience and Engineering Commercial Cargo and Crew

Transportation ServicesOther Payloads LaunchedCommercially


23 21 20

23 21 20 20 20

22 22

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Satellites




FIguRE 11.23 Forecasted NgSO Payloads by Type

The Tauri GroupIn 2012, The Tauri Group released a forecast of demand for subor-bital reusable vehicles (SRVs) which was funded by the FAA Office of Commercial Space Transportation and Space Florida. The report, Suborbital Reusable Vehicles: A Ten-Year Forecast of Market Demand, describes the market drivers for SRVs.26 The report envisions the following eight markets:

■n Aerospace Technology Test and Demonstration

■n Basic and Applied Research

■n Commercial Human Space Flight

■n Education

■n Media and Public Relations

■n Point-to-Point Transportation

■n Remote Sensing

■n Satellite Deployment

To help in standardizing forecasts for each market, the report proj-ects seat and cargo equivalents. Cargo space is based on standard sized lockers of two cubic feet used in the Space Shuttle program; seat space is based on passenger seats—exclusive of crew, and

Commercial TelecommunicationsCommercial Remote SensingScience and EngineeringCommercial Cargo and CrewTransportation ServicesOther Payloads LaunchedCommercially

3 4

5 6 6 8 8 8 8 8 1 3 1 1

21 18

8 8 7

7 7 7 7 7

1 3

4 2 2

7 1

11

16

11 18

27

27

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Satellites


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standardized by the number of individuals; and dedicated missions use a standard configuration of three seats or 10 lockers.

The Tauri Group forecasts three scenarios: Baseline, Growth, and Constrained. Table 11.4 lists the projected demand and revenue for each scenario over the 10-year period.

TABlE 11.4 Tauri group Forecasted SRV Demand and Revenue

The report’s data is based on “more than 120 interviews, a survey of high net-worth individuals … a poll of suborbital researchers … market studies, data on analog markets, government budgets, and performance information on competing platforms.”27 Even though the report clearly points out that the forecast is highly sensitive to the assumptions used, it provides a reasonable prediction of what can be expected given today’s capabilities and best estimates for the future.

The Space FoundationWhile not a forecast of the space industry per se, one of the most comprehensive reviews of the state of the space industry is produced by the Space Foundation. The annual Space Report: The Authoritative Guide to Global Space Activity, provides a large amount of detail from which to gain a reasonably good outlook for the industry. Each current year’s report is available for purchase from the Foundation.

The Space Report is divided into five major sections: Space Products and Services; the Space Economy; Space Infrastructure; Workforce and Education; and Outlook. Highlights from the Space Report 2012 include the following:28

■n The global space economy has grown during the past six years (2006–2011) with 2011 growth 12 percent greater than in 2010, reaching an estimated level of $289.77 billion.

■n The commercial infrastructure and support industries saw a 2011 increase of 22 percent for a total of $106.46 billion.

■n Commercial space products grew at nine percent about 2010 levels to $110.53 billion.

Scenario 10-Year Total Demand Forecasted Revenue

Constrained 2,378 Equivalents $300 Million

Baseline 4,518 Equivalents $600 Million

Growth 13,134 Equivalents $1.6 Billion

Source: The Tauri Group. Suborbital Reusable Vehicles: A Ten-Year Forecast of Market Demand, August 2012.



■n While government spending on space increased in real terms, it declined as an overall percentage of the space economy from 27 percent in 2010 to 25 percent in 2011. Total U.S. and non-U.S. government spending was $72.77 billion in 2011.

■n The U.S. government spent $47.25 billion in 2011, spread across the Defense Department, NASA, the National Oceanic and Atmospheric Administration, the Federal Aviation Administration, and other government agencies—a decline of .4 percent from the $47.44 billion spent in 2010.

■n In 2011, 133 space payloads were carried on 84 launches. These included satellites, interplanetary probes, and flights to the ISS, resulting in a 14 percent increase over the 74 launches in 2010.

One method of understanding financial performance of a firm or indus-try is by the market value placed on it by the equity markets. Commercial space is no different. The Space Foundation has created the Space Foundation Indexes (SFI) that “consist of three weighted indexes that track the performance of the overall space industry, as well as space infrastruc-ture and services segments in the U.S. public markets.”29 These indexes can be useful for determining how well the commercial space industry is doing in relationship to the market. The criteria for adding companies into the SFI includes percentage of revenues obtained from space-related products and services, market capitalization, and trading volume, among others. Figure 11.24 shows the SFI in relationship to the Standard and Poor’s 500 Index from mid-March through mid-November 2012.

FIguRE 11.24 Space Foundation Indexes versus S&P 500

Space Foundation Infrastructure Index 13.45% Space Foundation Index 18.95%

Space Foundation Services Index 26.83% S&P 500 12.74%

Apr 12 Jul 12 Oct 12Mar 12 May 12 Jun 12 Aug 12 Sep 12 Nov 12

20%

10%

0%

Source: Space Foundation. Space Foundation Indexes, November 2012.

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Futron CorporationSince 2008, Futron Corporation has published an annual Space Competitiveness Index (SCI), which ranks the leading nations within the space industry Futon’s index “is a globally-focused, analytic frame-work that defines, measures, and ranks national competitiveness in the development, implementation, and execution of space activity.”30 The SCI assesses each indexed country’s abilities, and evaluates their performance relative to one another across 50 individual qualitative and quantitative metrics. These metrics span the dimensions of govern-ment, human capital and industry using a proprietary data model.

The index includes the following fifteen countries:

■n Argentina

■n Australia

■n Brazil

■n Canada

■n China

■n Europe (treated as a single integrated actor)

■n India

■n Iran

■n Israel

■n Japan

■n Russia

■n South Africa

■n South Korea

■n Ukraine

■n United States

Access to the SCI is by subscription only. Several points from the publicly available Executive Summary and other sources are particularly significant when creating an overall outlook for commercial space. Some of these points are:

■n Argentina is emphasizing its satellite-manufacturing sector for international markets and is exploring commercial and government-to-government deals.



■n Australia has reentered space at the national level and is in the process of developing new policies for how they can use space to tackle climate change, weather forecasting, natural resource management, forestry and agriculture, disaster management, and national security.31

■n Brazil is increasing funding and has plans for a new launch vehicle.

■n In 2012, the number of Chinese launches surpassed the United States for the first time.

■n Iran has progressed faster than any other newly, emergent space nation.

■n Russia remains the world’s launch leader, although there are growing concerns about quality control, which has led to several launch failures.

■n South Korea is determined to achieve independent spaceflight.

■n The Ukraine, which has a significant space industrial base, is aggressively seeking overseas partners. In early 2012, the Ukraine’s approved a new five-year space plan for the period of 2013–2017. According to government sources, the new plan places greater emphasis on public-private partnerships, commercial space, and international cooperation.32 It will be interesting to see how their new plans affect existing and emerging commercial markets.

■n The United States is the overall leader in space competitiveness, but has seen its relative position decline for five consecutive years.

■n The largest relative gains in space competitiveness since the index’s inception are: China—47 percent; Japan—37 percent; Russia— 11 percent; and India—10 percent.

The Implications of Commercial Space for the Aviation and Aerospace IndustrySimilar to unmanned aircraft systems, commercial space is still evolv-ing. While commercial space applications have been envisioned for decades, the economics of developing, launching, and retrieving both manned and unmanned space vehicles has been a huge hurdle. Furthermore, some of the more innovative technologies, materials, and concepts needed to make commercial space affordable and safe still need to mature. The ability to reach space in a routine and safe manner has always been as challenging as the cost to achieve it.

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Government support has been important to overcoming the barriers of making commercial space affordable and accessible on a market scale,33 and NASA’s proposed FY 2013 budget provides $830 million for its partnerships with the commercial space industry.34

The overall outlook for commercial space is largely positive. Key considerations include:

■n Multiple nations are engaging in commercial space activity, which should result in growing commercial opportunities. The supportive relationship between NASA and commercial providers should grow and continue to evolve.

■n Globally, national budgets will be pressured to find reductions, leading to varying levels of programmatic uncertainty in the near term, yet growth will continue.

■n Like other segments of the aviation and aerospace industry, a significant number of employees in the space workforce are approaching retirement. The need for replacements with Science, Technology, Engineering, and Mathematics (STEM) skills is growing.

■n Products and services, based on space technologies like the Global Positioning System, are likely to grow in areas from personal use to law enforcement, disaster relief, environmental monitoring, and scientific research.

■n The space infrastructure will grow. This will include upgrades to current facilities and the building of additional spaceports. Satellite usage will grow as communications demands increase for TV and Internet services.

■n Given the current workforce and economic uncertainties, there is likely to be a need for increased collaboration between commercial partners and space-faring nations. New business models are likely to develop as well.

Outlook for 2013 and BeyondForecasting is difficult for complex systems. As a result, we prefer to use the term “outlook” to describe the general direction or vector in which the industry is heading. While our intention is to help reduce uncertainty about the future, each decision maker must ultimately decide what is significant and relevant to his or her situation. Given



what has been documented in this report, we believe the outlook for 2013 and beyond is as follows.

Challenges in the Short-TermThe aerospace industry has proven to be remarkably resilient over the years, but faces a number of challenges in the short-term. Some of these include:

■n Following the implementation of sequestration on March 1, 2013, the DOD, NASA, NOAA and the FAA are now dealing with the reality of how to make the cuts demanded. The specific impacts depend on how each department or agency chooses to comply with the mandatory reductions.

■n The future of the aerospace industry in the United States is dependent upon a skilled workforce. Unfortunately, as the demand for air travel and air freight grows, and UAS and commercial space operations expand, it is apparent that there will be a gap between the number of workers required and those who can do the work. If enough skilled workers are not found in the United States, an increasing amount of work will shift to Europe, Brazil, India, China, Japan and other countries that are aspiring to build their own aerospace and defense capabilities.

■n Related to the aging workforce is the need for more STEM education in grades K-12. It is clear that young people need to be encouraged to enter professions that require STEM disciplines. Thanks to the work of Norm Augustine, Aviation Week & Space Technology, the Aerospace Industries Association and other public and private initiatives, progress is being made, but more needs to be done.

■n The demand for pilots and maintenance technicians will grow as air travel increases. Shortages of pilots in some regions of the world are already being seen.35

■n Fuel prices have been a major component of the cost of operating aircraft. As these costs are passed on to customers, they can dampen demand and profitability. Declining demand and reduced profitability results in fewer aircraft purchases. On the other hand, increasing fuel costs can be an incentive for carriers to replace older, less fuel-efficient aircraft with newer, more efficient models. Turmoil and tensions in North Africa and the Middle East are also raising concerns about the availability and price of oil.

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■n Privacy, certification, and the use of airspace must be dealt with as the UAS market evolves.

■n Infrastructure capacity at airports and for the air traffic control system could impede the industry’s ability to meet customer demand and result in even more congestion.

■n Potential environmental regulations concerning noise and carbon emissions, as well as new security measures, can increase costs and inhibit the use of certain airports. Government regulations and policies have an influence on competitiveness and the ability of firms to operate successfully.

■n Much like UAS, commercial space will require certification, policy, and procurement reviews as it continues to develop outside of NASA.

Opportunities in the Long-TermThe following is a summary of opportunities in the industry:

■n As the world’s developed economies improve and the emerging economies grow, the demand for both passenger and air freight will expand over the next twenty years.

■n Expanding demand, aging fleets, technology advancements, the need for more efficient aircraft, and aircraft designed for specific missions and markets will drive the need for new aircraft.

■n If energy costs continue to be the largest single expense of aircraft operation, more in-service aircraft may be retired sooner than planned. This could push new aircraft and engine production above current projections.

■n Building aircraft takes time and, while new aircraft are being designed, current fleets need to be maintained, creating opportunities for MRO providers and their suppliers. Additionally, if expansion in demand quickens, some older aircraft may be brought back into service or maintained in service longer. This could increase MRO and upgrade activity.

■n The military is searching for ways to become more efficient and reduce operating costs. This need can create opportunities for innovation, which in turn can create opportunities for entrepreneurial aerospace and defense companies and individuals.



■n General aviation seems to be entering a long-awaited recovery. As the U.S. and other economies improve, the demand for GA aircraft will create significant opportunities.

■n Unmanned aircraft systems will continue to grow in importance and this segment is poised for significant commercial growth. The military will scale back some of their UAS programs, but they will continue to be the dominate user in the near term. As FAA certification moves ahead, commercial uses will increase.

■n Commercial space continues to show promise. The space economy will continue to grow and recent successes indicate that the commercial space sector is maturing.

General AssessmentThe slow and uneven economic recovery has affected commercial and general aviation, but as the economy recovers, so will the demand for new aircraft and related services. UAS and commercial space are clearly poised for growth, but the defense side of the industry is facing considerable uncertainty. In general, it appears as though demand is returning in many geographic markets and segments of the indus-try. With the exception of defense, aerospace manufacturing should continue to improve in 2013 and beyond.

Chapter Endnotes

1 The format for this chapter is somewhat different than in previous years. In the past, the major forecasts were summarized. This year, the chapter is organized around sectors of the industry.

2 General Aviation Manufacturing Association. (2006, May). General Aviation’s contribution to the U.S. economy. Retrieved from http://www.gama.aero/files/documents/GAcontribution.pdf

3 General Aviation Manufacturing Association. (2012). General Aviation statistical data book and industry outlook. Retrieved from http://www.gama.aero/files/GAMA7233_AR_FINAL_LOWRES.pdf

4 Ibid. pp. 23–24.

5 General Aviation Manufacturing Association. (2013, May 7). GAMA issues first quarter 2013 airplane shipments and billings. Retrieved from http://www.gama.aero/media-center/press-releases/content/q1-shipment

6 Embraer Commercial Aviation. (2012). Embraer market outlook 2012–2031. Retrieved from http://www.embraer.com/en-US/ImprensaEventos/Press-releases/noticias/Pages/EMBRAER-DIVULGA-PREVISAO-DE-ENTREGA-DE-6800-JATOS-NO-SEGMENTO-DE-30-A-120-ASSENTOS-NOS-PROXIMOS-20-ANOS.aspx

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7 The Boeing Company. (2012). Current market outlook 2012–2031. Retrieved from http://www.boeing.com/commercial/ cmo/pdf/Boeing_Current_Market_Outlook_2012.pdf

8 Airbus. (2012). Global market forecast 2012–2031, navigating the future, p. 10. Retrieved from http://www.airbus.com/company/market/forecast/?eID=dam_frontend_push&docID=27599

9 Ibid., p. 53.

10 Ibid., p. 22.

11 PricewaterhouseCoopers. (2009, November). UK Economic Outlook, p. 20. Retrieved from http://www.ukmediacentre.pwc.com/imagelibrary /downloadMedia.ashx?MediaDetailsID=1562

12 Bombardier Inc. (2012). Commercial aircraft market forecast 2012–2031, p. 4. Retrieved from http://read.uberflip.com/i/70579

13 Ibid., p. 37.

14 The Boeing Company. (2012). Current market outlook, 2012–2031, p. 3.

15 Airbus. (2012). Global market forecast 2012–2031, navigating the future, p. 141.

16 The Aerospace Industries Association has produced two papers on this topic. See Aerospace Industries Association. (2012). UAS and the future of aviation (unpublished white paper); or Aerospace Industries Association. (2013, May). Unmanned Aircraft Systems: Perceptions and Potential. Retrieved from http://www.aia-aerospace.org/assets/AIA_UAS_Report_small.pdf

17 U.S. Department of Defense. (2011, March). Unmanned aircraft system airspace integration plan (Version 2.0). Retrieved from http://www.acq.osd.mil/sts/docs/DoD_2011_UAS_Airspace_Integration_Plan_(signed).pdf

18 U.S. Department of Commerce, Office of Transportation and Machinery, International Trade Administration. (2011). Flight plan 2011: Analysis of the U.S. aerospace industry. Retrieved from http://trade.gov/wcm/groups/internet/@trade/@mas/@man/@aai/documents/web_content/aero_rpt_flight_plan_2011.pdf

19 U.S. Department of Defense. (2012, August 9). UAS integration program (Briefing). Retrieved from http://safetyforum.alpa.org/LinkClick.aspx?fileticket=CO495osqy%2Bo%3D&tabid=2275

20 Global Information, Inc. (2012, July 26). Commercial unmanned aerial systems (UAS): market shares, strategies, and forecasts, worldwide, 2012–2018. Retrieved from http://www.giiresearch.com/report/wg247707-commercial-unmanned-aerial-systems-uas-market.html

21 Federal Aviation Administration. (2012, May 14). FAA Makes Progress with UAS Integration Retrieved from http://www.faa.gov/news/updates/?newsId=68004

22 Association for Unmanned Vehicle Systems International. (2010). Unmanned Aircraft System Integration into the United States National Airspace System: an assessment of the impact on job creation in the U.S. aerospace industry. Retrieved from http://uas.usgs.gov/pdf/0510jobsreport.pdf

23 Hoffman, C. (2007, May 22). Rocket boom, Wired Magazine, 15(6). Retrieved from http://www.wired.com/wired/issue/15-06

24 A more detailed summary of the National Space Policy of the United States of America can be viewed at: http://www.space.commerce.gov/general/nationalspacepolicy/

25 Federal Aviation Administration. (2012, May). 2012 Commercial space transportation forecasts, Retrieved from http://www.faa.gov/about/office_org/headquarters_offices/ast/media/2012_Forecasts.pdf



26 The Tauri Group. (2012, August). Suborbital reusable vehicles: a ten-year forecast of market demand. Retrieved from http://www.taurigroup.com/files/Suborbital_Reusable_Vehicles_A_10_Year_Forecast_of_Market_Demand.pdf

27 Ibid., p. 3.

28 The Space Foundation. (2012). The space report: the authoritative guide to global space activity. Retrieved from http://www.spacefoundation.org/programs/research-and-analysis/space-report

29 Ibid.

30 Futron Corporation. (2012). Space competitiveness index, executive summary. Retrieved from http://www.futron.com/sci_exe_summary_download_form.xml

31 Australian Government. (2012). Space and Australia: national space industry policy. Retrieved from http://www.space.gov.au/SPACEPOLICYUNIT/Pages/default.aspx

32 Messier, D. (2012). Ukraine’s 5-Year plan focuses on public-private partnerships, commercial activities. Ukraine Business Online. Retrieved from http://www.parabolicarc.com/2012/03/10/ukraines-5-year-space-plan-focuses-on-public-private-partnerships-commercial-activities/

33 U.S. Government support for programs of this scale is not unusual. In the 19th Century, the railroads received substantial assistance from the states and federal government, and in the 20th Century, military contracts and the development of federally-funded transcontinental airmail services helped lay the foundation for America’s current aerospace industry.

34 Weaver, D. (2012, February 13). NASA reaches higher with fiscal year 2013 budget request (Release 12-051). Retrieved from http://www.nasa.gov/home/hqnews/2012/feb/HQ_12-051_2013_Budget.html

35 The Boeing Company. Current market outlook, 2012–2031, p. 26.

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Acronyms and Other Terms

A&D: Aerospace and Defense

AIA: Aerospace Industries Association

AIAA: American Institute of Aeronautics and Astronautics

AIAB: Aerospace Industries Association of Brazil

AMP: Advanced Manufacturing Partnership

ASA: Aerospace States Association

AVIC: Aviation Industry (or sometimes “Industries”) of China

BCA: Budget Control Act

BlOS: Beyond Line of Sight

BlS: Bureau of Labor Statistics

BRIC: Brazil, Russia, India and China

C&I: Commercial and Industrial

C2: Command and Control

CAB: Current Account Balance

CAgR: Compound Annual Growth Rate

CBO: Congressional Budget Office

CFO: Chief Financial Officer

COMAC: Commercial Aircraft Corporation of China

COTS: Commercial-Off-The-Shelf; or for space programs, Commercial Orbiter Transportation Services

CPI: Consumer Price Index

Cu: Capacity Utilization

DARPA: Defense Advanced Research Project Agency

DOD: Department of Defense

270

EBIT: Earnings Before Interest and Taxes

EBITA: Earnings Before Interest, Taxes and Amortization

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization

ER: Exchange Rate

ERI: Exchange Rate Index

ETS: Emissions Trading System

Eu: European Union

FAA: Federal Aviation Administration

FDI: Foreign Direct Investment

FDIC: Federal Deposit Insurance Corporation

FRB: Federal Reserve Bank

FTA: Federal Trade Administration

FTK: Freight Ton (or Tonne) Kilometer

FY: Fiscal Year

g-7: Group of seven industrialized nations which includes Canada, Japan, U.K., U.S., France, Italy and Germany

g-8: G-7 plus Russia

gA: General Aviation

gAMA: General Aviation Manufacturers Association

gAO: Government Accountability Office

gDP: Gross Domestic Product

gERD: Gross Domestic Expenditures on Research and Development

gSO: Geosynchronous Obit

HAZMAT: Hazardous Material

IA: Information Assurance

IATA: International Air Transport Association

ICAO: International Civil Aviation Organization

IMF: International Monetary Fund

IP: Industrial Production or Intellectual Property

ITA Stock Symbol: The iShares Dow Jones U.S. Aerospace & Defense Index Fund

ITA: International Trade Administration

JWST: James Webb Space Telescope

lCA: Large Civil Aircraft or Large Commercial Aircraft

lTIR: Long-term Interest Rates

M&A: Merger and Acquisition

ME: Multi-Engine Aircraft

MRO: Maintenance, Repair and Overhaul

NAICS: North American Industry Classification System

NASA: National Aeronautics and Space Administration

NASDAQ: National Association of Security Dealers Automated Quotation

NBAA: National Business Aviation Association

NDAA: National Defense Authorization Act

NDIA: National Defense Industrial Association

NEI: National Export Initiative

NgSO: Non-Geosynchronous Orbit

NOAA: National Oceanic and Atmospheric Administration

NPV: Net Present Value

NSF: National Science Foundation

NYSE: New York Stock Exchange

OASD: Office of the Assistant Secretary of Defense

OECD: Organization for Economic Cooperation and Development

OEM: Original Equipment Manufacturer

OMB: Office of Management and Budget


271

OPW: Output per Worker

OTC: Over the Counter

PBl: Performance-Based Logistics

PNFI: Private Nonresidential Fixed Investment

PPI: Producer Price Index

Q1-4: Quarters 1 through 4

QA: Quality Assurance

R&D: Research and Development

RDT&E: Research, Development, Test, and Evaluation

REE: Rare Earth Elements

ROE: Return on Equity

RoHS: Restriction on Hazardous Substances

RPK: Revenue Passenger Kilometer or Revenue per Kilometer. Both are used as measures of profitability by the commercial airline industry.

RWDC: Real World Design Challenge

SBA: Small Business Administration

SBIR: Small Business Innovation Research

SCI: Space Competitiveness Index, published by the Futron Group

SE: Single-Engine Aircraft

SEC: Securities and Exchange Commission

SMB: Small to Medium-Size Business

SME: Small to Medium-Size Enterprise

SMM: Small to Medium-Size Manufacturer

SRV: Suborbital Reusable Vehicle

STEM: Science, Technology, Engineering and Mathematics

STEM+M: STEM plus Manufacturing

STTR: Small Business Technology Transfer

TARC: Team America Rocketry Challenge

uAC: United Aircraft Corporation

uAS: Unmanned Aerial System or Unmanned Aircraft System

uAV: Unmanned Aerial Vehicle

273

Glossary

Advanced Economies: The International Monetary Fund divides the world into advanced economies and emerging market and developing economies. This classification has evolved over time and is generally based on GDP per capita, exports, population, and other factors. At the present time, there are 35 advanced economies, 151 developing economies, and several economies that are not classified, such as Cuba and North Korea.

Aeronautics: (1) The art and science of designing and constructing aircraft. (2) The art and science of operating aircraft. (3) The study of the science of flight. (4) The method of designing an airplane or other flying machine. According to NASA, aeronautics typically involves the study of aerodynamics; propulsion; materials and structures; and stability and control. (NASA)

Aerospace Employment: Average annual employment in the aerospace industry (see below) calculated as one-twelfth of the sum of monthly estimates of the total number

of persons employed during a designated pay period.

Aerospace Industry: Includes firms engaged in aircraft manufacturing; aircraft engine and engine parts manufacturing; other aircraft parts and auxiliary equipment manufacturing; guided missile and space vehicle manufacturing; guided missile and space vehicle propulsion units; other guided missile and space vehicle parts and auxiliary equipment; satellite telecommunications; space research and technology (NAICS 33641). The industry also includes firms involved in search, detection, navigation, guidance, aeronautical, and nautical system and instrument manufacturing (NAICS 334511). (U.S. Department of Commerce)

Aerospace Payroll: Estimated on the basis of average weekly earnings for a given calendar year for production workers, plus an estimated annual salary for other employees.

274

Aerospace Sales: The AIA estimate of aerospace industry sales is developed by summing: DOD expenditures for aircraft, missiles, and space-related procurement and RDT&E; NASA expenditures for R&D, space flight control and data communications; outlays for space activities by other U.S. government departments and agencies; commercial sales of space-related products; net domestic and export sales of civil aircraft, engines, and parts; foreign military sales and commercial exports of military aircraft, missiles, propulsion, and related parts; sales of related products and services including electronics, software, and ground support equipment; and sales of non-aerospace products which are produced in aerospace-manufacturing establishments which use technology, processes, and materials derived from the aerospace industry.

Agreement on Trade in Civil Aircraft: A WTO agreement that eliminates import duties on all aircraft, other than military aircraft, as well as on all other products covered by the agreement such as civil aircraft engines, components and sub-assemblies of civil aircraft, flight simulators and other parts and components.

Air Carrier: (1) An aircraft with seating capacity of more than 60 seats or a maximum payload capacity of more than 18,000 pounds carrying passengers or cargo for hire or compensation. This includes US and foreign flagged carriers. (Federal Aviation Administration) (2) Any citizen of the United States who undertakes, whether directly or indirectly or by a lease or any other arrangement, to engage in air transportation. (U.S. Department of Transportation)

Air Carriers: The commercial system of air transportation, consisting of domestic and international scheduled and charter service.

Aircraft Industry: The industry primarily engaged in the manufacture of aircraft, aircraft engines, and parts including propellers and auxiliary equipment. The aircraft industry is part of the aerospace industry, but does not include spacecraft.

Aircraft: All airborne vehicles supported either by buoyancy or by dynamic action. Used in this volume in a restricted sense to mean an airplane—any winged aircraft including helicopters, but excluding gliders and guided missiles.

Airframe: The structural components of an airplane, such as: fuselage, empennage, wings, landing gear, and engine mounts, but excluding such items as: engines, accessories, electronics, and other parts that may be replaced from time to time.

Airlines: see Air Carriers.

Applied Research: Systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met. (U.S. Office of Management and Budget) (2) Research projects which represent investigation directed to discovery of new scientific knowledge, and which have specific commercial objectives with respect to either products or processes. (U.S. Department of Commerce)

Appropriation: An act of Congress that allows federal agencies to incur obligations and make payments from the U.S. Treasury for specified purposes. An appropriation is the most common means of providing budget authority, and usually follows the passage of an authorized bill. (U.S. Department of Commerce) Within the Department of Defense, types of appropriations include: RDT&E; procurement; operations and maintenance; military personnel; and military construction.

Assets: Tangible or intangible things of value that are owned by a business. Examples include money, machines, buildings, and inventory.

Astronautics: The art and science of designing, building, and operating manned or unmanned space objects.

Average Hourly Earnings: The average amount employees make per hour in the United States in a given month.

Average Weekly Earnings: Calculated by multiplying average weekly hours by average hourly earnings.

Average Weekly Hours: Average hours for which pay was received; different from standard or scheduled hours.

Avionics: Refers to communication systems, navigation systems, displays and other electronic devices used in aviation.


275GLOSSARy

Backlog: The sales value of orders accepted (supported by legal documents) that have not yet passed through the sales account.

Balance of Payments: The total of all financial transfers for whatever purpose, including goods and services and all financial transactions by private and public entities in and out of a country, which results in balance where all outflows must equal all inflows.

Balance of Trade: The difference between exports and imports. A positive balance is called a surplus. A negative balance is called a deficit. (U.S. Department of Commerce)

Balance Sheet: A summary of a company or industry’s financial condition at a specific point in time, including assets, liabilities and equity or net worth.

Basic Research: (1) Systematic study directed toward greater knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications toward processes or products in mind. (U.S. Office of Management and Budget) (2) Research projects which represent original investigation for the advancement of scientific knowledge, and which do not have specific commercial objectives, although they may be in fields of present or potential interest to the sponsor. (U.S. Department of Commerce)

BRIC Countries: Refers to the nations of Brazil, Russia, India and China.

Budget Authority (BA): The value of the annual new authority to incur legally binding obligations of the Government that will result in the outlay of funds.

Bureau of Economic Analysis (BEA): An agency of the Department of Commerce.

Bureau of labor Statistics (BlS): An agency of the Department of Labor.

Bureau of the Census: An agency of the Department of Commerce.

Capacity utilization (Cu): The percentage of effective manufacturing capacity that is currently being utilized for manufacturing.

Civil Aircraft: Refers to aircraft and aircraft engines not built for military or public applications.

Commercial Banks: A type of financial institution that may offer services to individuals, but whose primary function is receiving deposits and lending to businesses.

Commercial Paper: A short-term unsecured obligation, normally issued at a discount and fully repayable on maturity. One of the methods favored by companies to raise working capital.

Compound Annual growth Rate (CAgR): The year-over-year growth rate of an investment over a specified period of time.

Consolidated Income Statement: The combined income statements of an entire entity or industry.

Constant Dollars: Calculated by dividing current (“then-year”) dollars by appropriate price deflator and multiplying the result by 100.

Consumer Price Index (CPI): The Bureau of Labor Statistics defines the CPI as a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Consumer Prices: The prices of consumer goods.

Coproduction: As used in this report, this term refers to military or civil aircraft systems or subsystems produced by two or more countries through government-to-government agreements or direct commercial agreements subject to U.S. Government export licenses.

Corporate Aviation: The non-commercial operation or use of aircraft by a company for the carriage of passengers or goods as an aid to the conduct of company business, flown by a professional pilot employed to fly the aircraft (International Civil Aviation Organization).

Credit Spread: The risk premium commercial bank lenders charge corporate borrowers above the risk-free rate of return, typically based on 10-year Treasury securities and the term of the loan. Credit spread is also referred to as loan spread.

Currency Hedge: A position established in one currency in an attempt to offset exposure

276

to exchange-rate changes or fluctuations in another currency.

Current Year Dollars: Dollars that include the effects of inflation or escalation and/or reflect the price levels expected to prevail during the year at issue. (Defense Acquisition University)

Debt-to-Equity Ratio: A measure of a company’s financial leverage, calculated by dividing total liabilities by stockholder equity.

Deflator: An index used to convert a price level to one comparable with the price level at a different time, offsetting the effect of inflation. The base period, which equals 100, is usually specified as either a given fiscal or calendar year.

Demographic gifts: Peaks in national economic output resulting from low-dependency ratio demographics.

Dependency Ratios: A measure of the number of dependents (aged 0–14 and over the age of 65) to the total population (aged 15–64) expressed in terms of hundreds of people.

Depository Institution: Financial institution that makes loans and obtains its funds mainly through accepting deposits from the public; includes commercial banks, savings and loan associations, savings banks, and credit unions. (Federal Reserve Bank)

Depreciation: The conversion of the depreciable cost of a fixed asset into an expense, spread over its remaining life. There are a number of methods for calculating depreciation, all based on a periodic charge to an expense account and a corresponding credit to a reserve account.

Development: Refers to the systematic application of knowledge toward the production of useful materials, devices, and systems or methods, including design, development, and improvement of prototypes and new processes to meet specific requirements. (U.S. Office of Management and Budget)

Direct and Indirect Purchases: Direct purchases refer to purchases by the DOD from contractors, while indirect purchases are not contracted directly through the DOD but indirectly through DOD contractors.

Durable goods Industry: Comprised of major manufacturing industry groups with NAICS codes 321, 327, and 33. All major manufacturing industry groups in NAICS codes 31 and 322–326 are considered nondurable goods manufacturing industry groups.

Earnings: The total income people receive for work performed as an employee during the income year. This category includes wages, salary, armed forces pay, commissions, tips, piece-rate payments, and cash bonuses earned, before deductions are made for items such as taxes, bonds, pensions, and union dues. (U.S. Department of Commerce)

Economic Espionage: Occurs when an actor, knowing or intending that his or her actions will benefit any foreign government, instrumentality or agent, knowingly: (1) steals, or without authorization appropriates, carries away, conceals, or obtains by deception or fraud a trade secret; (2) copies, duplicates, reproduces, destroys, uploads, downloads, or transmits that trade secret without authorization; or (3) receives a trade secret knowing that the trade secret had been stolen, appropriated, obtained or converted without authorization. (U.S. Office of the National Counterintelligence Executive)

Emerging Economies: Refers to nations that are experiencing rapid growth, expansion and industrialization—sometimes referred to as emerging markets. See definition of Advanced Economies.

Enterprise Value to EBITA: An alternative valuation tool which determines the fair market value of a company.

Enterprise Value to Sales: Portrays how much it costs to buy a company’s sales. A lower EV-to-sales ratio generally indicates an undervalued company.

Establishment: The basis for reporting to the Census of Manufacturers; an operating facility in a single location.

Euro Area: The area comprising those European Union member states in which the euro has been adopted as the single currency in accordance with the Treaty and in which a single monetary policy is conducted under the responsibility of the Governing Council of the European Central Bank. Also referred to as the Euro Zone. (Organization for Economic Cooperation and Development)


277GLOSSARy

Euro: The name of the European currency adopted by the European Council at its meeting in Madrid on 15 and 16 December 1995 and used instead of the European Currency Unit. (Organization for Economic Cooperation and Development)

Evaluation: The determination of technical suitability of material, equipment, or a system. (U.S, Department of Defense).

Exchange Rate: The price of one currency expressed in terms of another, i.e., the number of units of one currency that may be exchanged for one unit of another currency. (U.S. Department of Commerce)

Export-Import Bank of the united States (Exim Bank): The Exim Bank was created in 1934 and established as an independent U.S. Government agency in 1945. The Exim Bank is designed “… to aid in financing and to facilitate exports…” The Exim Bank receives no appropriations from the U.S. Congress. It is directed by statute to: (1) offer financing that is competitive with that offered exporters of other countries by their official export credit institutions, (2) determine that the transactions supported provide for a reasonable assurance of repayment, (3) supplement, but not compete with, private sources of export financing, and (4) take into account the effect of its activities on small business, the domestic economy, and U.S. employment.

Exports: Domestic merchandise including commodities which are grown, produced, or manufactured in the United States and commodities of foreign origin which have been changed in the United States from the form in which they were imported or which have been enhanced in value by further manufacture in the United States, and which are traded or sold to other nations. Exports measure the total physical movement of merchandise out of the United States to foreign countries whether such merchandise is exported from within the U.S. Customs territory or from a U.S. Customs bonded warehouse or a U.S. Foreign Trade Zone. (U.S. Department of Commerce)

Facility: Refers to a physical plant or installation including real property, buildings, structures, improvements, and plant equipment. Also used to describe an entire military or government installation.

Factoring: The selling of accounts receivable to an agency known as a factor to obtain payment before the accounts are due. The factor assumes responsibility for the accounts, the collection of payments, and any losses.

Federal Aviation Administration (FAA): An agency of the U.S. Department of Transportation.

Federal Deposit Insurance Corporation (FDIC) Insurance: Covers all deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. FDIC insurance does not cover other financial products and services that banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or securities. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

Federal Reserve System: Refers to the central bank of the United States. The system consists of 12 Federal Reserve Banks that are supervised by the Federal Reserve Board.

Fiscal Year: The 12-month period that a firm or government agency uses for accounting and preparing financial statements. The fiscal year may or may not coincide with the calendar year. For the U.S. Government, the fiscal year starts on 1 October and ends on 30 September of the following calendar year.

Flyaway Value: Includes the cost of the airframe, engines, electronics, communications, armament, and other installed equipment.

Foreign Military Sales (FMS): (1) Export sales to foreign governments arranged through the Department of Defense, whereby DOD recovers full purchase price and administrative costs; often mistakenly used to include foreign military aid and foreign commercial sales. (2) That portion of U.S. security assistance authorized by the Foreign Assistance Act (FAA) of 1961, and the Army Export Control Act (AECA). The recipient provides reimbursement for defense articles and services transferred from the United States. This includes cash sales from stocks (inventories, services, or training) by the DOD. (Defense Acquisition University)

g-7: The seven largest, most powerful industrialized countries. Also known as

278

the Group of Seven, the G7 includes the United States, Japan, Great Britain, France, Germany, Italy, and Canada. The group meets routinely (usually quarterly) to discuss national and global economic and monetary policies. In 1991, Russia was added, making it the G-8; and in 1999 eleven other nations were added to create the G-20, to be more representative of the global economy.

general Agreement on Tariffs and Trade (gATT): A post WWII agreement signed by more than 100 governments to reduce trade barriers and expand international trade. As an organization, the GATT was replaced by the World Trade Organization on January 1, 1995, but the General Agreement still serves as the WTO’s overall trade treaty.

general Aviation (gA): Refers to all civil aviation operations other than scheduled air services and non-scheduled air transport operations for remuneration or hire. (International Civil Aviation Organization)

gross Domestic Product (gDP): The market value of goods and services produced by labor and property in the United States, regardless of nationality; GDP replaced gross national product (GNP) as the primary measure of U.S. production in 1991. (U.S. Bureau of Economic Analysis)

gross Federal Debt: The total accumulated debt of the U.S. Government, whether issued by the Treasury or other agencies and held by the public or federal government accounts.

Helicopter: A rotary-wing aircraft which depends principally for its support and motion in the air upon the lift generated by one or more power-driven rotors, rotating on substantially vertical axes. A helicopter is a type of V/STOL aircraft.

Heliport: An area, either at ground level or elevated on a structure, that is used for the landing and take-off of helicopters and includes some or all of the various facilities useful to helicopter operations such as: helicopter parking, hangar, waiting room, fueling, and maintenance equipment.

Helistop: A minimum facility heliport, but without such auxiliary facilities as: waiting room, hangar parking, etc.

Imports: All goods physically brought into the United States, including: (1) goods of foreign origin, and (2) goods of domestic origin returned to the United States without substantial transformation affecting a change in tariff classification under an applicable rule of origin. (U.S. Department of Commerce)

Income: Net Operating Income: Total sales less total operating costs.

Independent Research and Development (IR&D): a term devised by the Department of Defense and used by Federal agencies to differentiate between a contractor’s research and development technical effort performed under a contract, grant, or other arrangement (R&D) and that which is self-initiated and self-funded (IR&D).

Industrial Base: That part of the total private and government-owned industrial production and depot-level equipment and maintenance capacity in the United States, its territories and possessions, and Canada. It is or shall be made available in an emergency for the manufacture of items required by the U.S. military services and selected allies. (Defense Acquisition University)

Industrial Espionage: Occurs when an actor, intending or knowing that his or her offense will injure the owner of a trade secret of a product produced for or placed in interstate or foreign commerce, acts with the intent to convert that trade secret to the economic benefit of anyone other than the owner by: (1) stealing, or without authorization appropriating, carrying away, concealing, or obtaining by deception or fraud information related to that secret; (2) copying, duplicating, reproducing, destroying, uploading, downloading, or otherwise transmitting that information without authorization; or (3) receiving that information knowing that that information had been stolen, appropriated, obtained or converted without authorization. (U.S. Office of the National Counterintelligence Executive)

Industrial Production: Refers to the total production from all industrial activities over a particular period of time.

Industrial Research and Development: Research and development work performed within company facilities, funded by company or Federal funds, and excluding company-


279GLOSSARy

financed research and development contracted to outside organizations such as: research institutions, universities, colleges, or other non-profit organizations.

Initial Jobless Claims: The number of individuals each week who file for the first time for unemployment benefits.

Intellectual Property (IP): Includes inventions, trademarks, patents, industrial designs, copyrights, and technical information including software, data designs, technical know-how, manufacturing information and know-how, techniques, technical data packages, manufacturing data packages, and trade secrets. (Defense Acquisition University)

Intercontinental Ballistic Missile (ICBM): A missile with a range of more than 5,000 miles.

International Trade Administration (ITA): Part of the U.S. Department of Commerce. The International Trade Administration’s mission is to strengthen the competitiveness of U.S. industry, promote trade and investment, and ensure fair trade through the rigorous enforcement of U.S. trade laws and agreements.

Joint Venture: An agreement by two entities to share the costs and benefits of a business operation.

lagging Indicators: Economic measures of past performance, often used to confirm upturns or downturns in business activity. In some circumstances, they can also be useful for forecasting purposes. (Federal Reserve Bank)

large Commercial Aircraft (lCA): Traditionally defined to be those aircraft which have more than 100 seats or an equivalent cargo capacity.

leading Indicators: Economic indicators that measure past performance but are considered to be relatively good indicators of future performance. Leading indicators consist of individual components that might lead measures of economic activity such as new housing starts, new orders for machinery, etc. (Federal Reserve Bank)

legacy Demand: The demand from established customers or markets.

liabilities: Debts owed by a business to creditors. Examples include account balances, credit card debt, and notes payable.

loan Spread: The difference between a risk-free investment, such as a U.S. Treasury security, and a riskier investment, such as a corporate bond or a commercial loan. Loan spread is also referred to as credit spread.

long-Term Interest Rates: The interest rate earned by a note or bond that matures in 10 or more years.

lump-Sum Wage Payment: A one-time payment given in lieu of general wage increases and/or cost of living adjustments in labor settlements.

M1: A measure of the money supply that includes currency and demand deposits at commercial banks.

M2: A broader measure of the money supply that incorporates M1 but also includes assets such as commercial bank savings deposits, deposits at credit unions and noninstitutional money market funds, among other components.

Manufacturing Industries: Those establishments engaged in the mechanical or chemical transformation of inorganic or organic substances into new products, and usually described as plants, factories, or mills, which characteristically use power-driven machines and materials- handling equipment; also establishments engaged in assembling component parts of manufactured products if the new product is neither a structure nor other fixed improvement.

Mega lenders: Commercial bank lenders with more than $50 billion in assets.

Merchandise Trade Balance: The difference between the value of U.S. goods exported to other countries and foreign goods imported into this country. The trade balance is generally regarded as “favorable” when exports exceed imports—a trade surplus—and “unfavorable” when imports exceed exports—a trade deficit. See Balance of Trade.

Middle-Market Companies: Companies with revenues between $50 million and $1 billion.

Missile: A term that is sometimes used to describe space launch vehicles, but more appropriately applied to weapons that have an integrated guidance system, as opposed to an unguided rocket.

280

Missile Defense Agency (MDA): An agency of the U.S. Department of Defense.

Money Multiplier: The number of times the basic money supply circulates in the economy.

Mortgage Securitization: The process by which securities are created through the aggregation of a large amount of individual mortgages into an investment pool. These pooled mortgage loans serve as collateral to back a security. Investors buy the securities and receive principal and interest payments from the pool that are a proportional share of the mortgage principal and interest payments.

Net Assets: Total assets minus total liabilities.

Net Income (After Income Taxes): Net income (before income taxes) less federal income taxes.

Net Income (Before Income Taxes): Net operating income plus or minus other income and expenses.

Net Operating Income: Total sales less total operating costs.

Non-Aerospace Products and Services: Products and services other than aircraft, missiles, space vehicles, and related propulsion and parts, produced or performed by establishments whose principal business is the development and/or manufacture of aerospace products.

Non-Residential Private Fixed Investment: Investments by private interests in commercial property.

North American free Trade Agreement (NAFTA): The formal agreement, or treaty, among Canada, Mexico, and the United States to promote trade amongst the three countries. It includes measures for the elimination of tariffs and nontariff barriers to trade, as well as numerous specific provisions concerning the conduct of trade and investment. (U.S. Department of Commerce)

North American Industry Classification System (NAICS): A system developed by Canada, Mexico, and the United States that groups establishments into industries to provide uniformity of statistical data and facilitate economic analyses between industries across the three North American countries.

Obligations (Federal Budget): Commitments made by Federal agencies to pay out money for products, services, or other purposes—as distinct from the actual payments. Obligations incurred may not be larger than budget authority.

Offset Agreements: One of various industrial and commercial compensation practices required of defense contractors by foreign governments as a condition for the purchase of defense articles/services in either government-to-government or direct commercial sales. The responsibility for negotiating offset arrangements resides with the U.S. firm involved. (Defense Acquisition University)

Orders, Net New: The sales value of new orders (supported by legal documents) minus cancellations during the period.

Organization for Economic Cooperation and Development (OECD): The mission of the OECD is to promote policies that will improve the economic and social well-being of people around the world. Membership include 34 countries that span the globe, including many of the world’s most advanced countries, but also emerging countries like Mexico, Chile and Turkey.

Other Aerospace Products and Services: All conversions, modifications, site activation, other aerospace products (including UAVs), services, plus research and development under contract, defined as: basic and applied research in the sciences and in engineering and design and development of prototype products and processes.

Other Income and Expenses: Includes interest income, royalty income, capital gains and losses, interest expense, cash discounts, etc.

Outlays: Checks issued, interest accrued on the public debt, or other payments made, net of refunds and reimbursements.

Overtime Hours: That portion of the gross average weekly hours which is in excess of regular hours and for which premium payments are made.

Passenger-Mile: One passenger moved one mile.

Payroll, All Manufacturing: Includes the gross earnings paid in the calendar year to all


281GLOSSARy

employees on the payroll of operating manufacturing establishments. Includes all forms of compensation paid directly to workers such as: salaries, wages, commissions, dismissal pay, all bonuses, vacation and sick leave pay, and compensation in kind; prior to such deductions as: employees’ Social Security contributions, withholding taxes, group insurance, union dues, and savings bonds. Does not include employers’ Social Security contributions or other nonpayroll labor costs such as: employees’ pension plans, group insurance premiums, and workmen’s compensation.

Performance-Based logistics (PBl): The preferred sustainment strategy for weapon system product support that employs the purchase of support as an integrated, affordable performance package designed to optimize system readiness. PBL meets performance goals for a weapon system through a support structure based on long-term performance agreements with clear lines of authority and responsibility. (Defense Acquisition University)

Procurement: The process whereby the executive agencies of the Federal Government acquire goods and services from enterprises other than the Federal Government.

Producer Price Index (PPI): The price level paid by business for inputs into the production process. The index gives a base-year measure of 100 and compares each period to the base year. For example, an index value of 110 would mean an increase of 10 percent since the base year.

Production Workers: Includes working foremen and all non-supervisory workers engaged in the production of goods. It also includes janitorial services, recordkeeping and other services closely associated with production.

Productivity: A measure of how much is produced per unit of input. There are various kinds of productivity depending on the input, and various ways to calculate it. Labor productivity, for instance, can be calculated per worker, per hour worked, etc. Capital productivity is similar to calculating a return from an investment.

Real gDP: Gross Domestic Product adjusted for inflation.

Real Income: The income of nations or individuals after adjusting for inflation.

Real Private Consumption: The value of the consumption goods and services acquired and consumed by households, adjusted for inflation.

Recession: A decline in the Gross Domestic Product for two or more consecutive quarters.

Related Products and Services: Sales of electronics, software, and ground equipment in support of aerospace products, plus sales by aerospace manufacturing establishments of systems and equipment which are generally derived from the industry’s aerospace technological expertise in design, materials, and processes, but which are intended for applications other than flight.

Research: Systematic study directed toward fuller scientific knowledge or understanding of the subject studied. Research is classified as either basic or applied according to the objectives of the sponsoring agency.

Research and Development (R&D): Refers to all research activities, both basic and applied, and all development activities that are supported at universities, colleges, non-profit institutions, for-profit entities, or the government.

Reserve Balances: The monetary balances on deposit by the member banks of the national banking system at the Federal Reserve Banks.

Return on Assets: Net profit divided by total assets.

Return on Equity: Net profit divided by total equity.

Rotorcraft: An aircraft which, in all its usual flight attitudes, is supported in the air wholly or in part by a rotor or rotors (i.e., airfoils rotating or revolving about an axis). See Helicopter.

Seasonal Adjustment: The seasonal adjustment procedure designed to reflect seasonal patterns at the most detailed commodity levels. The Census Bureau is seasonally adjusting the merchandise trade data at the most detailed end-use level possible. These detailed data are then summed

282

to the one-digit level for release with the monthly merchandise trade totals. The adjustment is made at that end-use commodity level for which significant stable seasonality is identified. The use of the end-use commodity classification system for seasonal adjustment ensures methodological consistency with the quarterly adjusted balance of trade data published by the Bureau of Economic Analysis (BEA), and reflects the BEA coding descriptions which combine data into broad categories based upon principal uses of the commodities. (U.S. Department of Commerce)

SIC (Standard Industrial Classification): A system developed by the U.S. government to define the industrial composition of the economy, facilitating comparability of statistics. Beginning in 1997, SIC codes were progressively superseded by the North American Industry Classification System (NAICS).

Small Business loan: A loan originated for $1 million or less at some point in time over the last several years.

Small to Medium-Size Manufacturers (SMM): Refers to smaller manufacturers that are generally categorized as having less than 500 employees, and medium-size manufacturers between 500 and 999 employees.

Space Vehicle: An artificial body operating in outer space (beyond the Earth’s atmosphere).

Stockholder’s Equity: Also referred to as Shareholder Equity, this term refers to the value of all assets minus all obligations of the corporation, except those to stockholders. Annual data are average equity for the year (using four end-of-quarter figures). For details, see “Quarterly Financial Report for Manufacturing, Mining and Trade Corporations,” compiled by the Bureau of the Census.

STOl: Short take-off and landing aircraft.

Tariff: Customs duties on merchandise imports. Levied either on an ad valorem basis (percentage of value) or on a specific basis (e.g. $7 per 100 kgs.). Tariffs give price advantage to similar locally-produced goods and raise revenues for the government. (World Trade Organization)

Test: An experiment designed to assess progress in the attainment of development objectives.(U.S. Department of Defense)

Thrust: The driving force exerted by an engine, particularly an aircraft or missile engine, in propelling the vehicle to which it is attached.

Ton-Mile: One ton moved one mile.

Total Compensation: Includes both wages or salaries and other benefits.

Total Obligation Authority (TOA): (1) The sum of budget authority granted or requested from the Congress in a given year, plus unused budget authority from prior years. (2) The value of funds that can be committed to a program for a given Fiscal Year based on the congressionally approved Budget Authority, plus or minus other adjustments.

Trade Deficit: The value of imports of goods that exceeds the value of exports of goods.

Trade Surplus: The value of exports of goods that exceeds the value of imports of goods.

TTM EBITDA/ TTM Revenue: The sum of the last four quarters (trailing twelve months) of EBITDA divided by the last four quarters of revenue.

TTM Net Revenues: A measure of one year’s growth calculated by totaling the company’s net revenues over the trailing 12 months.

Turbine, Turbo: A mechanical device or engine that spins in reaction to a fluid flow that passes through or over it. Frequently used in turboprop or turbojet powered aircraft.

u.S. Treasury Bond: A security issued by the U.S. Treasury.

unmanned Aerial Vehicle (uAV): A powered, aerial vehicle that does not carry a human operator, uses aerodynamic forces to provide vehicle lift, can fly autonomously or be piloted remotely, can be expendable or recoverable, and can carry a lethal or non-lethal payload.

unmanned Aircraft System (uAS): Refers to a system whose components include the necessary equipment, network, and personnel to control an unmanned aircraft.


283GLOSSARy

u-Shaped Recovery: An economic slump that recovers over a long period of time, so named for how the data appear when graphed.

utility Aircraft: An aircraft designed for general purpose flying.

V/STOl: Vertical short take-off and landing aircraft.

V-Shaped Recovery: An economic slump that recovers over a short period of time, so named for how the data appear when graphed.

World Trade Organization (WTO): The WTO was established in 1995 as a result of the “Uruguay Round” negotiations which included a major revision of the General Agreement on Tariffs and Trade (GATT). The WTO’s overriding objective is to help trade flow smoothly, freely, fairly, and predictably.

285

Appendix■n Summary Aerospace Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 286

■n Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298

■n Missiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

■n Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

■n Air Carriers, Traffic Statistics, and Fuel Costs . . . . . . . . . . . . . . 322

■n General Aviation Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

■n Landing Facilities by State and Type . . . . . . . . . . . . . . . . . . . . . . 332

■n Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

■n Foreign Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

■n Employment, Earnings, and Other Workforce Statistics . . . . . 352

■n Income Statement, Balance Sheet, and Other Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

■n Key Operating Costs for Selected Aerospace Manufacturing Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

■n Major DOD and NASA Contractors . . . . . . . . . . . . . . . . . . . . . 371

286

Current Dollars (Billions)

$154.35 $78.62 $41.34 $37.28 $15.71 $34.62 $25.39152.59 75.96 32.44 43.52 16.93 35.86 23.84157.88 78.32 32.52 45.80 19.66 35.70 24.20169.41 86.58 37.16 49.42 20.80 36.66 25.36

185.26 100.19 45.85 54.34 21.03 37.56 26.48204.50 112.96 52.55 60.41 22.59 39.90 29.06210.17 112.19 48.18 64.01 24.59 43.22 30.18209.86 110.69 51.30 59.39 24.70 45.03 29.44

208.49 109.96 48.16 61.80 23.46 45.39 29.68210.79 112.81 53.15 59.66 23.39 44.59 30.01217.87 118.82 60.59 58.24 23.13 44.90 31.01223.55 124.29 67.48 56.81 21.84 45.60 31.82

Constant Dollars a (Billions)

$160.74 $81.88 $43.05 $38.82 $16.36 $36.06 $26.44156.44 77.88 33.26 44.62 17.36 36.76 24.44159.79 79.27 32.91 46.36 19.90 36.13 24.50169.41 86.58 37.16 49.42 20.80 36.66 25.36

179.87 97.27 44.51 52.76 20.42 36.47 25.71199.83 110.38 51.35 59.03 22.07 38.99 28.39205.13 109.50 47.03 62.47 24.00 42.18 29.45204.03 107.61 49.87 57.74 24.01 43.78 28.62

203.39 107.27 46.98 60.29 22.89 44.28 28.95205.11 109.76 51.71 58.05 22.76 43.39 29.20210.41 114.76 58.52 56.24 22.34 43.36 29.95214.65 119.34 64.80 54.55 20.97 43.79 30.55

Source: Aerospace Industries Association (AIA), based on company reports; The Budget of the United States Government,National Aeronautics and Space Administration (NASA), U.S. Department of Commerce, and Department of Defense.

* Government purchases reflected as appropriated funding.a. Based on AIA's aerospace composite price deflator, (2005=100).E. Estimate.

AIA's AEROSPACE INDUSTRY SALES BY PRODUCT GROUP*

Calendar Years 2002-2013

TotalSales

AircraftMissiles Space

Related Products &

ServicesTotalYear

Civil Military

2007

200620072008

2009

2010

200220032004

2004

2010

2005

2006

2013(E)

2008

2013(E)

2003

2005

2011

2012

2012

2009

2002

2011

Summary Aerospace Statistics


287APPENDIx

Current Dollars (Billions)

$154.35 $128.96 $61.70 $16.39 $50.87 $25.39152.59 128.75 71.28 16.52 40.95 23.84157.88 133.68 75.38 16.98 41.32 24.20169.41 144.05 80.71 17.25 46.09 25.36

185.26 158.78 84.04 17.22 57.52 26.48204.50 175.45 94.17 17.80 63.48 29.06210.17 179.99 101.47 19.51 59.01 30.18209.86 180.41 99.43 20.81 60.17 29.44

208.49 178.82 101.23 21.10 56.49 29.68210.79 180.78 99.64 21.17 59.97 30.01217.87 186.86 96.24 20.25 70.37 31.01223.55 191.73 93.16 20.81 77.76 31.82

Constant Dollars b (Billions)

$160.74 $134.29 $64.25 $17.06 $52.98 $26.44156.44 132.00 73.08 16.94 41.98 24.44159.79 135.30 76.29 17.18 41.82 24.50169.41 144.05 80.71 17.25 46.09 25.36

179.87 154.17 81.60 16.72 55.85 25.71199.83 171.44 92.02 17.39 62.03 28.39205.13 175.67 99.03 19.04 57.59 29.45204.03 175.40 96.67 20.24 58.50 28.62

203.38 174.44 98.75 20.58 55.11 28.95205.10 175.90 96.95 20.60 58.35 29.20210.42 180.47 92.95 19.56 67.96 29.95214.65 184.10 89.45 19.98 74.67 30.55

Source: Aerospace Industries Association (AIA), based on company reports; The Budget of the United States Government,National Aeronautics and Space Administration (NASA), Department of Commerce, and Department of Defense.

* Government purchases reflected as appropriated funding.a. Beginning in 2005, NASA sales were reported separately from other agencies. b. Based on AIA's aerospace composite price deflator, (2005=100).E. Estimate.

2011

2011

2010

200220032004

200620072008

2005a

2009

2012

Related Products &

ServicesTotal Departmentof Defense

2003

NASAand OtherAgencies

Other Customers

TotalSales

Aerospace Products and Services

2002

Year

2005a

2009

2004

20062007

2013(E)

AIA's AEROSPACE INDUSTRY SALES BY CUSTOMER*


2010

2008

2013(E)

2012

288

Year Manufac- turing

DurableGoods

Aero- space GDP

Manufac- turing

Current Dollars

1998 $8,794 $3,899 $2,229 $148 1.68% 3.80%1999 9,354 4,033 2,328 154 1.64 3.812000 9,952 4,202 2,370 145 1.45 3.442001 10,286 3,971 2,174 152 1.47 3.822002 10,642 3,917 2,126 154 1.45 3.94

2003 11,142 4,016 2,142 153 1.37 3.802004 11,853 4,293 2,254 158 1.33 3.682005 12,623 4,742 2,424 169 1.34 3.572006 13,377 5,016 2,562 185 1.38 3.692007 14,029 5,321 2,687 205 1.46 3.84

2008 14,292 5,447 2,613 210 1.47 3.862009 13,974 4,424 2,065 210 1.50 4.742010 14,499 4,908 2,291 208 1.44 4.252011 15,076 5,504 2,506 211 1.40 3.832012 16,245 5,724 2,666 218 1.34 3.81

GDPManufac-

turingDurable Goods

Aero-space

Constant Dollars a

1998 $10,275 $4,555 $2,605 $157 4.4% 0.5% 2.6% 13.1%1999 10,771 4,645 2,681 163 4.8 2.0 2.9 3.72000 11,216 4,736 2,672 152 4.1 2.0 (0.3) (6.6)2001 11,338 4,377 2,396 159 1.1 (7.6) (10.3) 4.22002 11,543 4,248 2,306 161 1.8 (2.9) (3.8) 1.4

2003 11,836 4,266 2,275 156 2.5 0.4 (1.3) (2.7)2004 12,247 4,436 2,329 160 3.5 4.0 2.3 2.12005 12,623 4,742 2,424 169 3.1 6.9 4.1 6.02006 12,959 4,859 2,482 180 2.7 2.5 2.4 6.22007 13,206 5,009 2,529 200 1.9 3.1 1.9 11.1

2008 13,162 5,017 2,407 205 (0.3) 0.2 (4.8) 2.62009 12,758 4,039 1,885 204 (3.1) (19.5) (21.7) (0.6)2010 13,063 4,422 2,064 203 2.4 9.5 9.5 (0.3)2011 13,300 4,856 2,211 205 1.8 9.8 7.1 0.82012 14,082 4,962 2,311 210 5.9 2.2 4.5 2.6

Source: Aerospace Industries Association (AIA), based on data from the the Bureau of the Census, Bureau of Economic Analysis, and Council of Economic Advisers, Economic Indicators, 2013.

Note: Parentheses indicate negative real annual growth.

a. Aerospace constant dollar sales based on AIA's aerospace composite price deflator (2005=100).Others based on GDP deflator (2005=100).

6.997.23

8.17

AEROSPACE SALES AND THE NATIONAL ECONOMYCalendar Years 1998–2012

Gross Domestic Product

Industry Sales Aerospace Sales as Percent of:

Durable Goods

(Billions of Dollars)

8.41

6.64%6.606.11

10.16

7.61

8.04

9.10

Real Annual Growth

6.987.26

7.127.00


289APPENDIx

YearTotal Sales Military

Non-Military Military

Non-Military Military

Non-Military

Non-Aerospace

Current Dollars

1996 $103,115 $53,153 $49,962 $24,804 $32,722 $18,506 $12,171 $4,624 $10,2871997 114,946 50,648 64,298 23,944 42,614 21,354 12,320 3,922 10,7921998 119,258 45,110 74,148 23,795 52,708 16,109 7,818 5,035 13,7961999 124,181 49,690 74,491 26,043 56,406 15,661 9,062 4,472 12,5352000 109,311 43,256 66,055 23,196 46,477 15,603 6,035 4,785 13,215

2001 117,088 47,232 69,856 22,133 52,504 15,512 8,187 5,732 13,0202002 115,202 55,422 59,781 25,249 43,435 15,636 11,030 5,251 14,6012003 116,445 65,569 50,876 26,225 37,256 15,579 14,659 4,397 18,3282004 124,329 69,027 55,301 26,008 39,667 14,239 20,480 4,403 19,5312005 124,176 61,660 62,517 24,873 43,509 (S) 19,995 5,063 20,767

2006 155,893 72,934 82,959 27,261 (D) (D) 24,607 6,557 (D)2007 126,824 42,386 84,438 17,102 (D) (D) (D) (D) 25,2562008 135,157 55,469 79,688 (D) (D) (D) 14,722 7,027 (D)2009 147,951 57,512 90,439 (D) (D) (D) (D) (D) (D)2010 134,147 57,297 76,850 (D) (D) (D) (D) (D) (D)

Constant Dollars a

1996 $108,209 $55,779 $52,430 $26,029 $34,338 $19,420 $12,772 $4,852 $10,7951997 121,348 53,469 67,879 25,277 44,987 22,543 13,006 4,140 11,3931998 126,561 47,872 78,688 25,252 55,935 17,095 8,297 5,343 14,6411999 131,576 52,649 78,927 27,594 59,765 16,594 9,602 4,738 13,2812000 114,922 45,476 69,446 24,387 48,863 16,404 6,345 5,031 13,893

2001 122,460 49,399 73,061 23,148 54,913 16,224 8,563 5,995 13,6172002 119,972 57,717 62,256 26,294 45,233 16,283 11,487 5,468 15,2062003 119,385 67,224 52,160 26,887 38,197 15,972 15,029 4,508 18,7912004 125,836 69,864 55,971 26,323 40,148 14,411 20,729 4,456 19,7682005 124,176 61,660 62,517 24,873 43,509 (S) 19,995 5,063 20,767

2006 151,361 70,814 80,547 26,469 (D) (D) 23,892 6,366 (D)2007 123,927 41,418 82,509 16,711 (D) (D) (D) (D) 24,6792008 131,913 54,138 77,775 (D) (D) (D) 14,369 6,859 (D)2009 143,780 55,891 87,889 (D) (D) (D) (D) (D) (D)2010 130,861 55,893 74,968 (D) (D) (D) (D) (D) (D)

Source: Aerospace Industries Association (AIA), based on data from the Bureau of the Census, Aerospace Industry (Orders, Sales, andBacklog), 2011.

Notes: In addition to AIA's own aerospace sales figure, AIA reports two, unique aerospace sales figures derived from two different Bureau of the Census sources. Data reported on this page is derived from the Current Industrial Report, 2011.

a. Based on AIA's aerospace composite price deflator (2005=100).D. Withheld by the Bureau of the Census to avoid disclosing data for individual companies.S. Does not meet publication standards, as determined by the Bureau of the Census.

SALES OF AEROSPACE ESTABLISHMENTSAS REPORTED BY THE BUREAU OF THE CENSUS

Calendar Years 1996–2010

Totals Aircraft,Engines and Parts Missiles,

Space & Rocket

Propulsion

Other Aerospace (includes R&D)

(Millions of Dollars)

290

Year Total MilitaryNon-

Military MilitaryNon-

Military MilitaryNon-

MilitaryNon-

Aerospace

Orders

1996 $126,267 $62,127 $64,140 $25,343 $45,281 $27,067 $12,136 $5,070 $11,3701997 118,993 47,802 71,192 21,424 49,676 21,326 12,348 4,125 10,0961998 109,993 38,678 71,314 16,870 47,613 19,699 7,628 4,468 13,7151999 115,257 49,696 65,561 25,009 48,018 18,824 10,261 4,152 8,9922000 140,086 54,723 85,363 31,396 65,459 18,368 7,046 3,900 13,917

2001 122,206 63,619 58,587 21,762 40,731 12,727 25,659 5,876 15,4512002 114,830 66,437 48,393 28,498 31,482 17,288 11,156 4,985 21,4202003 117,721 72,650 45,070 33,941 30,878 10,067 15,269 4,935 22,6312004 131,674 76,747 54,927 26,785 44,984 17,677 19,088 3,611 19,5292005 186,443 53,008 133,434 19,017 113,565 (S) 20,272 5,295 24,444

2006 202,842 67,709 135,133 31,285 110,967 (D) 16,724 8,620 (D)2007 231,586 44,595 186,991 18,891 152,994 (D) 11,984 7,204 29,3982008 189,273 74,396 114,877 (D) (D) (D) (D) (D) 29,9612009 106,600 68,371 38,229 (D) (D) (D) (D) (D) 34,2332010 145,589 66,472 79,117 (D) (D) (D) (D) (D) 27,803

Backlog (as of end-of-year)

1996 $229,871 $89,500 $140,371 $47,635 $106,341 $35,440 $16,176 $9,339 $14,9401997 218,951 78,870 140,082 43,615 111,931 34,585 12,125 4,754 11,9421998 200,288 69,962 130,326 37,530 106,166 31,174 9,665 3,488 12,2641999 188,409 68,379 120,029 36,565 96,596 33,880 9,904 3,051 8,4132000 214,966 73,741 141,225 41,250 115,241 36,283 10,028 4,081 8,083

2001 223,189 88,863 134,326 39,623 107,124 32,139 27,922 3,631 12,7482002 222,452 99,948 122,505 42,934 96,515 33,503 30,533 3,944 18,2242003 226,932 108,704 118,229 50,646 90,122 27,989 31,173 4,481 22,5222004 234,272 116,509 117,763 51,428 95,356 31,337 29,707 3,690 22,7552005 290,054 100,836 189,217 38,436 165,297 25,784 30,077 3,939 26,520

2006 334,489 92,924 241,565 42,459 (D) (D) 22,109 6,380 (D)2007 437,092 93,971 343,121 44,205 (D) (D) (D) (D) 32,2452008 482,068 105,279 376,789 (D) (D) (D) (D) (D) 34,0282009 432,638 100,941 331,697 (D) (D) (D) (D) 4,661 37,6732010 430,106 95,934 334,173 (D) (D) (D) (D) 7,060 37,094

Source: Bureau of the Census, Aerospace Industry (Orders, Sales, and Backlog), 2011.Notes: Totals may not equal sum of terms due to rounding.

To ensure comprehensive industry coverage, AIA provides backlog data from two different Bureau of the Census sources.Data reported on this page is derived from the Current Industrial Report, 2011.

D. Withheld by Bureau of the Census to avoid disclosing data for individual companies.S. Does not meet publication standards, as determined by the Bureau of the Census.

ORDERS AND BACKLOG OF AEROSPACE ESTABLISHMENTSAS REPORTED BY THE BUREAU OF THE CENSUS


Totals Aircraft,Engines and Parts Missiles,

Space, & Rocket

Propulsion

Other Aerospace (includes R&D)



291APPENDIx

Year Shipments Orders Backlog1993 123,850 100,815 197,1981994 112,511 98,621 183,3081995 110,928 115,279 187,6591996 110,840 134,142 210,9611997 132,787 143,071 221,245

1998 150,077 138,407 209,5751999 152,728 140,329 197,1762000 144,740 165,994 218,4302001 153,571 148,129 212,9882002 140,889 134,045 206,144

2003 135,955 139,327 209,5162004 145,305 154,081 218,2922005 152,081 217,910 284,1212006 165,652 253,351 371,8202007 202,723 319,186 488,283

2008 211,943 260,809 537,1492009 201,577 95,184 430,7562010 200,616 223,713 453,8532011 201,174 248,359 501,0382012 224,493 267,037 543,582

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Census,

Notes: Includes both Civil and Defense Data.Not seasonally adjusted; includes aircraft engine and parts manufacturing.


SHIPMENTS, ORDERS, AND BACKLOG:Aircraft & Parts and Search & Navigation Equipment

As of End-of-Year 1993-2012

292

YearTotalNASA

Total Aerospace NASAc

TotalAerospace Aircraft Missilesd

1988 $290,360 $9,092 $48,848 $8,926 $39,922 $28,246 $11,676 16.3%1989 303,555 11,036 52,933 10,861 42,072 27,569 14,503 16.81990 299,321 12,429 53,195 12,202 40,993 26,142 14,851 17.11991b 273,285 13,878 53,630 13,541 40,089 25,689 14,400 18.71992b 298,346 13,961 50,569 13,484 37,085 23,581 13,504 16.2

1993b 291,084 14,305 45,496 13,733 31,763 20,359 11,404 14.91994 281,640 13,694 41,082 13,308 27,774 18,840 8,934 13.91995 272,063 13,378 36,696 13,058 23,638 16,125 7,513 12.91996 265,748 13,881 32,947 12,417 20,530 14,331 6,199 11.81997 270,502 14,360 32,808 12,920 19,888 14,663 5,225 11.5

1998 268,194 14,194 33,184 12,804 20,380 15,473 4,907 11.81999 274,769 13,636 32,968 12,404 20,564 16,484 4,080 11.42000 294,363 13,428 34,645 12,395 22,250 17,991 4,259 11.32001 304,732 14,092 37,212 13,761 23,451 17,979 5,472 11.72002 348,456 14,405 39,224 13,448 25,776 20,546 5,230 10.8

2003 404,744 14,610 39,430 12,857 26,573 21,280 5,293 9.42004 455,833 15,152 44,324 14,611 29,713 22,898 6,815 9.42005 495,308 15,602 44,655 14,749 29,906 23,284 6,622 8.72006 521,827 15,125 45,046 14,370 30,676 23,176 7,500 8.42007 551,271 15,861 46,021 15,216 30,805 23,349 7,456 8.1

2008 616,073 17,833 50,851 17,176 33,675 25,964 7,711 8.02009 661,023 19,168 57,687 18,344 39,343 30,575 8,768 8.52010 693,498 18,906 60,910 18,269 42,641 33,745 8,896 8.52011 705,557 17,618 61,167 16,827 44,340 35,513 8,827 8.52012 677,856 17,190 62,064 16,255 45,809 37,060 8,749 8.9

Source: Office of Management and Budget, The Budget of the United States Government, FY13.Notes: Totals may not equal sum of terms due to rounding. "National Defense” includes the military budget of the DoD and other

defense-related activities.

a. Outlays for aircraft and missile procurement, excluding RDT&E.b. 1991–1993 reflects transfers from the Defense Cooperation Account funded by foreign government and private cash

contributions reducing total U.S.-funded military outlays.c. Excludes Office of Inspector General, Education, Working Capital Fund and National Space Grant Program.d. Beginning in 1987, DoD combined Navy Missile Procurement with torpedoes and other related products into Navy Weapons

Procurement, of which missiles comprise approximately 80 percent.

Total National Defense

Aerospace as Percent of Sum of Total Nat. Def. and

Total NASA

Dept of Defensea

FEDERAL OUTLAYS FOR DEFENSE, NASA, AND AEROSPACEPRODUCTS AND SERVICES

Fiscal Years 1988–2012(Millions of Dollars)

Federal Outlays forAerospace Products and Services


293APPENDIx

2004 2005 2006 2007

Total $436,439 $474,071 $499,297 $528,548

Procurement—TOTAL $76,216 $82,294 $89,757 $99,647Aircraft 22,898 23,284 23,176 23,349Missilesb 6,815 6,622 7,500 7,456Ships 10,021 9,950 10,345 10,485Weaponsb 2,332 2,680 4,065 4,915Ammunition 3,502 4,061 4,281 4,392Other 30,648 35,697 40,390 49,050

Military Personnel 113,576 127,463 127,543 127,544

Operations & Maintenance (O&M) 174,045 188,118 203,789 216,631

Research, Development, Test, andEvaluation (RDT&E) 60,759 65,694 68,629 73,136

Military Construction 6,312 5,331 6,245 7,899

Family Housing 3,905 3,720 3,717 3,473

Other 1,626 1,451 (383) 218

(Continued on next page)

DEPARTMENT OF DEFENSEMILITARY OUTLAYS BY FUNCTIONAL TITLEa


294

2008 2009 2010 2011 2012

Total $594,632 $636,742 $666,703 $678,064 $652,411

Procurement—TOTAL $117,398 $129,218 $133,603 $128,003 $126,272Aircraft 25,964 30,575 33,745 35,513 37,060Missilesb 7,711 8,768 8,896 8,827 8,749Ships 11,185 11,312 11,893 12,052 12,353Weaponsb 5,898 6,984 6,886 6,062 6,680Ammunition 4,451 4,397 4,433 4,330 4,541Other 62,189 67,182 67,750 61,219 56,889

Military Personnel 138,940 147,348 155,690 161,608 152,266

Operations & Maintenance (O&M) 244,836 259,312 275,988 291,038 282,297

Research, Development, Test, andEvaluation (RDT&E) 75,120 79,030 76,990 74,871 70,396

Military Construction 11,563 17,614 21,169 19,917 14,553

Family Housing 3,590 2,721 3,173 3,432 2,331

Other 3,185 1,499 90 (805) 4,296

Source: Office of Management and Budget, The Budget of the United States Government, FY13 .Notes: Data in parentheses are credit items.

Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect updated and/or newlyavailable information.

a. Includes all items in the DoD military budget; excludes the DoD civil budget for the Army Corps of Engineers and othernon-defense related activities.

b. Beginning in 1987, DoD combined Navy Missiles Procurement with torpedoes and other related products into Navy WeaponsProcurement. Missiles comprise approximately 80 percent of the value of this category.

DEPARTMENT OF DEFENSEMILITARY OUTLAYS BY FUNCTIONAL TITLEa

Fiscal Years 2004–2012, Continued(Millions of Dollars)


295APPENDIx

Year FY GDP CY GDPGoods & Services

Equipment Investment

PPI, Capital Equipment

CPI-U,All Items

(FY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100) (CY 2005=100)

1983 57.7 57.7 53.8 101.7 71.1 51.01984 59.9 59.8 57.6 103.0 72.8 53.21985 61.8 61.6 58.7 100.4 74.3 55.11986 63.2 63.0 58.6 95.4 75.9 56.11987 64.9 64.8 59.2 91.3 77.2 58.2

1988 67.0 67.0 60.3 90.5 79.0 60.61989 69.6 69.6 61.9 91.4 82.2 63.51990 72.2 72.3 63.9 93.1 85.0 66.91991 74.9 74.8 66.2 95.0 87.6 69.71992 76.9 76.6 68.5 95.8 89.3 71.8

1993 78.5 78.3 69.7 98.1 90.9 74.01994 80.2 79.9 71.4 101.0 92.7 75.91995 81.9 81.6 73.2 103.2 94.5 78.01996 83.5 83.2 75.4 103.5 95.6 80.31997 85.0 84.6 76.5 100.8 95.6 82.2

1998 86.1 85.6 77.3 99.6 95.2 83.51999 87.2 86.8 79.2 100.9 95.2 85.32000 89.0 88.7 81.8 100.4 96.0 88.22001 91.1 90.7 83.5 98.5 96.6 90.72002 92.6 92.2 86.6 97.1 96.2 92.1

2003 94.5 94.1 90.7 97.3 96.5 94.22004 96.9 96.8 94.9 98.6 97.8 96.72005 100.0 100.0 100.0 100.0 100.0 100.02006 103.4 103.2 104.4 101.4 101.6 103.22007 106.5 106.2 108.2 102.3 103.4 106.2

2008 108.9 108.6 112.2 104.5 106.4 110.22009 110.5 109.5 111.3 104.2 108.4 109.82010 111.5 111.0 114.0 105.2 108.8 111.72011 113.7 113.4 117.4 106.9 110.4 115.22012 115.8 115.4 119.5 107.2 112.6 117.6

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, and Office of Management and Budget, The Budgetof the United States Government, FY13.

CPI. Consumer Price Index for All Urban Consumers.CY. Calendar Year.FY. Fiscal Year.

GDP. Gross Domestic Product.PPI. Producer Price Index for Capital Equipment.

FEDERAL PRICE DEFLATORS FOR GDP, DEFENSE, PPI, AND CPICalendar and Fiscal Years 1983–2012

GDPFederal Government Defense Purchases

296

Year Aircraft Missiles

1983 81.3 82.5 73.71984 89.3 89.8 86.51985 91.6 91.7 91.11986 92.4 92.8 90.01987 91.3 91.5 90.1

1988 86.8 86.9 86.11989 84.9 84.5 87.51990 87.0 86.8 88.21991 89.8 89.6 91.51992 91.7 91.5 93.1

1993 93.6 92.9 98.31994 94.9 94.2 99.11995 95.1 95.0 96.01996 95.3 95.4 94.61997 94.7 94.8 94.4

1998 94.2 94.3 93.81999 94.4 94.5 93.92000 95.1 95.3 93.82001 95.6 95.9 93.82002 96.0 96.0 96.2

2003 97.5 97.6 96.92004 98.8 99.0 97.82005 100.0 100.0 100.02006 103.0 102.9 103.82007 102.3 101.9 105.0

2008 102.5 101.7 107.02009 102.9 102.1 107.62010 102.5 101.7 107.42011 102.8 101.8 108.52012 103.5 102.4 110.2

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Economic Analysis, National Income and Product Account Tables, 2013.

AIAAerospaceComposite

PRICE DEFLATORS FOR AEROSPACE INDUSTRYCalendar Years 1983–2012

Aerospace Deflators (2005=100)


297APPENDIx

YearFiscal

Year GDP GDPTotal

Outlays

1983 $3,440.7 $808.4 $209.9 6.10% 25.97%1984 3,844.4 851.8 227.4 5.92 26.701985 4,146.3 946.3 252.7 6.10 26.711986 4,403.9 990.4 273.4 6.21 27.601987 4,651.4 1,004.0 282.0 6.06 28.09

1988 5,008.5 1,064.4 290.4 5.80 27.281989 5,399.5 1,143.7 303.6 5.62 26.541990 5,734.5 1,253.0 299.3 5.22 23.891991 5,930.5 1,324.2 273.3 a 4.61 20.641992 6,242.0 1,381.5 298.3 a 4.78 21.60

1993 6,587.3 1,409.4 291.1 a 4.42 20.651994 6,976.6 1,461.8 281.6 4.04 19.271995 7,341.1 1,515.7 272.1 3.71 17.951996 7,718.3 1,560.5 265.7 3.44 17.031997 8,211.7 1,601.1 270.5 3.29 16.89

1998 8,663.0 1,652.5 268.2 3.10 16.231999 9,208.4 1,701.8 274.8 2.98 16.152000 9,821.0 1,789.0 294.4 3.00 16.452001 10,225.3 1,862.8 304.7 2.98 16.362002 10,543.9 2,010.9 348.5 3.30 17.33

2003 10,980.2 2,159.9 404.7 3.69 18.742004 11,676.0 2,292.8 455.8 3.90 19.882005 12,428.6 2,472.0 495.3 3.99 20.042006 13,206.5 2,655.1 521.8 3.95 19.652007 13,861.4 2,728.7 551.3 3.98 20.20

2008 14,334.4 2,982.5 616.1 4.30 20.662009 13,937.5 3,517.7 661.0 4.74 18.792010 14,359.7 3,456.2 693.6 4.83 20.072011 14,958.6 3,603.1 705.6 4.72 19.582012(E) 15,601.5 3,795.5 716.3 4.59 18.87

Source: Office of Management and Budget, The Budget of the United States Government, FY13.Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been

revised to reflect updated and/or newly available information.

a. 1991-1993 reflects transfers from the Defense Cooperation Account funded by foreigngovernment and private cash contributions reducing total U.S.-funded military outlays.

E. Estimate.

National Defense

Total Outlays

GROSS DOMESTIC PRODUCT,FEDERAL BUDGET, AND DEFENSE BUDGET

Fiscal Years 1983–2012(Billions of Dollars)

Federal Budget OutlaysDefense Outlaysas a Percent of:

298

Year TotalTrans-ports

Heli-copters

General Aviation

Trans-ports

Heli-copters

General Aviation

1992 1,832 180 112 588 387 212 3531993 1,630 130 83 615 278 175 3491994 1,545 87 154 651 222 154 2771995 1,625 119 82 762 137 210 3151996 1,662 97 64 770 172 214 345

1997 2,269 122 87 1,100 252 259 4491998 3,122 184 125 1,665 375 238 5351999 3,485 279 180 1,942 341 181 5622000 3,801 218 189 2,247 274 304 5692001 3,573 273 106 2,126 254 309 505

2002 2,906 118 24 1,835 263 294 3722003 2,935 121 118 1,801 160 399 3362004 3,445 137 238 2,022 148 567 3332005 4,094 130 242 2,300 160 705 5572006 4,443 152 212 2,256 246 686 891

2007 4,729 153 108 2,137 288 901 1,1422008 4,538 135 204 1,918 240 880 1,1612009 2,636 154 D 853 327 D 7322010 2,135 161 D 645 301 D 6892011 2,365 117 D 872 360 D 581

Source:

D. Withheld by the Bureau of the Census to avoid disclosing data for individual companies.

Aerospace Industries Association (AIA), based on company reports and data from the Bureau of the Census, Department of Commerce, International Trade Administration, General Aviation Manufacturers Association, and Helicopter Association International, 2012.

Calendar Years 1992–2011(Number of Aircraft)

Domestic Exports

U.S. AIRCRAFT SHIPMENTS: CIVIL

Aircraft


299APPENDIx

Year Exportsa

1987 1,210 725 4851988 1,305 687 6181989 1,261 614 6471990 1,053 666 3871991 911 556 355

1992 753 421 3321993 954 437 5171994 766 418 3481995 816 354 4621996 558 242 316

1997 511 151 3601998 418 149 2691999 357 133 2242000 333 138 1952001 347 196 151

2002 359 228 1312003 383 234 1492004 420 251 1692005 587 324 2632006 996 298 698

2007 1,062 467 5952008 723 503 2202009 868 617 2512010 1,340 1,023 3172011 941 731 210

Source: Aerospace Industries Association (AIA), based on data from the Department of Defense: Air Force Aircraft Procurement, Vol I; Aircraft Procurement, Army,Justification Book; Aircraft Procurement, Navy, Justification Book Volume 1, FY13,and Economic Consulting Services, 2013.

a. Includes foreign military sales and military aircraft exported via commercial contracts,directly from manufacturers to foreign governments.

Total U.S. Military Agencies

U.S. AIRCRAFT SHIPMENTS: MILITARYCalendar Years 1987–2011

(Number of Aircraft)

300

NUMBER OF AIRCRAFT SHIPPED

2002 2,904 379 318 2,2072003 2,935 281 517 2,1372004 3,445 285 805 2,3552005 4,094 290 947 2,857

2006 4,443 398 898 3,1472007 4,729 441 1,009 3,2792008 4,538 375 1,084 3,0792009 2,636 481 570 1,585

2010 2,135 462 339 1,3342011 2,377 477 435 1,4652012 2,593 601 478 1,5142013(E) 2,852 671 519 1,662

VALUE (millions of dollars)

2002 $35,078 $27,202 $157 $7,7192003 28,180 21,380 366 6,4342004 27,256 19,925 515 6,8162005 30,848 21,365 816 8,667

2006 39,675 28,465 843 10,3672007 46,657 33,386 1,330 11,9412008 43,097 28,263 1,486 13,3482009 44,105 34,051 972 9,082

2010 40,602 31,834 893 7,8752011 45,582 36,171 1,145 8,2662012 58,298 49,127 1,154 8,0172013(E) 62,482 52,111 1,262 9,109

Source: Aerospace Industries Association (AIA), based on company reports, data from the General AviationManufacturers Association (GAMA), Helicopter Association International (HAI) and Teal Group.

E. Estimate.

Year TOTAL TransportAircraft Helicopters General

Aviation

CIVIL AIRCRAFT SHIPMENTS



301APPENDIx

2008 2009 2010 2011 2012

SHIPMENT TOTALS:Number of Aircraft 375 481 462 477 601Value (Millions of Dollars) $28,263 $34,051 $31,834 $36,171 $49,127

Boeing (U.S. & Foreign):

B-737 290 372 376 372 415B-747 14 8 - 9 31 B-767 10 13 12 20 26B-777 61 88 74 73 83B-787 - - - 3 46

Source: The Boeing Company, 2013.

a. U.S.-manufactured fixed-wing aircraft over 33,000 pounds.

CIVIL TRANSPORT AIRCRAFT SHIPMENTSa


302

2008 2009 2010 2011 2012TOTAL BACKLOG:

Number of Aircraft …………………… 3,714 3,375 3,443 3,771 4,373Value (in millions) ……………………$278,575 $250,476 $255,591 $293,303 $317,287

Boeing:B-737 ......................................... 2,270 2,076 2,186 2,365 3,074B-747 ...................................... 114 108 107 97 67B-767 ..................................... 70 59 50 72 68B-777 ..................................... 350 281 253 380 365B-787 ........................................ 910 851 847 857 799

Percent of Total Backlog:Number of Aircraft ……………. 77.8% 79.5% 77.8% 67.0% 65.3%Value ………………………………… 81.1% 82.3% 81.2% 74.4% 72.5%

Number of Aircraft ……………………. 2,891 2,682 2,679 2,528 2,856Value (in millions) ………………………$225,793 $206,167 $207,639 $218,112 $229,924

Boeing:B-737 ......................................... 1,703 1,605 1,643 1,394 1,836B-747 ...................................... 97 94 95 89 63B-767 ..................................... 42 34 30 26 10B-777 ..................................... 271 230 221 323 316B-787 ........................................ 778 719 690 696 631

Percent of Total Backlog:Number of Aircraft ……………. 22.2% 20.5% 22.2% 33.0% 34.7%Value ………………………………… 18.9% 17.7% 18.8% 25.6% 27.5%

Number of Aircraft …………………… 823 693 764 1,243 1,517Value (in millions) ……………………. $52,782 $44,310 $47,952 $75,191 $87,363

Boeing:B-737 ......................................... 567 471 543 971 1,238B-747 ...................................... 17 14 12 8 4B-767 ..................................... 28 25 20 46 58B-777 ..................................... 79 51 32 57 49B-787 ........................................ 132 132 157 161 168

Source: Aerospace Industries Association (AIA), based on Boeing reports.

Domestic Order Backlog

Foreign Order Backlog

U.S. CIVIL TRANSPORT AIRCRAFT BACKLOG



303APPENDIx

2008 2009 2010 2011 2012

NUMBER OF AIRCRAFT SHIPPED:

TOTAL 3,079 1,585 1,334 1,465 1,514

Single-Engine, Piston 1,700 770 679 639 645Multi-Engine, Piston 91 32 67 67 63Turboprop 333 269 224 395 459Turbojet 955 514 364 364 357

VALUE OF SHIPMENTS:

TOTAL (Millions of Dollars) $13,348 $9,082 $7,875 $8,266 $8,017

Piston $836 $389 $368 $368 $374Turboprop 1,172 872 724 831 867Turbojet 11,340 7,821 6,782 7,068 6,776

Air Tractor - - - 130 168 American Champion 54 26 37 29 18 Boeing Business Jet 6 6 12 8 12 Cessna Aircraft Company 1,300 741 512 689 571 Cirrus Aircraft 549 268 264 255 253 CubCrafters - - - 47 58 Gulfstream Aerospace Corporation 156 94 99 99 94 Hawker Beechcraft Corporation 435 273 214 198 153 Liberty Aerospace 33 13 14 3 - Maule Air Incorporated 28 7 4 4 9 Mooney Aerospace Group, Ltd. 65 19 2 - - Piper Aircraft, Inc. 268 90 160 136 158 Quest Aircraft Company 7 24 14 13 15 Thrush Aircraft - - - 35 51

Source: General Aviation Manufacturers Association, General Aviation Statistical Datebook and Industry Outlook, 2012.Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect

updated and/or newly available information.

GENERAL AVIATION AIRCRAFT SHIPMENTS


Shipments by Selected Manufacturers:

BY SELECTED AIRCRAFT MANUFACTURERS

304

Agency and Model No. Cost No. Cost No. Cost

AIR FORCE

C-5 Galaxy - $949.5 - $1,035.1 - $1,127.6C–130J Hercules 17 1,261.3 11 1,280.2 7 759.4F-22 Raptor - 592.5 - 336.2 - 283.9F–35 Joint Strike Fighter 25 4,302.2 18 3,518.6 19 3,565.7HH-60M Pave Hawk 16 521.3 4 144.0 - 60.6MQ–1 Predator - 20.1 - 161.2 - 30.9MQ–9 Reaper 48 853.6 48 944.2 24 885.4RQ–4 Global Hawk 4 777.2 3 484.6 - 95.9RQ–11 Raven - 9.4 - - - -V–22 Osprey 6 474.5 5 359.9 4 309.2

ARMY

AH–64 Apache Longbow Block 3 16 $491.0 19 $665.6 50 $1,055.9CH–47 Chinook 49 1,419.8 47 1,360.3 44 1,390.7LUH Light Utility Helicopter 50 303.5 39 250.4 34 272.0MQ-1C Gray Eagle 39 554.1 43 697.8 19 749.6RQ–7 Shadow - 549.0 - 165.1 - 104.3RQ–11 Raven 206 37.5 900 86.1 234 25.8UH–60 Black Hawk 99 1,788.9 72 1,697.6 59 1,222.2

NAVY / USMC

E–2D Advanced Hawkeye 5 $1,105.0 5 $1,044.8 5 $984.7EA–18G Growler 12 999.1 12 1,022.7 12 1,027.4F/A–18E/F Super Hornet 31 2,171.8 28 2,303.4 26 2,065.4F–35 Joint Strike Fighter 10 2,691.1 13 2,816.3 10 2,583.7H–1 Huey/Super Cobra 31 881.2 26 734.2 28 820.4JPATS T–6B Texan II - 26.1 36 256.9 33 278.9KC–130J Hercules - - 1 87.0 - 26.0MH–60R Multi-Mission Helicopter 24 1,021.1 24 985.0 19 842.8MH–60S Fleet Combat Support Helicopter 18 531.7 18 474.7 18 454.1P–8A Poseidon 7 1,903.1 11 2,253.7 13 2,746.4RQ–7 Shadow - 26.0 - - - 49.3RQ–11 Raven 4 28.3 - 2.1 - 2.3V–22 Osprey 30 2,190.9 30 2,265.9 17 1,457.3

Source: Aerospace Industries Association (AIA), based on data from the Department of Defense, Program Acquisition Costs by Weapon System, FY12 and FY13.

a. Total Obligational Authority for procurement, including modifications and remanufactures, and excluding spares and RDT&E.b. Includes Base and Overseas Contingency Operations budget requests.E. Estimate.

MILITARY AIRCRAFT PROCUREMENT:

Fiscal Years 2011–2013(Millions of Dollars)b

2011 2012 2013(E)

BY AGENCY AND SELECTED MODELSa


305APPENDIx

2011 2012 2013 2014 2015

AIR FORCE

MQ-1 Predator $30 $10 $10 $10 *MQ-9 Reaper 1,700 1,550 1,740 1,440 $1,350RQ-4 Global Hawk 1,200 1,060 890 790 810

ARMY

MQ-1 Gray Eagle $870 $1,060 $1,040 $740 $220RQ-7 Shadow 610 250 270 200 300

NAVY / USMC

MQ-8 Fire Scout $60 $70 $60 $80 $80RQ-4 Broad Area Maritime Surveillance 530 560 760 880 900RQ-7 Shadow 90 10 10 10 *

All services $5,090 $4,570 $4,780 $4,150 $3,660

Source: Gertler, J., Congressional Research Service, U.S. Unmanned Aerial Systems, January 2012.

* The Department of Defense has no plans to acquire or modify the specified system in these years.

ACQUISITION COST OF MEDIUM-SIZED AND LARGE UNMANNED


AIRCRAFT SYSTEMS UNDER THE DEPARTMENT OF DEFENSE’S 2012 PLAN


306

FY 2011 Enacted

FY 2012 Enacted

FY 2013 Requested

- $18,300 -$39,920 129,500 $43,000 31,936 56,100 56,100

- 24,000 31,50028,942 62,000 -47,700 42,000 28,100

38,400 36,800 -18,000 4,000 -

- 22,500 20,500

Source: Department of Homeland Security Annual Performance Report, Fiscal Years 2011-2013.UAS. Unmanned Aircraft System.

Airframe replacement (CGNR 6017)

DEPARTMENT OF HOMELAND SECURITY:BUDGET AUTHORITY FOR AIRCRAFT ACQUISITION

AND MODIFICATION, SELECTED PROGRAMSFiscal Years 2011–2013(Thousands of Dollars)

New AS-350 HelicoptersMQ-9 Predator/Guardian UASKA-350CER Multi-Role Enforcement Aircraft

HC-144A Maritime Patrol Aircraft (MPA)HH-60 Black Hawk Conversions

HH-65 Conversion / Sustainment ProjectsHC-130H Long Range Surveillance AircraftP-3 SLEP


307APPENDIx

Year Total Air Force Army Navy

1990 $26,142 $14,303 $2,808 $9,0311991 25,689 13,794 2,840 9,0551992 23,581 13,154 2,520 7,9071993 20,359 11,438 1,675 7,2461994 18,840 10,303 1,711 6,826

1995 16,125 8,891 1,549 5,6851996 14,331 7,862 1,435 5,0341997 14,663 7,799 1,542 5,3221998 15,473 8,236 1,392 5,8451999 16,484 8,928 1,532 6,024

2000 17,991 8,979 1,268 7,7442001 17,979 8,217 1,358 8,4042002 20,546 10,424 1,633 8,4892003 21,280 11,303 1,781 8,1962004 22,898 12,003 2,042 8,853

2005 23,284 11,999 2,491 8,7942006 23,176 11,783 2,618 8,7752007 23,349 10,858 3,532 8,9592008 25,964 11,448 4,250 10,2662009 30,575 13,503 5,076 11,996

2010 33,745 13,736 5,672 14,3372011 35,513 13,089 6,138 16,2862012 42,398 17,701 6,403 18,2942013(E) 41,243 15,824 6,818 18,6012014(E) 33,735 12,808 5,709 15,218

Source: Office of Management and Budget, Budget of the United States Government, FY13.

E. Estimate.


DEPARTMENT OF DEFENSE OUTLAYSFOR AIRCRAFT PROCUREMENT

BY AGENCYFiscal Years 1990–2014

308

Year TotalBomber/Patrol/

Command/ControlFighter/Attack

Transport/Tanker Trainer Helicoptersa UAS

NUMBER OF AIRCRAFT

1997 151 4 34 16 26 71 - 1998 149 8 26 30 33 52 - 1999 133 6 46 45 12 24 - 2000 138 2 51 30 33 22 - 2001 196 3 58 36 52 38 9

2002 228 4 75 30 55 46 18 2003 234 3 57 33 64 61 16 2004 251 5 67 44 75 38 22 2005 324 4 66 57 72 104 21 2006 298 - 69 45 76 81 27

2007 467 4 66 51 88 230 28 2008 503 1 35 38 96 301 32 2009 617 3 60 53 131 312 58 2010 1,023 2 65 44 34 237 641 2011 731 2 49 49 57 226 348

FLYAWAY VALUE (Millions of Dollars)

1997 6,277 1,921 1,204 2,248 270 635 - 1998 9,296 4,699 846 2,890 319 542 - 1999 7,211 415 2,733 3,588 219 256 - 2000 7,424 140 3,018 3,651 356 259 - 2001 7,537 218 3,480 2,962 376 440 61

2002 9,020 295 3,707 3,950 407 456 205 2003 9,736 204 3,960 4,447 371 626 128 2004 12,755 346 6,013 5,067 523 575 231 2005 14,666 281 6,901 5,863 518 1,062 41 2006 13,966 - 7,005 5,004 623 1,108 226

2007 13,079 385 4,798 4,329 341 2,803 423 2008 10,809 31 2,996 3,993 168 3,290 331 2009 18,485 292 6,148 6,723 396 4,384 542 2010 15,909 174 6,526 4,747 218 3,740 503 2011 13,001 369 4,448 3,629 436 3,899 220

Source: Department of Defense: Air Force Aircraft Procurement, Vol 1, FY13; Aircraft Procurement, Army, Justification Book, FY13;Aircraft Procurement, Navy, Justification Book Volume 1, FY13.

Note: Data represent new U.S.-manufactured aircraft, excluding gliders and targets. Values include spares, spare parts, and support equipment that are procured with the aircraft.

UAS: Unmanned Aircraft System.

a. Beginning in 2005, values for helicopters include remanufactured aircraft.

MILITARY AIRCRAFT ACCEPTED BY U.S. MILITARY AGENCIESCalendar Years 1997–2011


309APPENDIx

2010 2011 2010 2011 2010 2011

Total 57 49 $6,302 $3,705 $8,173 $4,594

Combat Aircraft:

Total 20 14 $3,051 $2,082 $3,761 $2,516F-22 Raptor 20 14 3,051 2,082 3,761 2,516

Airlift/Transport Aircraft:Total 14 17 $2,761 $1,411 $3,760 $1,768C-17A Globemaster 14 2 2,761 444 3,760 523C-130J Hercules - 9 - 550 - 701CV-22 Osprey - 6 - 416 - 544

UAS:Total 23 18 $490 $213 $652 $310RQ-4 Global Hawk 4 - 277 - 346 -MQ-9 Reaper 19 18 212 213 306 310

Source: Aerospace Industries Association (AIA), based on data from the Department of Defense, Air Force Aircraft Procurement Vol I, FY13.


a. Air Force acceptances for own use; excludes FMS/MAP shipments.b. Flyaway Cost includes airframe, engines, electronics, communications, armament, other installed equipment, and non-

recurring costs associated with the manufacture of aircraft.c. Weapon System Cost includes flyaway costs, initial spares, peculiar ground equipment, training equipment, and

technical data.

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES AIR FORCEa

Calendar Years 2010–2011(Costs in Millions of Dollars)

Number of Aircraft Flyaway Costb Weapon System Costc

310

2010 2011 2010 2011 2010 2011

Total 787 499 $1,632 $2,211 $3,285 $4,365

Helicopters:

Total 169 169 $1,619 $2,205 $3,211 $3,993CH-47 Chinook 23 37 d 345 673 727 1,279UH-60 Black Hawk 58 80 711 1,113 1,061 1,504AH-64 Apache Longbow Block 3 33 36 d 273 333 1,092 1,112LUH Light Utility Helicopter 55 16 290 86 330 98

UAS:

Total 618 330 $13 $7 $74 $372MQ-1 Gray Eagle - 18 - - - 342RQ-11 Raven 618 312 13 7 74 30

Source: Aerospace Industries Association (AIA), based on data from the Department of Defense, Aircraft Procurement, Army Justification Book, FY13.


a. Army acceptances for own use; excludes FMS/MAP shipments.b. Flyaway Cost includes airframes, engines, electronics, communications, armament and other installed equipment.c. Weapon System Cost includes flyaway cost, initial spares, ground equipment, training equipment and other support items.d. Includes remanufacured aircraft.

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES ARMYa




311APPENDIx

2010 2011 2010 2011 2010 2011

Total 179 183 $7,974 $7,083 $8,624 $8,408

Patrol:

Total 2 2 $174 $369 $198 $433E-2D Advanced Hawkeye 2 2 174 369 198 433

Combat:

Total 45 35 $3,475 $2,366 $3,438 $2,919F/A-18 Super Hornet 23 17 1,908 1,137 1,649 1,361E/A-18G Growler 22 18 1,567 1,228 1,789 1,558

Transports/Tankers:

Total 30 32 $1,986 $2,218 $2,222 $2,535C-40A 1 - 74 - 74 -KC-130J Hercules 6 4 378 278 419 349V-22 Osprey 23 28 1,535 1,940 1,730 2,186

Trainers:

Total 34 57 $218 $436 $243 $482T-6 JPATS Texan II 34 57 218 436 243 482

Helicopters:

Total 68 57 $2,121 $1,694 $2,524 $2,039MH-60R Multi-Mission Helicopter 38 31 1,342 1,097 1,603 1,327MH-60S Fleet Combat Support Helicopter 17 9 458 216 520 234UH-1Y/AH-1Z Huey/Super Cobra 13 17 321 382 401 479

Source: Aerospace Industries Association (AIA), based on data from the Department of Defense, Aircraft Procurement, Navy Justification Book Volume 1, FY13.

a. Navy acceptances for own use; excludes FMS shipments.b. Flyaway Cost includes airframe, engines, electronics, communications, armament, other installed equipment, non-recurring

costs, and ancillary equipment.c. Weapons System Cost (Investment Cost) includes flyaway cost, initial spares, ground equipment, training equipment, and

other support items.

MILITARY AIRCRAFT ACCEPTANCES BY UNITED STATES NAVYa



312

Year Total Air Force Army Navy

1990 $14,851 $7,951 $2,453 $4,4461991 14,400 6,906 2,540 4,9541992 13,504 6,409 2,401 4,6941993 11,404 5,424 2,187 3,7941994 8,934 4,312 1,384 3,238

1995 7,513 3,845 974 2,6941996 6,199 3,235 919 2,0451997 5,225 2,743 936 1,5461998 4,907 2,543 964 1,4001999 4,080 2,299 783 998

2000 4,520 2,243 926 1,3512001 5,821 2,982 1,248 1,5912002 5,702 2,719 1,256 1,7272003 5,826 2,802 1,273 1,7512004 7,632 4,040 1,295 2,297

2005 7,478 3,733 1,373 2,3722006 8,202 4,074 1,594 2,5342007 8,208 4,182 1,316 2,7102008 8,545 4,082 1,468 2,9952009 9,721 4,338 2,057 3,326

2010 9,894 4,412 2,034 3,4482011 9,847 4,410 1,994 3,4432012 13,070 7,427 1,835 3,8082013(E) 11,109 5,747 1,694 3,6682014(E) 10,506 5,653 1,415 3,438

Source: Office of Management and Budget, The Budget of the United States Government, FY13 .

E. Estimate.

DEPARTMENT OF DEFENSE OUTLAYSFOR MISSILE PROCUREMENT

BY AGENCYFiscal Years 1990–2014


Missiles


313APPENDIx

No. Cost No. Cost No. Cost

AIR FORCE

AGM-65D Maverick - $15.3 - $0.3 - $0.3AGM-88A Harm - 4.1 - 25.6 - 23.2Air Launch Cruise Missile (ALCM) - 10.7 - 14.9 - 13.6AMRAAM 246 346.4 138 202.2 113 229.6JASSM 171 168.2 142 236.2 157 240.4MM III Modifications - 132.3 - 125.7 - 54.8Predator Hellfire Missile 938 90.6 678 75.8 717 82.0Sidewinder (AIM-9X) 178 64.2 125 88.8 164 88.0Small Diameter Bomb / Mods 2,785 119.2 100 19.8 144 47.0Missile Replacement Eq-Ballistic - 59.8 - 67.7 - 56.9Space Programs (Missile Proc) 5 3,065.1 10 4,114.2 8 3,378.8Special Programs (Missile Proc) - 246.2 - 325.1 - 138.9Classified Programs - 805.1 - 769.0 - 1,097.5

ARMY

Guided MLRS Rocket (GMLRS) 2,592 $264.5 3,204 $333.2 1,794 $239.2Hellfire Systems / Mods 1,473 222.2 907 109.0 161 30.5HIMARS / Mods 44 242.5 - 43.3 - 18.1Javelin (Aaws-M) 715 163.0 710 160.8 400 81.1MLRS RRRR / Mods 2,149 24.0 2,370 26.4 2,430 21.2MSE Missile - 0.0 - 75.0 - 12.9Patriot Systems / Mods 78 685.3 88 729.2 84 846.2Surface-Launched AMRAAM - 2.4 - 0.0 - 0.0TOW 2 / Mods - 190.8 802 92.1 1,403 84.6

NAVY

AMRAAM 101 $144.7 67 $105.1 67 $102.7ESSM 33 45.3 35 48.5 37 58.2Harm Mods 44 51.9 72 71.6 100 86.7Hellfire 559 127.3 426 36.7 1,210 91.5JSOW 225 128.9 246 131.7 280 127.6Ram 90 99.6 61 66.2 62 66.8SOPGM - 0.0 150 20.0 50 6.5Sidewinder 64 49.1 68 42.2 150 80.2Standard Missile / Mods 67 286.8 89 356.9 94 399.5Tomahawk 417 596.7 196 297.6 196 309.0Trident II Mods 24 1,100.4 24 1,306.1 - 1,224.7

Source: Department of Defense, Procurement Programs (P-1), FY13.

a. Total Obligational Authority, excluding initial spares and RDT&E.b. Includes Base and Overseas Contingency Operations budget requests.E. Estimate.

Base and OCOb

2013(E)

MISSILE PROGRAM PROCUREMENTa

Fiscal Years 2011–2013(Costs in Millions of Dollars)

2011 2012

Base and OCOb Base and OCOb

BY AGENCY AND SELECTED MODELS

314

2011 2012 2013(E)

Base and OCOb

Base and OCOb

Base and OCOb

AIR FORCE

Advanced Medium Range Air-to-Air Missile (AMRAAM) $60.8 $77.8 $87.0Air-Launched Cruise Missile (ALCM) 3.5 0.8 0.4ICBM Fuze Modernization - - 73.5Intercontinental Ballistic Missile - Dem/Val 67.2 69.4 71.2Intercontinental Ballistic Missile - EMD 66.3 148.3 135.4Joint Air-to-Surface Standoff Missile (JASSM) 19.3 5.8 8.0Joint Dual Role Air Dominance Missile 9.5 29.8 -MQ-1 Predator A UAS 42.8 11.6 9.1Small Diameter Bomb (SDB) - EMD 100.0 132.9 143.0Tactical AIM Missiles 5.8 8.0 8.2

ARMY

JAVELIN - $9.9 $5.0Joint Air-to-Ground Missile (JAGM) $71.8 126.9 10.0Missile and Rocket Advanced Technology 76.3 90.5 71.1Missile Technology 48.1 67.1 49.4Missile/Air Defense Product Improvement Program 23.4 53.0 20.7PAC-3/MSE Missile 121.5 88.9 69.0Patriot Product Improvement - - 110.0Patriot/MEADS Combined Aggregate Program (CAP) 450.6 389.6 400.9SLAMRAAM 18.4 1.5 -

NAVY

Advanced Medium Range Air-to-Air Missile (AMRAAM) $2.6 $2.9 $2.9HARM Improvement 73.2 11.1 11.5Joint Air-to-Ground Missile (JAGM) 80.9 108.4 -Small Diameter Bomb (SDB) 15.7 29.6 31.1SSN-688 and Trident Modernization 100.7 90.2 82.6SSN-688 and Trident Modernization - MIP 1.4 - -Standard Missile Improvements 93.4 46.7 63.9Tactical AIM Missiles 0.9 8.8 21.1

MISSILE DEFENSE AGENCY

Ballistic Missile Defense Joint Warfighter Support $55.4 $41.2 $55.6Ballistic Missile Defense Midcourse Defense Segment 1,245.5 1,159.5 903.2Ballistic Missile Defense Terminal Defense Segment 420.8 290.1 316.9Next Generation Aegis Missile - 13.4 224.1

Source: Department of Defense Budget, RDT&E Programs (R-1), FY13.UAS. Unmanned Aircraft System.

a. Total Obligational Authority.b. Includes Base and Overseas Contingency Operations budget requests.E. Estimate.

MISSILE PROGRAMS:RESEARCH, DEVELOPMENT, TEST, AND EVALUATIONa

BY AGENCY AND SELECTED MODELSFiscal Years 2011–2013



315APPENDIx

Category and Title 2010 2011 2012 2013(E) 2014(E)

Aegis Ashore EPAA Phase II - - - $157.90 -Aegis Ashore EPAA Phase III - - - - -Clear AFS UEWR Upgrade - - - - $14.50Fort Drum IDT - - - 25.90 -Planning & Design/Minor - - $8.37 4.55 9.81Von Braun Complex Phase IV - - 58.80 - -

MILCON Total - - $67.17 $188.35 $24.31

THAAD $419.00 $858.90 $709.15 $460.73 $565.94Aegis BMD 225.63 94.10 565.39 389.63 767.03BMDS AN/TPY-2 Radars - - 380.20 227.42 -Aegis Ashore Phase III - - - - 86.40

Procurement Total $644.63 $94.10 $1,654.74 $1,077.78 $1,419.37

THAAD - - $50.41 $55.68 $77.93Aegis BMD - - - 12.16 7.46BMDS Radars - - 151.94 192.13 212.16

O&M Total - - $202.34 $259.98 $297.55

BMD Technology $189.23 $132.20 $74.92 $79.98 $81.39Special Programs - - 61.37 36.69 39.74BMD Terminal Defense 715.73 436.50 290.08 316.93 313.21BMD Midcourse Defense 1,027.37 1,346.20 1,159.46 903.17 914.60BMD Sensors 621.02 454.90 222.08 347.01 327.34BMD Test & Targets - - 85.57 - -BMD Enabling Programs 358.75 402.80 415.05 362.71 339.20Special Programs - MDA 269.89 290.67 296.15 272.39 321.45BMD Aegis 1435.72 1,467.30 988.93 992.41 960.87STSS 161.61 112.70 96.23 51.31 45.36BMDS Space Program 12.49 10.90 7.94 6.91 6.58BMD C2BMC 334.73 342.60 363.64 366.55 376.12BMD Joint Warfighter 61.10 68.70 41.17 55.55 53.14Directed Energy Research - 98.70 49.94 46.94 47.87SM-3 BLK IIB - - 13.44 224.08 295.25MDIOC 86.48 86.20 69.25 63.04 54.30Regarding Trench 6.13 7.50 15.78 11.37 10.37Sea Based X-Band Radar 167.15 153.10 176.83 9.73 9.73Israeli Cooperative 201.32 121.70 235.70 99.84 95.78BMD Test 394.69 559.13 487.70 454.40 420.36BMD Targets 428.65 554.29 454.36 435.75 475.18Land-Based SM-3 - 281.40 306.19 276.34 127.24Aegis SM-3 Blk IIA 255.99 318.80 473.84 420.63 273.93Precision Tracking Space System - 67.00 80.72 297.38 267.51Advanced Remote Sensor Technology - - - 58.74 35.16Management Headquarters 52.40 29.80 28.91 34.86 25.47

RDT&E Total $6,780.46 $7,343.10 $6,495.23 $6,224.69 $5,917.10

President's Budget Controls 2013 - - $8,419.48 $7,750.79 $7,658.33

Source: Missile Defense Agency. Fiscal Year 2012 and 2013 Budget Outline.

E. Estimate.

MISSILE DEFENSE AGENCY:FUNDING BY APPROPRIATION AND PROGRAM ELEMENT


316

Year Total

Researchand

Development

Space Flight Control and

CommunicationsConstructionof Facilities

Research andProgram

Managementa

1991 $14,005 $6,024 $5,271 $498 $2,212 1992 14,301 6,848 5,352 525 1,576 1993 14,310 7,074 5,059 526 1,652 1994 14,570 7,534 4,835 493 1,708

Year Total

Science, Aeronautics, &

Technology

HumanSpaceFlight Othera

Mission Support

1995b $13,854 $5,936 $5,515 ($130) $2,533 1996 13,886 5,929 5,457 17 2,483 1997 13,711 5,590 5,540 19 2,562 1998 13,649 5,690 5,560 19 2,380 1999 13,655 5,654 5,480 21 2,500 2000 13,602 5,582 5,488 21 2,511 2001 14,361 6,235 5,496 28 2,602 2002c 14,893 8,095 6,773 25 - 2003 15,391 9,215 6,149 27 -

Year Total

Exploration,Science, &

AeronauticsSpace

Operations OtheraMission Support

2004b $15,342 $7,873 $7,478 ($9) - 2005 16,187 7,891 8,275 21 - 2006 16,570 9,721 6,905 (56) - 2007 16,275 10,086 6,166 23 - 2008 17,219 10,606 6,574 39 - 2009 18,777 9,458 5,765 3,554 - 2010 18,719 8,772 6,142 3,805 - 2011 18,888 9,838 5,321 3,729 - 2012 17,751 9,930 4,187 3,635 - 2013(E) 17,693 10,095 4,013 3,585 -


a. Includes trust funds, Office of the Inspector General, National Space Grant Program, and GSA buildingdelegation.

b. Year features major budget account restructuring.c. Mission Support, as a separate category, discontinued; funds merged into other categories.E. Estimate.

NATIONAL AERONAUTICS AND SPACE ADMINISTRATIONBUDGET AUTHORITY


Space


317APPENDIx

Year Total

Researchand

Development

Space Flight Control and

CommunicationsaConstructionof Facilities

1996c $1,022 $510 $241 $265 $61997c 317 101 92 122 21998c 138 40 34 64 -1999c 47 18 2 27 -2000c 31 18 1 12 -

Year Total

Science, Aeronautics, &

Technology

Human Space Flight Otherb

1996c $12,858 $5,017 $5,452 $16 $2,3731997c 14,043 5,891 5,656 19 2,4771998c 14,068 6,015 5,551 19 2,4831999c 13,617 5,785 5,417 20 2,3952000c 13,411 5,477 5,497 21 2,4162001d 14,199 5,752 5,829 32 2,5862002f 14,430 7,532 6,337 27 5342003f 14,552 8,358 6,034 25 1352003f, g 5,826 3,944 1,842 - 402003f, g 884 667 198 - 19

Year Total

Exploration, Science, &

Aeronautics Space

Operations

Office of Inspector General

2004g $15,152 $4,115 $5,218 $32 $5,7872005g 15,602 6,957 7,743 28 8742006 15,125 7,853 7,117 33 1222007 15,861 9,303 6,375 32 1512008 17,833 11,283 6,474 33 432009 19,168 4,871 6,721 31 7,5452010 18,906 8,829 5,800 34 4,2432011 17,618 8,882 5,046 39 3,6512012 17,190 9,200 4,471 37 3,4822013(E) 17,797 9,825 4,259 39 3,674


a. Separate budget category beginning in 1984; funds formerly included under Research and Development.b. Includes trust funds, Office of Inspector General, National Space Grant Program, and GSA building delegation.c. 1995 featured major budget account restructuring; 1996–2000 outlays split between old and new account structure.d. Continuing minimal outlays reported under old account structure included under Other beginning in 2001.E. Estimate.f. Mission Support, as a separate category, is being discontinued; funds merged into other categories.g. 2004 featured another budget account restructuring; 2004-2005 outlays split between old and new account structure.h. In FY 2004, NASA again restructured accounts. Outlays authorized under old accounts, but expended in later years

are shown here, along with a few miscellaneous programs and accounts.

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION OUTLAYSFiscal Years 1996–2013


Research and Program

Managementb

Mission Support

Otherh

318

2010Actual

2011Actual

2012Actual

2013Request

TOTAL $18,725 $18,448 $17,770 $17,711

Space Applications: $5,270 $5,910 $6,217 $6,162

Science 4,498 4,920 5,074 4,911Aeronautics 497 534 569 552Space Technology 275 456 574 699

Exploration Capabilities: $3,626 $3,821 $3,713 $3,933

Exploration Systems Development 3,288 2,982 3,007 2,769Commercial Spaceflight 39 607 406 830Exploration Research and Development 299 232 300 334

Space Operations: $6,142 $5,146 $4,187 $4,013Space Shuttle 3,101 1,593 556 71International Space Station 2,313 2,714 2,830 3,008Space and Flight Support (SFS) 728 840 801 935

Cross-Agency Support: $3,018 $2,956 $2,994 $2,848

Construction, Compliance and Restoration: $453 $433 $487 $619

$180 $145 $136 $100

Inspector General: $36 $36 $38 $37

Source: NASA, FY12 Budget Overview and FY13 President's Budget Request Summary.

Education:

NATIONAL AERONAUTICS AND SPACE ADMINISTRATIONBUDGET AUTHORITY BY MAJOR BUDGET ACCOUNT

FOR SELECTED PROGRAMSFiscal Years 2010–2013



319APPENDIx

Procure-ment RDT&E

Procure-ment RDT&E

Procure-ment

AIR FORCE

Advanced Extremely High Frequency Sat. $385.0 $256.9 $397.4 $551.5 $229.2 $557.2Defense Meteorological Satellite Program - 86.4 - 100.0 - 89.0Evolved Expendable Launch Vehicle (EELV) 53.8 1,144.5 14.5 1,701.7 8.0 1,679.9Global Positioning System (GPS) 817.2 71.8 835.6 629.3 704.9 558.8MILSATCOM 298.7 188.2 236.6 36.5 107.2 47.6NPOESS 173.0 - 43.0 - - -Nuclear Detonation Detection System (NUDENT) 71.3 5.9 82.0 4.9 65.0 5.6Satellite Control Network 25.7 60.1 18.1 60.6 33.8 44.2Space Based Infrared System (SBIRS) 523.8 963.6 621.6 374.5 448.6 501.4Spacelift Range System 9.3 103.2 9.9 125.0 8.8 109.5Wideband Global Satellite (WGS) 74.9 559.3 12.7 792.9 12.0 36.8

ARMY

NAVSTAR GPS - $95.5 - $26.4 - $27.4

NAVY

Mobile User Objective System (MUOS) $391.4 $503.1 $243.9 $238.2 $145.9 $21.5Satellite Communications 410.0 $28.7 263.4 $25.5 188.5 49.3

Source: Department of Defense Budget, Program Acquisition Costs by Weapon System, Procurement Programs (P-1), and RDT&E Programs(R-1), FY13.

Key: NPOESS = National Polar-orbiting Operational Environmental Satellite System.

a. The amounts listed for Procurement and RDT&E represent the combined value of the Base budget amounts and the amounts allocated in the Overseas Contingency Operations budget request.

E. Estimate.

RDT&E

2013(E)

Agency and Program

DEPARTMENT OF DEFENSE

Fiscal Years 2011–2013a


SELECT SPACE PROGRAMS PROCUREMENT AND RDT&E

2011 2012

320

2008 2009 2010 2011

ORDERS

Estimated Valuec (millions) $3,631 $5,725 $4,800 $2,863

Number of Satellites—TOTAL 19 39 28 21

Boeing Satellite Systems 1 4 6 - CAST/CGWIC 1 3 2 3 EADS Astrium 2 7 3 5 Israel Aircraft Industries - - - - Khrunichev - - - - Lockheed Martin 2 1 1 1 MDA - 1 - - Mitsubishi 1 - - 2 OHB Systems - 1 - - Orbital Sciences 3 5 3 2 Reshetnev - 5 4 1 Space Systems Loral 6 8 6 6 Thales Alenia Space 3 4 3 1

BACKLOGd

Estimated Valuec (millions) $13,102 $13,673 $12,873 $15,236

Number of Satellites—TOTAL 66 82 82 86

Boeing Satellite Systems 4 6 9 9 CAST/CGWIC 1 4 5 8 EADS Astrium 11 17 15 15 Israel Aircraft Industries 1 1 1 1 Khrunichev 3 2 2 1 Lockheed Martin 3 3 3 3 MDA - 1 1 1 Mitsubishi 1 1 1 3 OHB Systems - 1 1 1 Orbital Sciences 11 11 10 8 Reshetnev 3 6 9 9 Space Systems Loral 20 21 18 22 Thales Alenia Space 8 8 7 5

Source: Futron Corporation, 2012.

a. Satellites primarily used for commercial service. For state-owned manufacturers, only includes export satellite orders.b. Excludes canceled orders, orders on hold, lacking firm funding or business commitment, or having extended

construction delay. Satellite bus developer assigned spacecraft in cases of manufacturer partnerships.c. Estimated using the best publicly available information; where not available, Futron estimates are used.d. Includes satellites on order during year.

ORDERS AND BACKLOG OF COMMERCIALa GEOSYNCHRONOUSSATELLITES BY MANUFACTURERb



321APPENDIx

2008 2009 2010 2011

ORDERSa, b

Total: 57 41 49 30 China 1 2 2 3 India - - - - Japan 2 - - - Russia 4 11 11 8 United States 31 15 20 3 Europe 13 13 14 14 Other multinationalc 6 - 2 2

BACKLOGa, b, d

Total: 134 144 148 178 China 16 15 19 22 India 4 4 5 5 Japan 4 6 6 6 Russia 50 53 55 63 United States 32 35 36 39 Europe 20 23 24 38 Other multinationalb 8 8 3 5

Source: Futron Corporation, 2012.

a. Announced orders and backlog is not equal to the number of launches due to multi-manifesting options.b. Includes announced government payloads.c. Sea Launch and Land Launch.d. Based on historical launch rates.

ORDERS AND BACKLOG OF COMMERCIAL LAUNCH CONTRACTSBY PROVIDER-COUNTRY


322

YearOperatingRevenues

OperatingExpenses

OperatingProfit

(or Loss)OperatingRevenues

OperatingExpenses

OperatingProfit

(or Loss)OperatingRevenues

OperatingExpenses

OperatingProfit

(or Loss)

1982 $36,066 $36,804 ($739) $28,728 $29,478 ($750) $6,435 $6,452 ($17)1983 38,177 37,879 299 31,014 31,186 (171) 7,163 6,693 4701984 43,369 41,297 2,072 35,394 33,812 1,582 7,975 7,485 4901985 45,931 44,595 1,337 37,629 36,611 1,018 8,302 7,984 3191986 49,622 48,442 1,223 41,001 39,984 1,060 8,621 8,458 163

1987 56,583 54,151 2,431 45,658 43,925 1,733 10,925 10,226 6981988 63,589 60,142 3,446 50,187 47,739 2,448 13,402 12,403 9981989 69,225 67,413 1,812 54,314 52,460 1,855 14,911 14,954 (43)1990 75,984 77,898 (1,913) 57,994 58,983 (989) 17,990 18,914 (924)1991 75,158 76,943 (1,785) 56,230 56,758 (528) 18,928 20,185 (1,257)

1992 78,140 80,585 (2,444) 57,654 58,801 (1,147) 20,486 21,784 (1,298)1993 84,559 83,121 1,438 63,233 61,157 2,076 21,326 21,964 (637)1994 88,313 85,600 2,713 65,949 63,758 2,191 22,364 21,842 5221995 94,318 88,455 5,863 70,885 66,120 4,765 23,433 22,335 1,0981996 101,937 95,728 6,209 76,891 71,573 5,317 25,047 24,155 892

1997 109,568 100,981 8,587 82,250 75,731 6,518 27,318 25,250 2,0681998 113,465 104,137 9,328 86,494 78,389 8,105 26,971 25,749 1,2231999 119,038 110,635 8,403 90,931 84,328 6,603 28,107 26,307 1,8002000 130,299 123,314 6,985 98,896 93,579 5,317 31,403 29,736 1,6682001 115,227 125,550 (10,323) 86,511 94,892 (8,380) 28,716 30,658 (1,943)

2002 106,702 115,260 (8,557) 79,220 86,697 (7,476) 27,482 28,563 (1,081)2003 117,728 119,824 (2,096) 88,830 91,484 (2,654) 28,898 28,340 5582004 134,296 135,778 (1,482) 100,811 104,353 (3,542) 33,486 31,425 2,0612005 151,255 150,828 427 111,730 113,764 (2,034) 39,524 37,064 2,4612006 164,913 157,400 7,513 120,330 116,188 4,142 44,583 41,212 3,371

2007 174,696 165,353 9,344 124,869 120,471 4,398 49,827 44,881 4,9462008 185,081 188,422 (3,341) 128,722 132,319 (3,597) 56,359 56,103 2562009 154,156 151,843 2,313 108,787 107,578 1,208 45,369 44,265 1,1052010 173,476 163,025 10,452 117,872 111,897 5,975 55,604 51,128 4,4762011 191,002 183,909 7,093 130,899 124,397 6,502 60,103 59,512 591

Source: Department of Transportation, Bureau of Transportation Statistics, Air Carrier Financial Statistics (Yellow Book), 2011.

a. Scheduled and non-scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis.


Domestic Operations International Operations

OPERATING REVENUES AND EXPENSES OF U.S. AIR CARRIERSa

DOMESTIC AND INTERNATIONAL OPERATIONSCalendar Years 1982–2011

Total

Air Carriers, Traffic Statistics, and Fuel Costs


323APPENDIx

Year Total Passenger

Service Mail Freight Excess Baggage Otherb

DOMESTIC OPERATIONS

1997 $82,250 $62,549 $1,087 $7,497 $99 $11,0171998 86,494 64,847 1,423 7,711 105 12,4081999 90,931 67,777 1,475 8,053 118 13,5092000 98,896 74,744 1,688 8,804 123 13,5372001 86,511 64,324 824 8,170 111 13,082

2002 79,220 57,871 431 8,148 132 12,6382003 88,830 62,442 545 8,983 201 16,6602004 100,811 67,284 443 10,691 219 22,1732005 111,730 72,142 318 12,530 263 26,4762006 120,330 77,092 405 13,514 341 28,979

2007 124,869 80,113 269 14,344 358 29,7862008 128,722 80,900 308 14,281 902 32,3302009 108,787 66,914 259 10,543 2,322 28,7492010 117,872 71,750 234 11,430 2,949 31,5092011 130,899 78,190 225 14,459 2,908 35,117

INTERNATIONAL OPERATIONS

1997 $27,318 $18,320 $275 $5,156 $56 $3,5111998 26,971 17,667 285 5,278 50 3,6921999 28,107 18,011 264 5,921 46 3,8652000 31,403 20,419 283 6,566 47 4,0892001 28,716 18,227 240 6,444 42 3,763

2002 27,482 17,105 228 7,127 48 2,9752003 28,898 17,253 358 8,206 58 3,0232004 33,486 20,788 257 8,851 67 3,5222005 39,524 23,891 405 10,651 79 4,4992006 44,583 26,502 528 11,810 100 5,641

2007 49,827 29,810 439 12,493 107 6,9782008 56,359 33,959 492 13,761 247 7,9002009 45,369 27,483 376 9,734 405 7,3722010 55,604 31,047 403 12,458 452 11,2442011 60,103 34,567 412 12,565 483 12,076

Source: Department of Transportation, Bureau of Transportation Statistics, Air Carrier Financial Statistics (Yellow Book), 2011.Note: Totals may not equal sum of terms due to rounding.

a. Scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis.b. Includes subsidy, reservation cancellation fees, miscellaneous operating revenues, non-scheduled revenue, and other

transport-related revenues.

SOURCES OF OPERATING REVENUES OF U.S. AIR CARRIERSa



324

Year TotalFlying

Operations MaintenancePassenger

Service

Aircraft &Traffic

ServicingPromotionsand Sales

Depreciation &

Amortization Otherb

DOMESTIC OPERATIONS

1997 $75,731 $22,156 $9,475 $5,854 $12,058 $10,780 $3,940 $11,4691998 78,389 21,044 10,311 6,252 12,699 10,743 4,144 13,1951999 84,328 22,820 11,161 6,763 13,796 10,760 4,657 14,3722000 93,579 28,565 12,062 7,355 14,827 10,089 5,122 15,5582001 94,892 27,908 12,113 7,219 15,390 8,949 6,230 17,081

2002 86,697 25,924 11,069 7,049 14,853 6,703 4,989 16,1092003 91,484 28,339 10,369 6,499 15,245 6,299 5,028 19,7042004 104,353 34,016 11,071 6,604 15,580 6,372 5,096 25,6142005 113,764 39,805 11,466 6,317 15,671 6,369 5,038 29,0992006 116,188 42,727 11,609 5,798 15,469 6,113 5,056 29,417

2007 120,471 44,507 12,395 5,909 16,193 6,145 5,190 30,1332008 132,319 53,094 12,260 5,702 15,938 5,637 5,299 34,3892009 107,578 35,848 11,478 5,778 15,206 5,358 5,273 28,6372010 111,897 39,147 11,936 5,943 15,484 5,622 5,180 28,5852011 124,397 47,058 12,771 6,101 16,073 5,852 5,222 31,320


1997 $25,250 $7,462 $2,899 $2,736 $3,823 $3,476 $1,281 $3,5711998 25,749 7,158 2,955 2,920 3,978 3,374 1,438 3,9261999 26,307 7,472 2,902 3,067 4,207 3,201 1,614 3,8452000 29,736 9,504 3,093 3,211 4,565 3,282 1,751 4,3292001 30,658 9,652 3,196 3,254 4,599 2,828 2,168 4,960

2002 28,563 9,202 3,125 3,090 4,573 2,233 1,923 4,4172003 28,340 9,805 3,294 2,741 4,456 1,959 1,748 4,3372004 31,425 11,579 3,438 2,911 4,961 2,225 1,799 4,5122005 37,064 15,172 3,994 3,006 5,613 2,281 1,734 5,2642006 41,212 17,066 4,287 2,960 5,852 2,305 1,875 6,867

2007 44,881 18,444 4,463 3,049 6,193 2,414 1,988 8,3312008 56,103 25,935 4,540 3,295 6,706 2,872 2,308 10,4472009 44,265 17,075 4,448 3,064 6,209 2,205 2,264 9,0012010 51,128 20,453 5,035 3,359 7,159 2,676 2,449 9,9962011 59,512 25,843 5,476 3,565 7,762 2,883 2,523 11,459

Source: Department of Transportation, Bureau of Transportation Statistics, Air Carrier Financial Statistics (Yellow Book), 2011.Note: Totals may not equal sum of terms due to rounding.

a. Scheduled and non-scheduled service for all certificated route air carriers. Excludes supplemental air carriers, commuters, and air taxis.b. General and administrative, and other transport-related expenses.

OPERATING EXPENSES OF U.S. AIR CARRIERSa




325APPENDIx

YearTotal

Assets

Value ofFlight

Equipment

Value ofGround Property,

Equipment & Othera

Less: Reserves for Depreciation& Overhaul

Equals:Net Value of

Owned OperatingProperty & Equipment

Net Value asa Percent ofTotal Assets

1982 $31,525 $23,786 $5,424 $11,405 $17,804 56.5%1983 35,213 26,588 6,191 12,910 19,868 56.41984 36,769 28,509 6,061 14,043 20,527 55.81985 40,978 30,402 6,772 15,467 21,707 53.01986 47,105 31,750 8,468 14,764 25,454 54.0

1987 51,436 33,177 9,223 15,580 26,820 52.11988 56,047 35,781 10,248 17,450 28,579 51.01989 62,454 38,812 11,903 19,018 31,697 50.81990 67,769 40,215 13,523 20,593 33,144 48.91991 70,332 42,897 14,285 22,009 35,173 50.0

1992 75,426 48,563 15,219 24,445 39,337 52.21993 82,399 51,513 15,438 24,949 42,003 51.01994 84,442 51,951 15,844 26,476 41,319 48.91995 89,782 56,018 16,804 29,056 43,766 48.71996 95,184 59,206 16,661 30,029 45,838 48.2

1997 105,226 66,523 17,643 32,789 51,377 48.81998 118,308 75,385 19,980 35,992 59,373 50.21999 133,711 86,269 21,826 39,060 69,035 51.62000 146,300 98,404 22,095 41,880 78,620 53.72001 158,516 103,508 23,092 42,666 83,934 52.9

2002 158,186 106,297 24,224 44,366 86,155 54.52003 166,899 109,429 23,451 44,577 88,303 52.92004 165,116 115,006 24,320 48,468 90,858 55.02005 167,830 115,582 25,987 51,620 89,950 53.62006 178,070 115,926 23,391 48,188 91,129 51.2

2007 207,447 112,833 21,332 38,913 95,252 45.92008 183,841 115,211 21,637 39,639 97,208 52.92009 186,296 117,291 24,304 43,732 97,863 52.52010 195,986 119,685 23,926 45,285 98,253 50.12011 193,799 122,696 24,742 48,322 99,115 51.1

Source: Department of Transportation, Bureau of Transportation Statistics, Air Carrier Financial Statistics (Yellow Book), 2011.

a. Includes land and construction in progress.

TOTAL ASSETS AND INVESTMENT IN EQUIPMENT BY U.S. AIR CARRIERSCalendar Years 1982–2011


326

YearPassengers

Carried

Freight Tons

Carried

Passenger Miles

PerformedSeat-Miles Available

PassengerLoad Factor Totalb Freight Mail

(Percent)

1982 766 12.8 710 1,115 64% 94.84 21.60 2.651983 798 13.5 739 1,151 64 100.28 24.05 2.741984 848 14.8 794 1,226 65 109.05 27.17 2.951985 899 15.1 850 1,293 66 114.86 27.29 3.011986 960 16.2 902 1,389 65 122.47 29.58 3.11

1987 1,028 17.7 988 1,471 67 134.57 33.10 3.221988 1,082 19.0 1,060 1,568 68 145.29 36.48 3.311989 1,109 19.9 1,102 1,621 68 152.73 39.14 3.461990 1,165 20.3 1,177 1,740 68 161.12 40.27 3.651991 1,135 19.3 1,147 1,727 66 158.04 40.11 3.48

1992 1,146 19.5 1,199 1,821 66 165.86 42.90 3.511993 1,142 19.9 1,211 1,873 65 171.67 46.88 3.581994 1,233 22.6 1,305 1,969 66 187.29 52.89 3.711995 1,304 24.5 1,397 2,087 67 201.34 56.94 3.861996 1,391 25.6 1,511 2,215 68 217.24 61.10 3.97

1997 1,457 29.1 1,599 2,316 69 235.75 70.47 4.101998 1,471 29.2 1,633 2,385 68 238.77 69.74 3.951999 1,562 31.0 1,739 2,517 69 253.72 74.43 3.922000 1,672 33.5 1,887 2,663 71 276.69 80.88 4.142001 1,640 31.7 1,833 2,654 69 265.86 75.89 3.64

2002 1,665 36.2 1,880 2,639 71 280.43 86.78 2.892003 1,719 38.6 1,914 2,677 71 288.00 91.03 2.862004 1,918 42.3 2,184 2,979 73 324.28 100.68 2.902005 2,054 43.4 2,358 3,151 75 344.71 103.20 2.942006 2,169 46.1 2,506 3,309 76 366.24 110.01 2.87

2007 2,360 48.9 2,711 3,534 77 390.53 115.30 2.852008 2,395 47.3 2,765 3,647 76 396.98 114.19 3.172009 2,385 47.0 2,736 3,573 77 379.94 104.06 3.002010 2,593 55.9 2,954 3,796 78 424.56 124.63 3.152011 2,738 56.7 3,145 4,049 78 442.99 124.53 3.14

Source:

a. Includes scheduled service traffic performed by international and domestic airlines of the 191 ICAO member states.b. Passengers, baggage, freight, and mail.

International Civil Aviation Organization (ICAO), Annual Report of the Council, 2011.

(Millions) (Billions) (Billions)

TRAFFIC STATISTICS:WORLD AIRLINE SCHEDULED SERVICEa


Ton-Miles Performed


327APPENDIx

Year

RevenuePassenger

Enplanements(Thousands)

AveragePassengerTrip-Length

(Miles)

RevenuePassenger

Miles(Millions)

AvailableSeat Miles(Millions)

RevenuePassenger

Load Factora

DOMESTIC OPERATIONS

1996 530,708 802 425,596 626,389 67.9%1997 542,001 817 442,640 640,319 69.11998 559,653 812 454,430 649,362 70.01999 582,880 824 480,134 687,502 69.82000 610,601 833 508,403 714,454 71.2

2001 570,125 843 480,348 695,200 69.12002 560,107 850 476,004 676,949 70.32003 589,135 848 499,632 687,850 72.62004 640,698 862 551,937 741,677 74.42005 670,418 865 579,690 752,482 77.0

2006 671,796 871 585,391 740,909 79.02007 693,374 871 604,215 757,604 79.82008 664,714 873 580,468 729,073 79.62010 641,660 876 562,211 685,202 82.12011 649,253 883 573,095 692,748 82.7


1996 50,526 3,029 153,067 208,682 73.3%1997 52,724 3,049 160,779 216,913 74.11998 53,232 3,074 163,656 224,728 72.81999 53,079 3,239 171,913 230,917 74.42000 55,549 3,319 184,354 242,496 76.0

2001 52,003 3,295 171,352 235,311 72.82002 52,769 3,129 165,098 215,606 76.62003 53,863 2,908 156,638 204,755 76.52004 62,222 2,921 181,743 229,788 79.12005 68,210 2,922 199,324 250,854 79.5

2006 72,445 2,918 211,405 264,625 79.92007 75,996 2,959 224,866 279,574 80.42008 76,735 3,010 230,939 291,032 79.42010 78,819 2,992 235,816 287,382 82.12011 80,750 2,988 241,244 299,904 80.4

Source: Department of Transportation, Bureau of Transportation Statistics, Air Carrier Traffic Statistics (Green Book), 2011.

a. Revenue passenger miles as a percent of available seat miles.

PASSENGER STATISTICS:U.S. AIR CARRIER SCHEDULED SERVICE,


328

Year Total Domestic Internationala

1983 7,715 4,539 3,1771984 8,857 5,228 3,6291985 8,653 4,994 3,6591986 10,311 5,989 4,3221987 12,130 7,010 5,119

1988 14,136 8,075 6,0611989 15,954 8,821 7,1331990 16,229 8,987 7,2421991 16,327 8,913 7,4141992 16,793 9,474 7,319

1993 18,420 10,374 8,0461994 20,790 11,323 9,4671995 23,228 12,416 10,8121996 24,217 12,782 11,4351997 26,954 13,455 13,499

1998 28,347 13,830 14,5171999 28,102 13,975 14,1272000 30,057 14,699 15,3582001 28,485 13,938 14,5472002 27,763 12,967 14,796

2003 33,514 14,972 18,5422004 36,463 16,341 20,1222005 39,219 16,090 23,1292006 39,340 15,381 23,9592007 39,909 15,219 24,690

2008 38,830 14,408 24,4222009 30,999 11,899 19,1002010 35,888 12,823 23,0652011 37,277 12,047 25,2302012(E) 36,383 12,053 24,330

Source: Federal Aviation Administration, FAA Aerospace Forecast, Fiscal Years 2013-2033.

a. Beginning in 2003, includes contract service by U.S. carriers for foreign carriers.E. Estimate.

AIR CARGO STATISTICS:U.S. COMMERCIAL AIR CARRIERS

Fiscal Years 1983–2012(Millions of Revenue-Ton-Miles)

Freight / Express / Mail


329APPENDIx

YearTotal Jet Fuel Cost (Millions of Dollars)

Gallons Consumed (Millions)

Cost Per Gallon (Cents)

Cost of Fuel as a Percent of Cash Operating

Expenses

1983 $9,006.7 10,225.3 88.1¢ 24.5%1984 9,324.1 11,182.5 83.4 23.41985 9,352.7 10,324.9 90.6 21.71986 7,054.9 10,722.0 65.8 15.91987 7,607.5 11,542.2 65.9 15.5

1988 7,551.6 12,059.4 62.6 14.01989 8,572.7 14,255.4 60.1 14.41990 11,744.9 15,522.0 75.7 16.91991 9,689.9 14,340.1 67.6 14.21992 8,840.5 14,970.2 59.1 12.3

1993 8,583.4 14,666.2 58.5 11.81994 8,276.2 15,626.3 53.0 11.21995 8,503.6 16,105.1 52.8 11.31996 10,432.1 16,592.2 62.9 12.81997 10,402.1 16,900.8 61.5 12.4

1998 8,376.1 17,274.9 48.5 9.71999 9,078.2 17,409.8 52.1 9.92000 15,198.4 19,026.2 80.0 14.22001 13,220.4 19,371.3 68.2 12.82002 11,036.6 15,841.1 69.7 11.7

2003 13,070.5 15,487.0 84.4 13.42004 18,990.0 16,928.3 112.2 17.02005 27,293.2 17,099.5 159.6 22.52006 31,989.3 16,486.8 194.0 25.02007 34,022.7 16,760.5 203.0 25.8

2008 46,876.2 16,157.0 290.1 31.52009 32,290.0 17,023.4 189.7 22.42010 38,782.0 17,284.7 224.4 23.82011 50,488.1 17,594.7 287.0 27.52012 50,414.6 17,090.2 295.0 27.1

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Transportation Statistics, Research and Innovative Technology Administration, Airline Fuel Cost and Consumption Report, 2012.

a. Domestic and International scheduled and non-scheduled service for all U.S. major and national air carriers.

JET FUEL COSTS AND CONSUMPTION BY U.S. AIR CARRIERSa


330

2008 2009 2010 2011(E) 2012(E)

NUMBER OF ACTIVE AIRCRAFT BY TYPE (Thousands)

All Aircraft: 228.7 223.9 223.4 220.8 220.7

Fixed-Wing: 183.0 177.4 176.3 173.8 173.1

Piston: 163.0 157.1 155.4 152.6 151.5Single-Engine 145.5 140.6 139.5 136.9 135.9Twin-Engine 17.5 16.5 15.9 15.7 15.6

Turboprop: 8.9 9.1 9.4 9.5 9.7Twin-Engine 3.5 4.0 4.2 NA NAOther 5.5 5.1 5.2 NA NA

Turbojet: 11.0 11.3 11.5 11.7 11.9

Rotorcraft: 9.9 10.0 10.1 10.4 10.7Piston 3.5 3.5 3.6 3.7 3.8Turbine 6.4 6.5 6.5 6.7 6.9

Gliders 1.9 1.8 1.9 NA NAExperimental 23.4 24.4 24.8 24.3 24.4Light-sport 6.8 6.5 6.5 6.6 6.8

HOURS FLOWN BY TYPE OF AIRCRAFT (Thousands)

All Aircraft: 26,009 23,763 24,802 24,570 24,599

Fixed-Wing: Piston 15,074 13,634 13,979 13,626 13,396Turboprop 2,457 2,215 2,325 2,324 2,357Turbojet 3,600 3,161 3,375 3,577 3,756

Rotorcraft: Piston 751 755 794 785 808Turbine 2,470 2,248 2,611 2,545 2,535

Gliders 96 85 92 NA NAExperimental 1,155 1,286 1,226 1,213 1,232Light-sport 293 286 311 317 331

AVERAGE HOURS FLOWN ANNUALLY BY TYPE

All Aircraft: 113.7 106.1 111.0 111.3 111.5

Fixed-Wing: Piston 92.5 86.8 89.9 89.3 88.4Turboprop 275.8 244.6 248.1 244.1 243.7Turbojet 326.0 280.5 293.9 307.0 315.9

Rotorcraft: Piston 214.8 215.8 221.4 213.0 214.6Turbine 387.3 346.7 400.8 378.4 367.4

Gliders 50.0 46.8 48.4 NA NAExperimental 49.5 52.7 49.5 50.0 50.5Light-sport 43.0 43.6 47.6 47.7 48.5

Source: Federal Aviation Administration, FAA Aerospace Forecast, Fiscal Years 2013-2033; General Aviation and Air Taxi Survey , 2010.

a. Excludes commuters.E. Estimate

NA. Not available.

U.S. GENERAL AVIATION:TYPE OF AIRCRAFT AND HOURS FLOWNa


General Aviation Statistics


331APPENDIx

Primary Use 2006 2007 2008 2009 2010

ACTIVE AIRCRAFT AS OF END-OF-YEAR

TOTAL 212.9 222.1 220.2 215.3 215.3

Personal 149.0 152.5 154.4 152.3 150.9Business 24.4 25.0 22.4 22.4 21.7Corporate 11.1 10.9 11.7 10.5 10.4Instructional 14.3 14.7 15.0 14.1 15.4Aerial Application 3.4 4.2 3.1 3.2 3.3Aerial Observation 4.4 5.2 5.3 5.3 5.9Aerial Other 0.8 1.4 1.0 0.8 0.7External Load 0.2 0.2 0.4 0.2 0.2Other Work 0.7 0.9 0.9 1.2 0.8Sightseeing 0.9 1.3 0.7 0.8 1.5Air Medical 0.4 0.2 0.4 0.5 0.2Other 3.2 5.8 4.8 4.0 4.3

HOURS FLOWN

TOTAL 23,963 23,819 22,805 20,862 21,688

Personal 9,141 8,676 8,279 8,540 8,006Business 3,234 3,094 2,505 2,532 2,387Corporate 3,114 3,214 3,092 2,444 2,696Instructional 4,322 3,804 4,427 3,440 3,885Aerial Application 946 1,415 922 960 1,070Aerial Observation 1,197 1,364 1,427 1,211 1,667Aerial Other 241 371 266 162 328External Load 136 152 153 88 144Other Work 198 145 317 222 259Sightseeing 171 160 152 119 173Air Medical 115 118 108 174 187Other 1,149 1,305 1,154 970 886

Source: Federal Aviation Administration, General Aviation and Air Taxi Activity Survey, 2010.

a. Air taxis under 12,500 pounds.

U.S. GENERAL AVIATIONACTIVE AIRCRAFT AND HOURS FLOWN BY PRIMARY USE

Calendar Years 2006–2010(Thousands)

332

State Total Public Private Military State Total Public Private Military

Alabama 275 92 172 11 Nevada 126 49 72 5Alaska 733 404 308 21 New Hampshire 140 25 115 -Arizona 305 76 219 10 New Jersey 315 45 263 7Arkansas 296 99 194 3 New Mexico 176 63 108 5California 958 253 676 29 New York 597 140 456 1

Colorado 454 76 373 5 North Carolina 441 113 317 11Connecticut 138 23 115 - North Dakota 280 89 189 2Delaware 39 11 27 1 Ohio 711 170 540 1Dist. Of Col. 20 3 13 4 Oklahoma 391 139 246 6Florida 851 128 697 26 Oregon 417 97 320 -

Georgia 453 108 334 11 Pennsylvania 796 128 662 6Hawaii 50 13 30 7 Rhode Island 24 8 16 -Idaho 286 123 162 1 South Carolina 192 67 119 6Illinois 732 109 623 - South Dakota 178 73 104 1Indiana 582 115 462 5 Tennessee 323 78 243 2

Iowa 283 121 160 2 Texas 2,005 392 1,589 24Kansas 381 137 241 3 Utah 143 46 94 3Kentucky 248 60 186 2 Vermont 84 16 68 -Louisiana 470 74 392 4 Virginia 429 66 345 18Maine 183 71 112 - Washington 548 136 403 9

Maryland 222 37 178 7 West Virginia 123 36 86 1Massachusetts 238 39 197 2 Wisconsin 554 132 419 3Michigan 469 228 239 2 Wyoming 121 41 80 -Minnesota 469 153 315 1 Total - 50 States 19,522 5,123 14,116 283

Mississippi 247 80 160 7 Puerto Rico 52 12 39 1Missouri 512 128 380 4 Virgin Islands 8 2 6 -Montana 271 128 141 2 South Pacificb 21 10 9 2Nebraska 243 85 156 2 Total 19,603 5,147 14,170 286

FACILITIES BY CLASS

CLASS

Airports 207Heliports 79Seaplane Bases -Stolports -

286

Source: Aerospace Industries Association (AIA), based on data from the Federal Aviation Administration, Airport Facilities Data, July 2012.

a. “Public” refers to use, whether publicly or privately owned.b. American Samoa, Guam, and Trust Territories.

Total 19,603 14,170

Publica

4,86368

216 -

5,147

5,666501

8,36613,4365,519

285 - -

U.S. LANDING FACILITIES BY STATE AND BY TYPEAs of July 31, 2012

Military Total Private

Landing Facilities by State and Type


333APPENDIx

Year Total DOD NASA Energya Otherb

Current Dollars

1999 $74,136 $37,571 $9,433 $6,077 $21,0552000 73,947 38,279 6,369 6,282 23,0172001 80,089 41,157 6,473 6,613 25,8462002 87,911 44,903 6,772 6,830 29,4062003 101,440 53,778 7,665 7,355 32,642

2004 113,379 61,510 8,588 7,923 35,3582005 119,846 66,467 7,714 8,260 37,4052006 122,795 69,323 7,529 7,842 38,1012007 129,689 73,716 9,122 7,725 39,1262008 134,947 75,783 10,882 8,034 40,248

2009 139,829 79,708 9,937 8,403 41,7812010 140,926 77,591 8,472 8,902 45,9612011 143,625 75,576 8,323 11,820 47,9062012 145,012 76,623 8,986 12,558 46,8452013(E) 139,170 73,248 9,163 11,992 44,767

Constant Dollars c

1999 $84,979 $43,066 $10,813 $6,966 $24,1352000 83,115 43,025 7,159 7,061 25,8712001 87,952 45,198 7,108 7,262 28,3832002 94,967 48,507 7,316 7,378 31,7662003 107,389 56,932 8,115 7,786 34,556

2004 117,067 63,511 8,867 8,181 36,5082005 119,846 66,467 7,714 8,260 37,4052006 118,757 67,044 7,281 7,584 36,8482007 121,819 69,243 8,568 7,256 36,7522008 123,884 69,570 9,990 7,375 36,949

2009 126,542 72,134 8,993 7,605 37,8112010 126,368 69,576 7,597 7,982 41,2132011 126,297 66,458 7,319 10,394 42,1262012 125,205 66,157 7,759 10,843 40,4462013(E) 118,201 62,212 7,782 10,185 38,022

Source: Office of Management and Budget, The Budget of the United States Government, FY13.

a. Includes DOD and Non-DOD-related atomic energy R&D with Non-DOD energy R&D.b. Includes but is not limited to NSF, National Institutes of Health, DOT, and Agriculture.c. Based on Fiscal Year GDP Deflator (2005=100).E. Estimate.

FEDERAL OUTLAYS FOR CONDUCT OF RESEARCH AND DEVELOPMENTFiscal Years 1999–2013


Research and Development

334

Year TotalFederal Funds

Company Fundsc

Aerospace Total

AerospaceFederal Funds

Aerospace Company

Funds

Current Dollars

2000 $201,962 $19,118 $182,844 $10,319 $6,424 $3,8952001 202,017 16,899 185,118 7,868 3,785 4,0832002 193,868 16,401 177,467 9,654 4,306 5,3492003 200,724 17,798 182,926 15,731 7,528 8,2032004 208,301 20,266 188,035 13,086 3,862 9,224

2005 226,159 21,909 204,250 15,004 4,076 10,9282006 247,669 24,304 223,365 16,367 4,372 11,9952007 269,267 26,585 242,682 18,436 5,040 13,3972008 290,680 36,360 254,320 36,941 25,805 11,1362009 282,393 39,573 242,920 34,554 21,524 13,030

Constant Dollars d

2000 $227,000 $21,488 $205,512 $11,598 $7,220 $4,3782001 221,850 18,558 203,292 8,640 4,157 4,4842002 209,429 17,717 191,711 10,429 4,652 5,7782003 212,496 18,841 193,654 16,654 7,970 8,6842004 215,076 20,925 194,151 13,512 3,988 9,524

2005 226,159 21,909 204,250 15,004 4,076 10,9282006 239,525 23,505 216,020 15,829 4,228 11,6012007 252,928 24,972 227,956 17,317 4,734 12,5842008 266,850 33,379 233,471 33,913 23,690 10,2232009 255,559 35,813 219,837 31,271 19,479 11,792

Source: National Science Foundation, Business Research and Development and Innovation Survey (BRDIS), 2009.

a. Includes all manufacturing industries, including those non-manufacturing industries known to conduct or finance research and development.

b. Companies classified in NAICS code 3364, having as their principal activity the manufacture ofaerospace products and parts. Prior to 1999, data was categorized using the SIC system andreported by combining codes 372 and 376.

c. Company funds include all funds for industrial R&D work performed within company facilities, exceptfunds provided by the Federal Government. Outside, company-financed, R&D contracted organizationssuch as research institutions, universities and colleges, or other non-profit organizations are excluded.

d. Based on GDP deflator (2005=100).

FUNDS FOR INDUSTRIAL RESEARCH AND DEVELOPMENTIN ALL INDUSTRIES AND THE AEROSPACE INDUSTRY

BY FUNDING SOURCECalendar Years 2000–2009


All Industriesa Aerospace Industryb


335APPENDIx

Year Total TotalFederal Funds Total

Federal Funds Total

Federal Funds

1990 $25,356 $658 $519 $139 $3,340 $1,931 $1,409 $21,358 $16,766 $4,5921991 16,983 364 302 62 2,091 1,105 986 14,528 10,043 a 4,4851992 17,158 270 235 35 1,739 976 763 15,148 9,076 6,0721993 15,056 (D) (D) (D) 1,453 825 628 (D) (D) (D)1994 14,260 (D) (D) (D) (D) (D) (D) 12,787 7,978 4,809

1995 16,951 252 250 2 1,987 564 1,423 14,712 10,648 4,0641996 16,224 (D) (D) 108 (D) (D) (D) 13,259 9,264 3,9951997 17,865 b (D) (D) 10 (D) (D) 1,508 13,275 9,115 4,1591998 16,359 b (D) (D) 172 (D) (D) 272 12,800 8,136 4,6641999 14,425 (D) (D) 173 (D) (D) 655 11,541 7,060 4,480

2000 10,319 (D) (D) (D) (D) (D) (D) 6,766 3,931 2,8352001 7,868 (D) (D) 301 1,639 735 904 (D) (D) 2,8772002 9,654 (D) (D) 347 (D) (D) 1,092 7,268 3,358 3,9102003 15,731 725 417 308 3,234 2,456 778 11,772 4,655 7,1172004 13,086 465 (D) (D) 2,582 (D) (D) 10,039 1,895 8,143

2005 15,005 510 (D) (D) 2,783 (D) (D) 11,712 2,143 9,5692006 16,367 604 155 449 3,361 1,944 1,417 12,402 2,2732007 18,436 590 169 422 3,989 2,502 1,487 13,857 2,3692008 36,941 810 (D) (D) 5,217 (D) (D) 30,915 (D) (D)2009 34,554 339 (D) (D) 2,498 (D) (D) 31,717 (D) (D)

Source: Aerospace Industries Association (AIA), based on data from the National Science Foundation (NSF), Business Research and Developmentand Innovation Survey (BRDIS), 2009.

Note: Totals may not equal sum of terms due to rounding.

a. Computed by AIA as difference between total and company funds. Figure withheld by NSF because of imputation of more than 50 percent.b. Funding by type of research not revised nor published despite revised totals.D. Suppressed by NSF to avoid disclosure of confidential information.

CompanyFunds

11,48810,129

FUNDS FOR INDUSTRIAL RESEARCH AND DEVELOPMENTIN THE AEROSPACE INDUSTRY BY TYPE OF RESEARCH

AND FUNDING SOURCECalendar Years 1990–2009


Basic Research Applied Research Development

Company Funds

CompanyFunds

336

State 2007 2008 2009 2010

United States: $269,267 $290,680 $282,393 $278,977 (1.2) California 64,187 67,532 64,939 64,914 (0.0) New Jersey 17,892 19,054 18,404 15,925 (13.5) Texas 13,889 16,166 15,307 14,384 (6.0) Massachusetts 19,488 15,028 14,422 14,020 (2.8) Washington 12,687 13,876 16,471 13,545 (17.8)

Illinois 11,362 8,900 9,188 12,221 33.0 Michigan 15,736 13,742 11,999 12,144 1.2 New York 10,916 11,455 10,919 10,954 0.3 Pennsylvania 10,387 9,735 9,989 9,246 (7.4) Missouri 2,736 D D 8,106 -

Ohio 7,265 7,405 6,811 6,857 0.7 Connecticut 9,444 10,518 10,638 6,498 (38.9) Minnesota 6,636 5,728 6,880 6,246 (9.2) North Carolina 6,829 6,246 5,531 5,749 3.9 Florida 4,569 4,178 4,329 5,127 18.4

Indiana 4,939 4,991 5,220 4,985 (4.5) Virginia 4,840 6,142 6,159 4,655 (24.4) Oregon 3,629 4,074 4,080 4,396 7.7 Maryland 3,665 4,333 4,492 4,384 (2.4) Arizona 3,846 5,232 4,682 4,054 (13.4)

Wisconsin 3,411 3,798 3,616 3,927 8.6 Colorado 5,223 4,019 3,960 3,899 (1.5) Georgia 2,788 3,344 3,905 3,644 (6.7) Delaware 1,472 D 2,046 2,144 4.8 Utah 1,764 1,945 2,083 2,066 (0.8)

Iowa D 1,509 1,943 1,950 0.4 New Hampshire 1,814 2,169 D 1,818 - Kansas 1,304 1,600 1,616 1,492 (7.7) Alabama 1,771 3,099 1,562 1,449 (7.2) South Carolina 1,426 1,221 1,254 1,316 4.9

Source: National Science Foundation, Business Research and Development and Innovation Survey (BRDIS) and InfoBrief NSF 13-324, 2013.

( ) Indicates negative growth.D Withheld by National Science Foundation to avoid disclosing operations of individual companies.

TOTAL RESEARCH AND DEVELOPMENT FUNDING:


TOP 30 STATESCalendar Years 2007-2010

Percent Change2009-2010


337APPENDIx

Year Total Air

Force Army Navy Other

1989 $37,002 $14,912 $4,966 $9,291 $7,8331990 37,458 14,443 5,513 9,160 8,3421991 34,566 13,050 5,559 7,586 8,3711992 34,632 11,998 5,978 7,826 8,8301993 36,968 12,338 6,218 8,944 9,467

1994 34,786 12,513 5,746 7,990 8,5371995 34,710 12,052 5,081 9,230 8,3471996 36,561 13,056 4,925 9,404 9,1751997 37,027 14,040 4,859 8,220 9,9081998 37,420 14,499 4,881 7,836 10,204

1999 37,363 14,172 5,027 8,052 10,1122000 37,606 13,839 4,777 8,857 10,1332001 40,599 14,310 5,837 9,465 10,9872002 44,389 14,228 6,569 10,360 13,2322003 53,098 17,271 7,041 12,192 16,594

2004 60,756 19,529 8,302 14,136 18,7892005 65,694 20,640 9,702 16,039 19,3132006 68,628 20,870 10,846 17,423 19,4892007 73,136 22,919 11,364 18,752 20,1012008 75,119 24,666 11,285 18,563 20,605

2009 79,030 26,105 11,764 19,411 21,7492010 76,991 26,215 10,714 19,201 20,8602011 74,871 25,993 10,079 18,196 20,6032012 75,905 26,524 10,718 19,127 19,5372013(E) 71,697 26,119 9,571 17,383 18,624

Source: Department of Defense Budget, Financial Summary Tables, FY13.Note: Total may not equal sum due to rounding.

E. Estimate.

DEPARTMENT OF DEFENSE OUTLAYSFOR RESEARCH, DEVELOPMENT, TEST, AND EVALUATION


338

2009 2010 2011 2012 2013(E)

Total $80,651 $80,655 $76,135 $72,837 $69,653

BY APPROPRIATION

Army $12,154 $11,711 $9,760 $8,760 $8,949Navy 19,809 19,948 17,866 17,793 16,943Air Force 26,767 27,917 27,421 26,740 25,481Defense Agencies 21,736 20,890 20,895 19,355 18,095Operational Test & Evaluation 185 188 192 188 185

RECAP OF BUDGET ACTIVITIES

Basic Research $1,758 $1,815 $1,877 $2,112 $2,117Applied Research 5,072 4,984 4,329 4,739 4,478Advanced Technology Development 6,425 6,507 5,340 5,411 5,266Adv. Component Dvlp. & Prototypes 14,939 14,469 14,142 13,462 12,433System Development & Demonstration 18,125 16,779 14,346 14,140 14,697RDT&E Management Support 5,991 6,098 5,661 4,584 4,268Operational Systems Development 28,340 30,003 30,441 28,388 26,394

RECAP OF FYDP PROGRAMS

Strategic Forces $607 $1,194 $985 $1,012 $574General Purpose Forces 4,031 4,555 4,119 3,911 4,116Intelligence and Communications 5,154 5,665 5,290 4,834 4,077Mobility Forces 564 508 425 285 244R&D (FYDP Program 6) 51,437 49,529 45,364 44,304 43,302Central Supply and Maintenance 495 554 430 390 359Training Medical and Other 28 58 60 39 79Admn. and Associated Activities 182 173 128 126 155Support of Other Nations 26 70 94 4 4Special Operations Forces 463 553 424 469 402Classified Programs 17,665 17,794 18,817 17,462 16,341

Source: Department of Defense Budget, RDT&E Programs (R-1), FY13.

a. Includes Base and Overseas Contingency Operations (OCO) budget request.E. Estimate.

DEPARTMENT OF DEFENSE APPROPRIATIONS FORRESEARCH, DEVELOPMENT, TEST, AND EVALUATION

Fiscal Years 2009–2013a



339APPENDIx

2008 2009 2010 2011 2012

Top 5 Prime Award Recipient Locations:1. California $14,473.3 $14,056.5 $12,905.5 $13,046.4 $12,461.12. Virginia 4,828.7 5,352.6 6,097.4 5,648.2 5,862.03. Maryland 3,465.7 4,333.1 4,657.2 5,005.4 4,783.14. Massachusetts 4,797.2 6,284.4 4,649.0 3,936.3 3,944.55. Texas 5,441.8 5,275.5 5,171.1 4,409.5 3,628.4

Grand Total (all states) $58,256.0 $61,568.5 $59,251.2 $56,645.3 $52,749.1

Top 5 Prime Award Major Agencies:1. Department of Defense $42,288.6 $44,534.7 $41,899.8 $40,193.8 $36,869.52. National Aeronautics and Space Administration 6,209.6 6,902.4 7,325.7 7,563.9 7,632.43. Department of Energy 3,383.1 3,035.7 2,836.9 2,767.6 3,003.74. Department of Health and Human Services 2,364.0 3,077.8 2,782.1 2,660.0 2,284.75. Department of Transportation 747.1 689.4 803.9 984.8 1,059.5

Top 5 Prime Award Sub Agencies:1. Department of the Air Force $13,047.8 $14,302.5 $14,161.0 $14,246.1 $13,082.52. Department of the Navy 12,827.3 13,829.4 12,216.2 11,751.1 10,747.93. National Aeronautics and Space Administration 6,209.6 6,902.4 7,325.7 7,563.9 7,632.44. Department of the Army 10,511.7 10,129.7 9,197.7 8,455.7 7,292.15. Missile Defense Agency 4,442.7 4,401.4 4,081.5 3,412.4 3,825.7

Top 5 Prime Award Products or Services Sold:1. R&D-Defense Sys: A/C (Op. Sys Dev.) $6,025.5 $5,677.4 $5,021.0 $3,952.4 $3,920.22. R&D-Defense Sys: Missile/Space Sys (Adv.) 4,236.5 3,385.6 3,155.0 2,691.4 2,729.33. R&D-Other R & D-Applied Res/Expl Dev. 1,524.1 1,778.5 2,172.4 2,555.8 2,344.44. R&D-Space Science & Appl-a Res/Expl. 2,048.7 2,149.9 2,010.1 2,078.4 2,314.85. R&D-Other R & D-Basic Research 2,938.2 2,275.6 2,295.3 2,297.2 2,264.8

Source: Aerospace Industries Association (AIA), based on data from USAspending.gov, Prime Award Spending Data, 2013.

a. Ranking based on net value of federal contracts awarded during the last fiscal year.

FEDERAL CONTRACTS FOR RESEARCH AND DEVELOPMENTa


340

2011 2012 2013(E)

AIR FORCE

A-10 Squadrons $5.5 $11.1 $13.5B-1B Squadrons 33.1 33.0 16.3B-2 Squadrons 244.7 280.3 36.0B-52 Squadrons 129.9 93.8 53.2C-5 Airlift Squadrons (IF) 55.1 12.9 35.1C-17 Aircraft (IF) 156.9 93.8 99.2C-130J Program 83.0 68.1 54.7CSAR HH-60 Recapitalization 11.9 11.1 123.2AWACS 201.8 117.9 65.2JSTARS 162.8 74.0 24.2F-15E Squadrons 201.0 194.8 192.7F-16 Squadrons 125.4 131.1 190.3F-22A Squadrons 493.5 571.3 371.7F-35 Squadrons 931.6 1,397.9 1,218.4KC-135s 19.9 6.2 0.0CV-22 17.6 13.2 28.0

NAVY

AV-8B Aircraft - Eng Dev $22.1 $30.7 $32.8CH-53K RDTE 558.2 624.5 606.2EA-18 20.2 17.1 13.0F/A-18 Squadrons 143.6 147.1 188.3H-1 Upgrades 58.6 67.6 31.1P-3 Modernization Program 3.5 3.4 3.5V-22A 42.7 84.5 54.4VH-71A Executive Helo Development 147.3 60.8 61.2

Source: Department of Defense, Research, Development, Test & Evaluation Programs (R-1), FY13.Note: See Aircraft Production Chapter for aircraft program procurement authorization data.

a. Total Obligational Authority.b. Includes Base and Overseas Contingency Operations.E. Estimate.

(Millions of Dollars)b

Agency and Model

MILITARY AIRCRAFT PROGRAMS:RESEARCH, DEVELOPMENT, TEST, AND EVALUATIONa

BY AGENCY AND SELECTED MODELSFiscal Years 2011–2013


341APPENDIx

YearTrade

Balance Exports ImportsTrade

Balance Exports Imports

1983 ($52,409) $205,639 $258,048 $12,619 $16,065 $3,4461984 (106,702) 223,976 330,678 10,082 15,008 4,9261985 (117,711) 218,815 336,526 12,593 18,725 6,1321986 (138,279) 227,159 365,438 11,826 19,728 7,9021987 (152,119) 254,122 406,241 14,575 22,480 7,905

1988 (118,526) 322,426 440,952 17,860 26,947 9,0871989 (109,399) 363,812 473,211 22,083 32,111 10,0281990 (101,719) 393,592 495,311 27,282 39,083 11,8011991 (66,723) 421,730 488,453 30,785 43,788 13,0031992 (84,501) 448,164 532,665 31,356 45,018 13,662

1993 (115,568) 465,091 580,659 27,235 39,418 12,1831994 (150,630) 512,626 663,256 25,010 37,373 12,3631995 (158,801) 584,742 743,543 21,561 33,071 11,5091996 (170,214) 625,075 795,289 26,602 40,270 13,6681997 (180,522) 689,182 869,704 32,239 50,374 18,134

1998 (229,758) 682,138 911,896 40,960 64,071 23,1101999 (328,821) 695,797 1,024,618 37,381 62,444 25,0632000 (436,104) 781,918 1,218,022 26,734 54,679 27,9442001 (411,899) 729,100 1,140,999 26,035 58,508 32,4732002 (468,263) 693,103 1,161,366 29,533 56,775 27,242

2003 (532,350) 724,771 1,257,121 27,111 52,504 25,3932004 (654,830) 814,875 1,469,704 31,002 56,817 25,8152005 (772,373) 901,082 1,673,455 39,783 67,432 27,6492006 (827,971) 1,025,967 1,853,938 54,809 85,262 30,4532007 (808,763) 1,148,199 1,956,962 60,614 97,224 36,610

2008 (816,199) 1,287,442 2,103,641 57,389 95,082 37,6942009 (503,582) 1,056,043 1,559,625 56,034 81,166 25,1322010 (634,897) 1,278,263 1,913,160 51,152 77,503 26,3512011 (727,765) 1,480,290 2,208,055 55,753 85,326 29,5732012 (729,611) 1,545,709 2,275,320 65,745 99,385 33,640

Source: Aerospace Industries Association (AIA), based on data from the the Bureau of the Census, Foreign Trade Division, Economic Consulting Services, and the International Trade Administration, 2013.

Note: The Commerce Department began reporting international trade using the Harmonized Tariff Schedules of the United States in 1989. Prior years based on the Tariff Schedules of the United States Annotated.

U.S. TOTAL AND AEROSPACE FOREIGN TRADECalendar Years 1983–2012


Total U.S. Merchandise Trade Aerospace

Foreign Trade

342

Total Transports

1983 $205,639 $16,065 7.8% $10,595 $4,683 $5,4701984 223,976 15,008 6.7 9,659 3,195 5,3501985 218,815 18,725 8.6 12,942 5,518 5,7831986 227,159 19,728 8.7 14,851 6,276 4,8751987 254,122 22,480 8.8 15,768 6,377 6,714

1988 322,426 26,947 8.4 20,298 8,766 6,6511989 363,765 32,111 8.8 25,619 12,313 6,4921990 392,976 39,083 9.9 31,517 16,691 7,5661991 421,730 43,788 10.4 35,548 20,881 8,2391992 448,164 45,018 10.0 36,906 22,256 8,111

1993 465,091 39,418 8.5 31,823 18,146 7,5961994 512,626 37,373 7.3 30,050 15,931 7,3221995 584,742 33,071 5.7 25,079 10,606 7,9911996 625,075 40,270 6.4 29,477 13,624 10,7921997 689,182 50,374 7.3 40,075 21,028 10,299

1998 682,138 64,071 9.4 51,999 29,168 12,0721999 695,797 62,444 9.0 50,624 25,672 11,8202000 781,918 54,679 7.0 45,566 19,615 9,1132001 729,100 58,508 8.0 49,371 22,151 9,1372002 693,103 56,775 8.2 47,348 21,626 9,427

2003 724,771 52,504 7.2 44,366 19,249 8,1382004 814,875 56,817 7.0 47,772 18,577 9,0452005 901,082 67,432 7.5 57,587 21,888 9,8452006 1,025,967 85,262 8.3 71,857 32,897 13,4052007 1,148,199 97,224 8.5 83,977 40,297 13,247

2008 1,287,442 95,082 7.4 82,264 33,326 12,8192009 1,056,043 81,166 7.7 70,500 D 10,6662010 1,278,263 77,503 6.1 67,128 D 10,3752011 1,480,290 85,326 5.8 75,275 D 10,0512012 1,545,709 99,385 6.4 86,814 D 12,571

Source: Aerospace Industries Association (AIA), based on data from the the Bureau of the Census, Foreign Trade Division, Economic Consulting Services, and the International Trade Administration, 2013.

Note: International trade reported using Harmonized Tariff Schedules after 1988.

a. Includes Department of Defense shipments and undocumented exports to Canada, free alongside-ship basis.D. Data surpressed by the Bureau of the Census.

TOTAL U.S. EXPORTS AND EXPORTS OF AEROSPACE PRODUCTSCalendar Years 1983–2012


Exports of Aerospace Products

Total

Percent of Total U.S. Exports

Civil

MilitaryYearTotal Exports of U.S.

Merchandisea


343APPENDIx

Country of Destination 2008 2009 2010 2011 2012

Japan $6,703 $5,511 $5,295 $5,072 $8,468China 3,917 5,344 5,764 6,392 8,364France 7,326 8,655 7,233 7,141 8,025United Arab Emirates 2,775 3,507 1,811 3,655 7,186United Kingdom 7,152 6,085 5,968 7,009 6,809

Brazil 5,568 4,681 4,481 5,469 6,169Germany 5,677 5,515 5,683 5,894 5,764Canada 7,245 5,700 5,400 5,677 5,713Singapore 3,902 2,974 3,877 3,926 4,034South Korea 2,712 2,026 2,647 2,740 3,633

Mexico 1,530 1,657 1,621 1,848 2,773Hong Kong 1,177 2,199 1,408 2,486 2,496Australia 1,749 1,797 1,636 2,002 2,206Turkey 1,409 1,240 2,484 2,886 1,909Qatar 742 1,366 1,702 1,203 1,777

Saudi Arabia 788 1,130 879 523 1,604Russian Federation 557 422 341 742 1,494Indonesia 543 910 1,727 1,183 1,477Netherlands 1,974 1,847 1,517 1,885 1,450Chile 515 1,242 1,318 772 1,378

Source: Aerospace Industries Association (AIA), based on data from the International Trade Administration, 2013.

U.S. EXPORTS OF AEROSPACE PRODUCTS:TOP 20 COUNTRIES OF DESTINATION

Calendar Years 2008–2012(Millions of Dollars)

344

Country of Origin 2008 2009 2010 2011 2012

France $9,114 $7,990 $8,792 $8,719 $9,801Canada 7,837 6,805 6,371 7,244 8,001Japan 2,666 2,904 3,055 3,841 4,783United Kingdom 3,808 3,407 3,442 3,705 4,017Germany 2,773 3,144 2,088 2,916 3,199

Italy 953 952 1,209 1,308 1,658Mexico 557 469 689 1,157 1,439Brazil 2,296 747 746 936 1,070Israel 1,344 761 748 694 952Poland 171 178 386 569 679

China 387 397 498 622 663South Korea 371 387 467 598 570Belgium 328 263 268 453 403Netherlands 207 230 299 306 360Australia 176 164 164 327 342

Turkey 214 251 270 283 336Switzerland 350 279 292 266 301Singapore 335 268 278 254 263Sweden 261 178 229 224 259Taiwan 175 166 173 215 256

Source: Aerospace Industries Association (AIA), based on data from the International Trade Administration, 2013.

U.S. IMPORTS OF AEROSPACE PRODUCTS:TOP 20 COUNTRIES OF ORIGIN

(Millions of Dollars)Calendar Years 2008–2012


345APPENDIx

2008 2009 2010 2011 2012

TOTAL EXPORTS $95,082 $81,166 $77,503 $85,326 $99,385

TOTAL CIVIL EXPORTS $82,264 $70,500 $67,128 $75,275 $86,814

Complete Aircraft .......................................42,422 (D) (D) (D) (D)Transports ……………………………….33,326General Aviation ………………………….4,818Helicopters …………………………….. 948Used Aircraft …………………………… 3,284Other Aircraft …………………………. 46

Aircraft Engines ...................................... 8,505Turbine ………………………………….. 8,334Piston …………………………………… 171

Aircraft & Engine Parts,Including Spares ................................. 30,777

Missiles, Rockets & Parts .................. 25

Spacecraft, Satellites & Parts .................. 535

TOTAL MILITARY EXPORTS $12,819 $10,666 $10,375 $10,051 $12,571

Complete Aircraft .................................. 4,521 2,325 1,742 1,738 3,442Transports ………………………………….1,548 276 140 614 1,410Helicopters …………………………….. 300 520 832 539 690Fighters & Bombers ……………….. 1,930 1,208 432 324 737Used Aircraft ………………………….. 590 93 43 44 444Other Aircraft ………………………………153 228 294 217 161

Aircraft Engines ......................................... 423 517 357 478 422Turbine …………………………………. 344 381 271 387 357Piston ………………………………… 80 137 86 92 65

Aircraft and Engine Parts,Including Spares ................................. 6,311 6,126 6,404 6,242 6,836

Missiles, Rockets & Parts .................. 1,425 1,509 1,741 1,502 1,745

Spacecraft, Satellites & Parts .................... 139 189 133 91 126

Source: Aerospace Industries Association (AIA), based on data from the Department of Commerce and EconomicConsulting Services (ECS).

Note: Totals may not equal sum of terms due to rounding.

D. Civil aerospace export data suppressed by the Bureau of Census Bureau beginning in the first quarter 2009.

U.S. EXPORTS OF AEROSPACE PRODUCTS



346

2008 2009 2010 2011 2012

TOTAL IMPORTS $37,694 $25,132 $26,351 $29,573 $33,640

Aircraft .............................................$12,480 $9,299 $9,041 $10,025 $10,266

Military ……………………………….51.5 0.4 61.7 124.4 102.8

Civil ..................................................12,428 9,299 8,979 9,900 10,163Transports ………………… 6,460 4,955 3,258 4,972 4,588General Aviation ……………… 4,066 2,337 2,191 2,667 2,730Helicopters ………………….. 1,143 833 838 896 1,161Othera……………………………………..758 1,173 2,692 1,365 1,685

Aircraft Engines ............................. 4,328 3,752 3,799 4,101 5,146

Turbine ……………………………….4,195 3,616 3,700 4,035 5,081Piston …………………………….. 133 136 99 66 64

Aircraft and Engine Parts ..... 19,989 11,383 12,498 14,293 17,070

Spacecraft, Missiles,Rockets, and Parts ................. 896 698 1,013 1,154 1,158

Source: Aerospace Industries Association (AIA), based on data from the Department of Commerce and EconomicConsulting Services (ECS).

Notes: Import data includes non-military aircraft parts and aerospace products previously exported from the United States.Totals may not equal sum of terms due to rounding.

a. Includes used aircraft, gliders, balloons and airships.


U.S. IMPORTS OF AEROSPACE PRODUCTS



347APPENDIx

2008 2009 2010 2011 2012(E)

TOTAL NUMBER OF AIRCRAFT 262 269 338 227 213

Fighters and Fighter Bombers 46 29 16 12 12Transports 9 3 5 9 7Helicopters 28 39 79 54 48New Aircraft, NEC 137 180 217 135 125Used or Rebuilt Aircraft 42 18 21 17 21

Source: Aerospace Industries Association (AIA), based on data from Economic Consulting Services, 2013.NEC. Not elsewhere classified.

a. Includes aircraft exported under Military Assistance Programs and Foreign Military Sales.E. Estimate.

U.S. EXPORTS OF MILITARY AIRCRAFTa


348

2008 2009 2010 2011 2012

3,583 D D D D

Helicopters ― TOTAL 880 D D D DUnder 2,200 lbs 766 - - - -Over 2,200 lbs 114 - - - -

General Aviation ― TOTAL 1,188 D D D DSingle-Engine 612 - - - -Multi-Engine, under 4,400 lbs 105 - - - -Multi-Engine, 4,400-10,000 lbs 190 - - - -Multi-Engine, 10,000-33,000 lbs 281 - - - -

Transports (over 33,000 lbs) ― TOTAL 321 D D D DPassenger Aircraft 313 - - - -Cargo Aircraft 8 - - - -Other, incl. Pass./Cargo Combination - - - - -

Other Aircraft ― TOTAL 1,194 D D D DUsed or Rebuilt Aircraft 1,194 - - - -Other Aircrafta 1,735 - - - -

$42,376 D D D D

Helicopters ― TOTAL 948 D D D DUnder 2,200 lbs 242 - - - -Over 2,200 lbs 706 - - - -

General Aviation ― TOTAL 4,818 D D D DSingle-Engine 397 - - - -Multi-Engine, under 4,400 lbs 45 - - - -Multi-Engine, 4,400-10,000 lbs 903 - - - -Multi-Engine, 10,000-33,000 lbs 3,473 - - - -

Transports (over 33,000 lbs) ― TOTAL 33,326 D D D DPassenger Aircraft 31,322 - - - -Cargo Aircraft 2,004 - - - -Other, incl. Pass./Cargo Combination - - - - -

Other Aircraft ― TOTAL 3,284 D D D DUsed or Rebuilt Aircraft 3,284 - - - -Other Aircrafta 46 - - - -

Source: Aerospace Industries Association (AIA), based on data from Economic Consulting Services, and the International Trade Administration, 2013.

a. Excluded from totals.D. Withheld by the Bureau of the Census to avoid disclosing data for individual companies.

Type of Aircraft

NUMBER OF AIRCRAFT

VALUE (Millions of Dollars)

U.S. EXPORTS OF CIVIL AIRCRAFTCalendar Years 2008–2012


349APPENDIx

2008 2009 2010 2011 2012

321 D D D D

Africa 7 - - - -Asia 115 - - - -Canada & Greenland 15 - - - -Europe 106 - - - -Latin America & Caribbean 28 - - - -Middle East 41 - - - -Oceania 9 - - - -

$33,326.0 D D D D

Africa 664.6 - - - -Asia 14,488.6 - - - -Canada & Greenland 1,462.6 - - - -Europe 7,613.8 - - - -Latin America & Caribbean 2,744.3 - - - -Middle East 5,715.8 - - - -Oceania 636.4 - - - -

Source: Aerospace Industries Association (AIA), based on data from the International Trade Administration, 2013.Notes: Totals may not equal sum of terms due to rounding. Previous years’ data may have been revised to reflect

updated and/or newly available information.

a. Airframe weight exceeding 33,000 pounds.D. Withheld by the Bureau of the Census to avoid disclosing data for individual companies.

Region of Destination

NUMBER OF AIRCRAFT

VALUE (Millions of Dollars)

U.S. EXPORTS OF COMMERCIAL TRANSPORT AIRCRAFTa


350

Use and Type 2008 2009 2010 2011 2012

NUMBER OF AIRCRAFT 2,163 1,430 1,584 1,938 1,646

Civil Aircraft ― TOTAL 2,155 1,427 1,580 1,932 1,635New Complete Aircraft:

Helicopters 364 241 269 258 336General Aviation:

Single-Engine 376 200 212 171 145Multi-Engine, under 4,400 lbs 37 11 4 3 10Multi-Engine, 4,400-10,000 lbs 20 71 50 32 9Multi-Engine, Turbojet / Turbofan, 10,000-33,000 lbs 188 85 91 122 137

Transports, Multi-Engine, over 33,000 lbs 211 133 85 123 96

Other New Aircrafta 796 534 626 1,007 652Used or Rebuilt 163 152 243 216 250

Military Aircraft ― TOTAL 8 3 4 6 11New Complete Aircraft 7 1 3 4 10Used or Rebuilt 1 2 1 2 1

VALUE (Millions of Dollars) $12,479.6 $9,298.9 $9,040.9 $10,024.7 $10,267.3

Civil Aircraft ― TOTAL $12,428.2 $9,298.5 $8,979.2 $9,900.3 $10,163.5

New Complete Aircraft:Helicopters 1,143.0 832.7 838.2 896.2 1,160.8General Aviation:

Single-Engine 456.0 310.6 272.7 273.0 274.6Multi-Engine, under 4,400 lbs 17.2 6.0 2.9 1.8 5.2Multi-Engine, 4,400-10,000 lbs 104.1 263.7 160.7 138.6 47.3Multi-Engine, Turbojet / Turbofan, 10,000-33,000 lbs 3,489.2 1,757.1 1,754.5 2,253.6 2,403.3

Transports, Multi-Engine, over 33,000 lbs 6,460.5 4,955.1 3,258.3 4,971.9 4,587.5

Other New Aircrafta 29.6 25.7 18.5 34.8 23.2Used or Rebuilt 728.6 1,147.6 2,673.4 1,330.4 1,661.5

Military Aircraft ― TOTAL $51.5 $0.4 $61.7 $124.4 $103.8

New Complete Aircraft 51.3 0.2 61.6 124.4 103.7Used or Rebuilt 0.2 0.2 0.1 0.0 0.2

Source: Aerospace Industries Association (AIA), based on data from Economic Consulting Services, and theInternational Trade Administration, 2013.

Notes: Details include products not designated civil or military by the Harmonized Tariff Schedules. Historically, aircraft herein have been predominantly civil. Totals may not equal sum of details due to rounding.

a. Includes gliders, balloons and airships, and kites.

U.S. IMPORTS OF COMPLETE AIRCRAFTCalendar Years 2008–2012


351APPENDIx

State 2009 2010 2011 2012

U.S. Total $84,477,575 81,409,362 89,383,645 105,839,452

Washington 26,479,191 23,322,362 27,163,172 37,110,551 36.6 California 6,682,727 6,100,328 6,797,582 7,994,836 17.6 Connecticut 6,241,407 6,812,920 6,653,561 6,981,781 4.9 Florida 3,976,625 4,471,118 4,989,044 5,736,121 15.0 Ohio 4,117,563 4,698,397 5,427,059 5,663,256 4.4

Georgia 3,442,375 4,499,101 5,928,861 5,638,614 (4.9)Texas 4,893,430 4,484,144 5,144,827 5,636,133 9.5 Kentucky 4,720,585 3,560,263 3,522,097 3,834,815 8.9 Arizona 2,148,278 1,987,475 2,372,655 2,603,326 9.7 New York 2,700,771 2,427,762 2,590,356 2,511,750 (3.0)

Kansas 2,867,981 2,124,120 2,127,464 2,101,357 (1.2)Arkansas 1,678,855 585,391 489,918 1,867,421 281.2 Indiana 750,963 960,523 1,272,477 1,698,613 33.5 Tennessee 1,018,611 1,114,480 1,222,231 1,231,583 0.8 North Carolina 1,311,913 1,463,107 996,609 1,130,804 13.5

Virginia 848,600 964,413 925,787 1,075,884 16.2 New Jersey 1,461,491 1,316,253 1,311,227 1,037,154 (20.9)Illinois 1,125,943 1,036,889 1,003,976 1,031,655 2.8 Pennsylvania 832,461 988,398 855,217 989,708 15.7 Michigan 525,225 944,392 1,075,959 953,304 (11.4)

Massachusetts 835,084 717,052 751,681 944,392 25.6 Missouri 426,650 828,414 652,689 703,892 7.8 Alabama 535,409 424,906 526,569 691,775 31.4 Maryland 664,245 522,858 743,677 652,654 (12.2)Oregon 491,431 462,869 483,413 625,540 29.4

Source: Aerospace Industries Association (AIA), based on data from the Bureau of the Census, 2013.Note: Totals may not match totals provided in other AIA reports due to different Bureau of the Census survey methods.

PercentChange

2011-2012

18.4%

EXPORTS OF AEROSPACE PRODUCTS AND PARTS: TOP 25 STATES

Calendar Years 2009–2012(Thousands of Dollars)

352

TotalAll

ManufacturingDurable Goods

1988 17,906 10,969 1,294 7.2% 11.8%1989 17,985 11,004 1,314 7.3 11.91990b 17,695 10,737 1,121 6.3 10.41991 17,068 10,220 1,040 6.1 10.21992 16,799 9,946 936 5.6 9.4

1993 16,774 9,901 825 4.9 8.31994 17,020 10,132 728 4.3 7.21995 17,241 10,373 673 3.9 6.51996 17,237 10,486 672 3.9 6.41997 17,419 10,705 714 4.1 6.7

1998 17,560 10,911 741 4.2 6.81999 17,322 10,831 709 4.1 6.52000 17,263 10,877 666 3.9 6.12001 16,441 10,336 661 4.0 6.42002 15,259 9,485 618 4.1 6.5

2003 14,509 8,964 587 4.0 6.52004 14,315 8,925 592 4.1 6.62005 14,227 8,956 612 4.3 6.82006 14,155 8,981 632 4.5 7.02007 13,879 8,808 647 4.7 7.3

2008 13,406 8,463 660 4.9 7.82009 11,847 7,284 644 5.4 8.82010 11,528 7,064 624 5.4 8.82011 11,726 7,273 625 5.3 8.62012(P) 11,918 7,462 631 5.3 8.5

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Labor Statistics (BLS),2013.

a. See Glossary for detailed explanation of Aerospace Employment .b. BLS discontinued reporting employment-related statistics using the SIC in 2003; the NAICS is now

used. Prior years (back to 1990) revised for consistency.P. Preliminary.

ANNUAL AVERAGE EMPLOYMENT IN ALL MANUFACTURING,DURABLE GOODS, AND AEROSPACE INDUSTRIES

Calendar Years 1988–2012(Thousands)

Year

AllManufacturing

Industries

Durable Goods

Industries

Aerospace Industrya

As Percent of:

Employment, Earnings, and Other Workforce Statistics


353APPENDIx

Total

1988 529,900 35,262 12,581 22,681 6.7%1989 547,900 36,982 13,327 23,655 6.71990 561,300 35,635 14,360 21,276 6.31991 562,300 34,643 13,839 20,804 6.21992 583,400 33,262 13,053 20,209 5.7

1993 592,300 30,521 11,821 18,700 5.21994 620,400 28,471 10,964 17,506 4.61995 647,400 26,696 10,267 16,430 4.11996 673,600 28,075 11,179 16,896 4.21997 717,600 31,687 13,374 18,313 4.4

1998 675,200 33,083 14,084 18,999 4.91999 697,100 31,276 14,275 18,396 4.52000 749,300 31,490 13,513 19,143 4.22001a 704,095 40,903 13,641 27,262 5.82002 670,677 40,700 12,330 28,370 6.1

2003 663,931 40,528 12,023 28,505 6.12004 682,379 42,727 12,490 30,237 6.32005 699,396 45,972 14,318 31,654 6.62006 725,669 50,389 18,748 31,641 6.92007 739,918 52,355 23,023 29,332 7.1

2008 728,017 54,131 (D) (D) 7.42009 648,066 54,196 (D) (D) 8.42010 660,826 54,099 (D) (D) 8.22011 692,844 56,493 (D) (D) 8.22012(E) 710,182 58,125 (D) (D) 8.2

Source: U.S. Department of Labor, Bureau of Labor Statistics (BLS); Bureau of Economic Analysis, Survey of Current Business, 2013.

a. Due to changes in BLS survey methodology (the North American Industry Classification System replaced the Standard Industrial Classification (SIC), some aerospace industry (NAICS) employment-related statistics reported prior to 2001 may not be directly comparable to those reported from 2001 onward, although overall trends should be retained.

D. In 2008, BLS discontinued reporting "Production Workers" within the data series "Search, Detection, and Navigation Instruments", a component of "Total Aerospace".

E. Estimate.

Other WorkersYear

AllManufacturing

Industries

Aerospace Industry Aerospaceas Percent

of AllManufacturing

Production Workers

ANNUAL PAYROLL:ALL MANUFACTURING AND AEROSPACE INDUSTRIES


354

2000 666.1 438.4 242.7 98.1 97.6 78.4 149.42001 660.7 434.5 241.3 95.6 97.6 76.5 149.82002 618.4 396.7 220.2 87.9 88.6 73.6 148.12003 587.1 371.9 209.1 81.3 81.5 70.2 145.0

2004 592.0 369.9 207.2 79.2 83.5 71.6 150.52005 611.7 380.0 211.3 81.9 86.8 75.1 156.62006 631.8 398.5 221.7 84.4 92.4 75.5 157.72007 646.8 413.6 230.2 85.3 98.1 75.5 157.6

2008 659.8 428.9 237.4 87.2 104.3 77.6 153.32009 644.4 414.0 234.9 80.4 98.7 78.3 152.22010 623.6 401.7 228.2 76.6 96.9 75.9 146.02011 625.4 412.1 234.4 77.8 99.9 74.6 138.72012 631.4 424.9 238.6 80.5 105.9 72.4 134.0

1Q11 620.2 404.2 230.1 76.0 98.1 75.3 140.72Q11 622.6 408.8 232.8 77.1 98.8 75.0 138.93Q11 629.4 416.4 237.2 78.7 100.4 74.8 138.24Q11 629.1 419.0 237.5 79.3 102.2 73.1 137.0

1Q12 628.9 420.1 236.5 79.8 103.9 72.7 136.12Q12 629.5 421.7 235.5 80.5 105.7 72.9 135.03Q12 634.1 428.6 240.9 80.8 106.9 72.3 133.24Q12 633.0 429.4 241.5 80.8 107.1 71.9 131.8

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Labor Statistics (BLS).

AEROSPACE RELATED EMPLOYMENT


All Workers (Thousands)

Aircraft, Engines, and Parts

PeriodTotal

Employment

Guided Missiles,

Space Vehicles& Parts

AircraftEngines &

PartsAircraftTotal

Other AircraftParts &

Equipment

Search,Detection &Navigation

Instruments


355APPENDIx

YearTotala

Aerospace Totala Aircraft

Aircraft Engines & Parts


Equipment

1993 $691 $722 $761 $735 $615 $659 $6141994 728 761 803 775 645 697 6411995 732 764 812 792 634 716 6371996 774 808 861 837 675 745 6681997 818 851 919 863 708 792 687

1998 822 855 932 865 704 794 6921999 816 849 923 883 686 803 6872000 855 902 992 924 726 803 6812001 882 929 1,025 955 744 848 6942002 901 936 1,025 968 757 906 732

2003 927 963 1,033 1,024 780 941 7712004 984 1,021 1,117 1,112 780 999 8292005 1,020 1,075 1,205 1,131 818 1,038 8292006 1,103 1,154 1,297 1,183 891 1,146 9302007 1,232 1,227 1,349 1,294 966 1,368 1,146

2008 1,305 D 1,380 D 997 D D2009 1,399 D 1,460 D 1,073 D D2010 1,452 D 1,486 D D D D2011 1,481 D 1,534 D D D D2012(P) 1,431 D 1,504 D D D D

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Labor Statistics (BLS), 2013.Notes: BLS discontinued reporting employment-related statistics using the SIC in 2003; the NAICS is now used.

Prior years revised for consistency.

a. Total columns are employment-based weighted averages.D. Series discountinued by BLS.P. Preliminary.

AVERAGE WEEKLY EARNINGS

AVERAGE WEEKLY EARNINGS IN THE AEROSPACE INDUSTRY

Calendar Years 1993–2012Production Workers Only

Aircraft, Engines and PartsGuided

Missiles, Space

Vehicles& Parts

Search, Detection & Navigation

Instruments

356

YearTotala




Equipment

1993 16.53 17.13 18.51 17.19 14.36 15.93 14.631994 17.20 17.85 19.52 17.82 14.63 16.34 15.061995 17.27 17.96 19.96 17.85 14.55 16.43 14.871996 17.82 18.54 20.48 18.76 15.00 17.15 15.131997 18.25 18.90 20.76 19.12 15.31 18.23 15.31

1998 18.60 19.18 21.09 19.48 15.55 18.71 15.871999 19.02 19.64 21.79 20.04 15.61 18.91 16.312000 19.81 20.52 23.07 20.76 16.23 19.31 16.692001 20.57 21.25 24.06 21.27 16.83 19.92 17.462002 21.46 22.08 24.94 21.95 17.68 20.65 18.37

2003 22.27 22.93 25.41 23.50 18.36 21.44 19.292004 23.36 23.93 26.87 24.87 18.36 22.90 20.902005 23.91 24.82 28.37 25.41 18.82 24.26 20.532006 25.43 26.31 29.84 26.23 20.17 26.84 22.392007 28.20 28.40 30.52 28.87 22.10 31.90 27.27

2008 29.93 29.93 31.72 D 23.03 D D2009 32.25 32.25 33.06 D 24.35 D D2010 33.65 33.65 33.95 D D D D2011 33.85 33.85 34.50 D D D D2012(P) 33.02 33.02 34.39 D D D D



a. Total columns are employment-based weighted averages.D. Series discontinued by BLS.P. Preliminary.

AVERAGE HOURLY EARNINGS IN THE AEROSPACE INDUSTRY


Aircraft, Engines and PartsGuided

Missiles, Space

Vehicles& Parts


Instruments


357APPENDIx

YearTotala



Other Aircraft Parts &

Equipment


Instruments

1998 44.2 44.3 44.2 44.4 45.3 41.4 43.61999 42.8 43.0 42.4 44.1 43.9 40.8 42.12000 43.1 43.6 43.0 44.5 44.7 41.1 40.82001 42.7 43.4 42.6 44.9 44.2 41.0 39.72002 41.9 42.3 41.1 44.1 42.9 41.8 39.8

2003 41.6 41.9 40.7 43.6 42.5 42.1 40.02004 42.1 42.6 41.6 44.7 42.5 42.8 39.72005 42.6 43.2 42.5 44.5 43.5 42.6 40.42006 43.3 43.8 43.5 45.1 44.2 42.2 41.62007 43.7 44.0 44.2 45.1 43.7 42.5 42.1

2008 43.6 43.6 43.5 D 43.3 D D2009 43.4 43.4 44.2 D 44.1 D D2010 43.1 43.1 43.8 D D D D2011 43.8 43.8 44.5 D D D D2012(P) 43.3 43.3 43.7 D D D D

1998 6.6 7.3 6.6 6.6 9.8 5.2 3.51999 5.1 5.6 4.7 5.9 6.8 6.3 3.02000 5.4 5.8 5.1 6.6 6.9 4.1 3.72001 5.2 5.6 4.6 6.7 6.9 3.8 3.22002 4.7 5.0 4.4 6.0 5.6 3.4 3.2

2003 4.7 5.2 4.8 6.1 5.5 3.9 2.72004 5.1 5.5 4.4 6.9 6.2 5.5 3.22005 5.2 5.7 4.8 6.7 6.4 5.5 3.32006 5.0 5.5 4.8 6.1 6.0 5.7 3.32007 4.7 5.1 5.0 5.4 5.9 3.7 3.0

2008 4.8 4.8 5.4 D 5.0 D D2009 4.6 4.6 5.8 D 4.9 D D2010 4.7 4.7 5.5 D D D D2011 5.2 5.2 5.9 D D D D2012(P) 4.9 4.9 D D D D D



a. Column reports employment-based weighted averages.D. Series discountinued by the BLS.P. Preliminary.

Guided Missiles,

Space Vehicles & Parts

AVERAGE WEEKLY OVERTIME HOURS

AVERAGE WEEKLY HOURS

AVERAGE HOURS IN THE AEROSPACE INDUSTRY


Aircraft, Engines, & Parts

358

YearNumber of

Strikesa

Number of Workers Involved

Work-Days Idle in Year

1988 3 10,600 415,8001989 2 58,500 1,848,0001990 1 2,300 56,7001991 1 1,500 -1992 1 3,800 11,400

1993 2 27,800 34,6001994 - - -1995 1 33,000 1,551,0001996 2 7,800 90,1001997 - - -

1998 - - -1999 - - -2000 3 22,400 566,4002001 1 5,000 45,0002002 3 7,500 118,100

2003 1 4,000 40,0002004 - - -2005 3 22,800 441,3002006 3 6,600 194,8002007 - - -

2008 2 32,200 1,151,8002009 1 2,500 67,5002010 1 1,700 30,6002011 - - -2012 - - -

Source: Bureau of Labor Statistics (BLS), Major Work Stoppages (Annual), 2012.

a. Strikes beginning during calendar year.

WORK STOPPAGES IN THE AEROSPACE INDUSTRYCalendar Years 1988–2012


359APPENDIx

MANUFACTURING SECTOR 2007 2008 2009 2010 2011

All Manufacturing:Total Cases 5.6 5.0 4.3 4.4 4.4Lost Workday Cases 1.3 1.2 1.0 1.1 1.1Non-Fatal Cases Without Lost Workdays 2.5 2.3 2.0 2.0 2.0

Total Aerospace:Total Cases 3.9 3.6 3.3 3.2 3.3Lost Workday Cases 0.9 0.7 0.7 0.7 0.6Non-Fatal Cases Without Lost Workdays 1.8 1.7 1.5 1.4 1.5

Aircraft Manufacturing:Total Cases 4.1 3.7 3.7 3.7 3.8Lost Workday Cases 1.0 0.8 0.8 0.9 0.8Non-Fatal Cases Without Lost Workdays 1.7 1.5 1.5 1.4 1.4

Aircraft Engine and Engine Parts Manufacturing:Total Cases 3.6 3.4 2.9 2.7 2.5Lost Workday Cases 0.9 0.7 0.7 0.6 0.6Non-Fatal Cases Without Lost Workdays 1.8 1.9 1.5 1.3 1.4

Other Aircraft Parts and AuxiliaryEquipment Manufacturing:

Total Cases 5.3 4.9 4.2 4.3 4.5Lost Workday Cases 1.1 0.8 0.9 0.9 0.7Non-Fatal Cases Without Lost Workdays 2.6 2.6 2.1 2.1 2.6

Guided Missile and Space Vehicle Manufacturing:Total Cases 1.3 1.1 1.0 0.8 0.8Lost Workday Cases 0.3 0.3 0.2 0.2 0.2Non-Fatal Cases Without Lost Workdays 0.6 0.5 0.5 0.4 0.4

Guided Missile and Space Vehicle PropulsionUnit and Propulsion Unit Parts Manufacturing:

Total Cases 2.1 1.8 1.7 1.2 1.5Lost Workday Cases 0.5 0.4 0.4 0.4 0.5Non-Fatal Cases Without Lost Workdays 0.9 0.9 1.0 0.5 0.7

Source: Bureau of Labor Statistics(BLS), Nonfatal Injuries and Illnesses, and Fatal Injuries (IIF), 2011.

a. Defined as the number of injuries and illness cases per 100 full-time workers.

OCCUPATIONAL INJURY AND ILLNESS INCIDENCE RATESa

ALL MANUFACTURING AND AEROSPACE INDUSTRIESCalendar Years 2007–2011

360

Year TotalCivil

FunctionsMilitary

Functions

1983 1,026,461 30,816 995,6451984 1,043,747 28,681 1,015,0661985 1,084,549 28,754 1,055,7951986 1,067,974 28,511 1,039,4631987 1,090,018 28,352 1,061,666

1988 1,049,619 28,419 1,021,2001989 1,075,437 28,081 1,047,3561990 1,034,152 27,651 1,006,5011991 1,012,716 27,385 985,3311992 982,774 27,584 955,190

1993 921,179 27,055 894,1241994 879,878 28,001 851,8771995 831,806 27,790 804,0161996 795,813 27,823 767,9901997 749,461 26,429 723,032

1998 717,901 25,349 692,5521999 690,706 25,027 665,6792000 676,268 25,021 651,2472001 668,364 24,027 644,3372002 666,560 24,797 641,763

2003 660,267 25,081 635,1862004 664,666 23,601 641,0652005 667,946 22,455 645,4912006 671,469 22,704 648,7652007 669,539 21,644 647,895

2008 689,866 21,796 668,0702009 731,205 23,750 707,4552010 765,048 24,559 740,4892011 766,968 24,438 742,5302012 780,549 23,977 756,572

Source: Office of the Assistant Secretary of Defense - Public Affairs, DoD Personnel and ProcurementStatistics, Civilian Employment Statistics, September 2012.

FEDERAL CIVILIAN EMPLOYMENT IN THE DEPARTMENT OF DEFENSEFiscal Years 1983–2012


361APPENDIx

State 2008 2009 2010 2011

PercentChange

2010-2011

U.S. Total 659,800 642,010 622,424 624,001 0.3%

California 116,957 112,903 109,663 106,568 (2.8)Washington 84,697 84,600 82,488 88,275 7.0Texas 55,996 55,926 55,901 56,059 0.3Arizona 36,561 38,698 35,751 34,727 (2.9)Kansas 44,383 38,432 33,892 33,145 (2.2)

Connecticut 33,463 32,372 31,636 31,640 0.0Florida 29,767 28,505 27,896 28,078 0.7Georgia 19,990 20,213 20,473 21,992 7.4New York 19,413 19,181 17,871 17,286 (3.3)Ohio 18,198 17,428 16,635 17,224 3.5

Massachusetts 17,885 17,884 17,750 16,576 (6.6)Missouri 15,049 15,374 15,089 14,631 (3.0)Alabama 14,278 14,728 14,429 13,996 (3.0)Pennsylvania 11,715 12,234 12,971 13,198 1.8Colorado 10,091 9,966 9,560 9,424 (1.4)

New Jersey 10,222 9,699 9,189 8,989 (2.2)Indiana 8,735 8,635 8,400 8,557 1.9Utah 8,685 8,126 6,640 6,830 2.9New Hampshire 1,178 1,113 1,065 6,421 502.9Oklahoma 6,121 5,421 5,539 6,120 10.5

Maryland 5,415 5,999 6,162 5,770 (6.4)Michigan 5,849 5,380 5,236 5,481 4.7Illinois 5,508 5,475 5,378 5,278 (1.9)South Carolina 1,383 1,938 3,012 4,550 51.1North Carolina 4,018 3,900 3,710 4,451 20.0

Source: Aerospace Industries Association (AIA), based on data from the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages, 2013.

( ) Indicates negative growth.

Calendar Years 2008–2011TOP 25 STATES

U.S. AEROSPACE INDUSTRY EMPLOYMENT:

362

Calendar Year 2011

AgeAircraft

and Parts

AerospaceProductsand Parts Total

Percentof Total

16-19 1 2 3 0.4%20-24 18 13 31 3.725-34 65 82 147 17.835-44 81 86 167 20.245-54 125 141 266 32.155-64 89 96 185 22.365+ 11 18 29 3.5

Total 16+ 390 438 828 100.0%Median Age 48.4 48.0

Calendar Year 2010

AgeAircraft

and Parts

AerospaceProductsand Parts Total

Percentof Total

16-19 2 1 3 0.4%20-24 25 11 36 4.625-34 54 70 124 15.835-44 85 85 170 21.645-54 138 127 265 33.755-64 71 88 159 20.265+ 9 21 30 3.8

Total 16+ 383 403 786 100.0%Median Age 46.2 47.9

Source: Bureau of Labor Statistics (BLS), Current Population Survey, National Labor Force Statistics, 2011.Note: Data reported on this page is derived from a different BLS survey than that used elsewhere in

Aerospace Facts & Figures.

(Thousands of Employees)

AEROSPACE MANUFACTURING EMPLOYMENT BY AGE GROUPCalendar Years 2010–2011


363APPENDIx

Year All Industriesc Aerospaced

Aerospaceas a Percent ofAll Industries All Industriesc Aerospaced

1985 622.5 130.2 20.9% $130,200 $161,7001986 671.0 144.8 21.6 128,500 149,8001987 695.8 136.3 19.6 128,800 180,4001988 708.6 136.4 19.2 132,300 193,3001989 722.5 134.8 18.7 134,500 207,300

1990 743.6 115.3 15.5 141,300 213,7001991 773.4 100.2 13.0 148,600 177,0001992 779.3 92.9 11.9 157,912 180,5521993 764.7 97.9 12.8 153,336 176,4501994 768.5 72.8 9.5 157,459 186,898

1995 746.1 63.5 8.5 167,339 213,3281996 832.8 95.5 11.5 168,362 170,7331997 885.7 94.6 10.7 171,499 208,2171998 951.5 77.0 8.1 173,589 228,1591999 997.7 66.4 6.7 180,989 237,058

2000 1,037.0 55.3 5.3 193,719 256,6922001 1,048.1 25.1 2.4 190,654 356,0182002 1,071.1 19.1 1.8 180,628 374,1862003 1,075.5 32.5 3.0 179,901 430,0972004 1,156.0 40.6 3.5 183,744 333,401

2005 1,111.3 37.9 3.4 217,483 379,1642006 1,097.7 41.5 3.8 235,208 419,3812007 1,135.5 37.5 3.3 253,858 455,8642008 1,425.0 103.0 7.2 NA NA2009 1,424.0 89.0 6.3 NA NA

Source: National Science Foundation, Business Research and Development and Innovation Survey (BRDIS), 2009.

a. Employment as of January. Scientists and engineers working less than full time have been included in terms of their full-time equivalent number.

b. The arithmetic mean of the numbers of R&D scientists and engineers reported for January in two, consecutive years, divided into thetotal R&D expenditures of each industry during the earlier year.

c. All manufacturing industries and those non-manufacturing industries known to conduct or finance research and development.d. Companies classified in NAICS code 3364, having as their principal activity the manufacture of aerospace products and parts. Prior to

1999, data categorized using SIC system and reported combining codes 372 and 376.NA. Not available.

EMPLOYMENT AND COST OF R&D SCIENTISTS AND ENGINEERSALL INDUSTRIES AND AEROSPACE INDUSTRY


Employmenta Cost Per R&D Scientist and Engineerb

(Thousands of Employees)

364

2009 2010 2011

PercentChange

2010-2011

PercentChange

2002-2011

Bachelors:Aerospace 3,057 3,218 3,459 7.5% 102.2%Computer 3,394 3,340 3,381 1.2 (28.4)Electrical 9,859 9,634 9,942 3.2 (12.8)Mechanical 17,375 18,391 19,241 4.6 45.2

Masters:Aerospace 1,075 1,166 1,398 19.9 90.2Computer 1,880 1,712 1,783 4.1 20.1Electrical 6,137 6,345 6,666 5.1 85.3Mechanical 4,757 5,066 5,915 16.8 65.9

Doctoral:Aerospace 276 254 280 10.2 32.7Computer 230 248 229 (7.7) 201.3Electrical 959 992 1,030 3.8 64.3Mechanical 1,216 1,078 1,225 13.6 53.9

Source: American Society for Engineering Education, Engineering By The Numbers, 2011.

U.S. DEGREES AWARDED IN SELECTED ENGINEERING DISCIPLINESCalendar Years 2009–2011


365APPENDIx

INCOME STATEMENT 2009 2010 2011 2012

Net Sales, Receipts, Operating Revenues .........................$238,571 $241,863 $253,103 $269,838Less: Depreciation, Depletion, and Amortization

of Property, Plant, and Equipment .................................4,761 4,987 4,844 4,844Less: All Other Operating Costs and Expenses,

including Selling Costs and General and Administrative Expenses ..................................................213,865 216,997 223,721 239,548

Income (or Loss) from Operations ...........................$19,944 $19,877 $24,537 $25,444Net Non-Operating Income (Expense) ................................ 959 1,393 3,433 5,470

Income (or Loss) before Income Taxes = (Total Income) ................................................ $21,182 $21,359 $24,691 $27,512

Less: Provision for Current and DeferredDomestic Income Taxes .................................................4,702 4,891 5,888 7,670

Income (or Loss) after Income Taxes= (Net Profit) ....................................................... $16,424 $16,516 $18,802 $19,842

Cash Dividends Charged to Retained Earnings ..........................................................................6,038 6,411 6,298 7,604

Net Income Retained in Business ...........................$10,163 $9,967 $12,501 $12,238

Retained Earnings at Beginning of Yearb ....................... 88,169 93,934 100,257 111,386Adjustments to Retained Earningsc .............................. (3,331) (4,888) (2,141) (930)

Retained Earnings at End of Yeard ........................$95,224 $99,151 $110,620 $122,694

OPERATING RATIOS

Income before Taxes as Percent of Net Sales…....… 8.9% 8.8% 9.8% 10.2%

Provision for Current and Deferred Domestic IncomeTaxes as Percent of Income Before Taxes(Total Income) ........................................................ 22.2 22.9 23.8 27.9

Income after Taxes (Net Profit) as Percent ofNet Sales ................................................................ 6.9 6.8 7.4 7.4

Income after Taxes (Net Profit) as Percent ofStockholders’ Equity ................................................ 26.9 22.9 24.3 25.5

Income after Taxes (Net Profit) as Percent ofTotal Assets ................................................................. 5.5 5.5 6.1 5.9

Source: Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, 2013.

a. Based on sample of corporate entities classified in NAICS code 3364, having as their principal activity the manufactureof aerospace products and parts.

b. Beginning-of-year retained earnings for any particular year do not equal end-of-year retained earnings for the previousyear because of rotation of small companies in survey sample.

c. Other direct credits (or charges) to retained earnings (net), including stock and other non-cash dividends, etc.d. Retained Earnings at End-of-Year CALCULATED as Retained Earnings at Beginning-of-Year PLUS Income (Loss)

after Income Taxes MINUS Cash Dividends Charged to Retained Earnings PLUS Adjustments to Retained Earnings.

INCOME STATEMENT AND OPERATING RATIOSFOR AEROSPACE COMPANIESa


Income Statement, Balance Sheet, and Other Financial Information

366

BALANCE SHEET 2009 2010 2011 2012

ASSETS:Current Assets:

Cash ........................................................................$14,903 $12,647 $14,854 $15,036Securities, Commercial Paper, and Other

Short-term Financial Investments ............................6,449 5,432 3,847 4,234Total Cash and U.S. Government and

Other Securities ............................................... $16,470 $19,950 $16,687 $23,209

Receivables (Total) ...................................................75,132 46,296 37,222 36,324Inventories (Gross) ....................................................66,113 78,110 90,444 94,831Other Current Assets ........................................................14,099 14,623 15,336 15,115

Current Assets—TOTAL .................................................$176,696 $158,980 $163,535 $169,478

Net Plant, Property, and Equipment .................... 30,916 33,549 32,590 33,880Other Non-Current Assets ............................................106,864 113,479 121,766 140,397

Assets—TOTAL ................................................... $314,476 $306,008 $317,891 $343,755

LIABILITIES:Current Liabilities:

Short Term Loans ....................................................$1,089 $1,011 $1,307 $934Trade Accounts and Notes Payable ................................17,735 19,192 21,639 22,947Income Taxes Accrued ............................................... 773 63 259 783Installments Due on Long Term Debts ............................2,706 2,103 2,427 2,475Other Current Liabilities ...........................................121,799 99,044 93,706 95,970

Current Liabilities—TOTAL ......................................$144,102 $121,413 $121,829 $127,108

Long Term Debt ..........................................................49,739 51,605 46,911 55,019Other Non-Current Liabilities ..........................................55,394 59,088 71,764 81,347

Liabilities—TOTAL ..........................................................$249,233 $232,107 $245,966 $269,490

Stockholders’ Equity:Capital Stock ................................................................($28,875) ($25,642) ($38,877) ($44,849)Retained Earnings .........................................................94,118 99,543 110,802 119,114

Stockholders’ Equity—TOTAL .....................................$67,324 $74,919 $71,925 $74,265

Liabilities & Stockholders’ EquityTOTAL ........................................................................$314,476 $306,008 $317,891 $343,755

Net Working Capital .....................................................$32,594 $37,567 $41,706 $42,370

Source: Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, 2013.

a. Based on a sample of corporate entities classified in NAICS code 3364, having as their principal activity themanufacture of aerospace products and parts.

BALANCE SHEET FOR AEROSPACE COMPANIESa

As of End-of-Year, 2009–2012(Millions of Dollars)


367APPENDIx

Sales Assets Equity Sales Assets Equity

1993 4,621 3.6 3.5 13.2 2.8 2.9 8.11994 5,655 4.7 4.3 14.8 5.4 5.8 15.61995 4,633 3.8 3.5 11.1 5.7 6.2 16.21996 7,150 5.6 5.1 17.1 6.0 6.5 16.81997 7,221 5.2 4.8 17.3 6.2 6.6 16.6

1998 7,701 5.0 4.8 18.0 6.0 6.1 15.71999 10,214a 6.4 6.0 21.2 6.2 6.1 16.52000 7,260 4.7 4.3 14.2 6.1 5.9 15.22001 6,565 3.9 3.6 11.6 0.8 0.8 2.02002 6,572b 4.2 3.7 12.2 3.3 2.9 7.8

2003 7,225 4.2 3.3 12.5 5.4 4.7 12.12004 10,291 5.5 4.3 15.3 7.1 6.4 15.82005 12,383 6.3 4.6 16.5 7.4 7.0 16.62006 14,203 6.8 5.1 18.7 8.1 7.7 17.52007 18,658 8.0 6.6 24.1 7.3 6.7 15.2

2008 14,568 6.1 4.7 18.6 4.2 3.8 8.92009 16,424 6.8 5.5 26.9 5.6 4.2 10.32010 16,516 6.8 5.5 23.0 8.3 6.6 15.12011 18,802 7.4 6.1 24.3 9.2 7.7 17.02012(P) 20,260 10.2 6.1 25.7 8.6 7.0 15.8

Source: Aerospace Industries Association (AIA), based on data from the Bureau of the Census, Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, 2013.

a. Includes non-operating income (less interest expense) totaling $4.4 billion.b. Includes non-operating expenses (less interest expense) totaling $3.5 billion.P. Preliminary.

YearMillions of

Dollars

NET PROFIT AFTER TAXESCalendar Years 1993-2012

AEROSPACE INDUSTRY PROFITS ALL MANUFACTURINGCORPORATIONS

As a Percent of: Profits as a Percent of:

368

Year

All Manufacturing

Industries Aerospacea Aircraft Missiles

1982 $74,562 $2,142 $1,680 $4621983 61,931 2,159 1,530 6291984 75,186 3,050 2,091 9601985 83,058 3,784 2,429 1,3561986 76,355 4,145 2,818 1,327

1987 78,650 3,612 2,536 1,0751988 81,593 3,388 2,362 1,0261989 98,738 3,921 2,800 1,1211990 105,018 3,490 2,621 8691991 103,003 3,407 2,823 584

1992 103,188 3,860 3,384 4761993 103,133 2,725 2,307 4181994 112,784 2,363 1,969 3951995 128,473 2,114 1,734 3801996 139,323 2,513 2,023 490

1997b 151,511 3,132 2,380 7521998 152,708 3,477 2,613 8641999 150,325 3,422 2,338 1,0842000 154,479 2,326 1,894 4322001 143,083 2,449 2,059 390

2002 123,067 2,842 2,354 4882003 112,176 2,389 1,859 5302004 113,793 2,164 1,784 3802005 128,292 2,981 2,247 7342006 135,801 2,889 2,424 465

2007 155,776 3,125 2,711 4142008 166,086 3,644 3,168 4762009 130,081 2,934 2,432 5022010 127,639 3,183 2,600 5832011 146,652 3,847 3,394 453

Source: Bureau of the Census, Annual Survey of Manufacturers, 2011.

a. Combined total for establishments in Aircraft, Missiles, Space Vehicles, and PartsManufacturing.

b. Prior to 1997, figures included only new capital expenditures.

CAPITAL EXPENDITURESCalendar Years 1982–2011



369APPENDIx

State Location

Total AnnualOperating Costa

(in millions)

HourlyLaborCost

Power (¢/kwh)

CA San Jose/Sunnyvale $29.31 $27.61 11.90 $1,181.71CA Los Angeles/Torrance 28.42 26.21 10.64 1,400.00MA Boston/Lexington 27.10 26.07 11.48 220.00WA Seattle/Everett/Renton 27.00 25.69 7.24 530.00CT East Hartford/Middletown/Cheshire 26.10 25.57 16.78 152.00MD Bethesda/Rockville/Gaithersburg 25.83 24.77 10.16 600.00MA Worcester/Marlborough 25.51 24.34 10.34 143.00IL Chicago 25.37 25.17 10.95 425.00CA Riverside/San Bernardino 25.23 25.03 10.64 339.00PA Philadelphia/King of Prussia 24.99 24.80 7.47 290.00NY Rochester 24.14 24.18 9.11 60.00AZ Phoenix/Mesa 24.05 23.06 7.47 506.00MN Minneapolis/St. Paul 24.04 24.33 5.94 270.00ME North Berwick/Portland 23.66 22.59 13.66 109.00CO Boulder/Denver 23.46 24.41 5.91 196.00OH Cleveland 23.22 23.63 8.03 109.80TX Houston 23.11 23.95 9.33 139.00OH Cincinnati 22.60 23.20 7.00 74.00MO St. Louis 22.54 23.16 4.52 201.00TX Dallas/Fort Worth/Irving 22.53 23.57 7.91 130.00NC Charlotte 22.19 23.06 4.31 102.90OK Tulsa 21.88 22.24 4.85 68.00FL Pensacola 21.81 21.63 8.93 61.00GA Savannah 21.71 22.06 6.86 58.80SC Greenville/Spartanburg 21.03 22.01 4.96 55.00IA Cedar Rapids 21.00 22.13 4.68 85.75

Source: BizCosts.com. Twenty-six of 62 major U.S. aerospace markets surveyed in 2011 Comparative Aerospace IndustryManufacturing Costs.

a. Based on a representative 250-worker aerospace manufacturing plant occupying 150,000 sq. ft. on a 25-acre industrially-zoned site.

Land Costper Acre

(in thousands)

(Continued on next page)

KEY OPERATING COSTS FOR SELECTED AEROSPACEMANUFACTURING CENTERS

As of 2011

Key Operating Costs for Selected Aerospace Manufacturing Centers

370

State LocationConstruction

($/sq ft)Property Tax(per $1,000)

Sales Tax(state and local)

CA San Jose/Sunnyvale $104.22 $11.00 $9.25CA Los Angeles/Torrance 97.17 11.50 9.75MA Boston/Lexington 100.22 32.68 6.25WA Seattle/Everett/Renton 89.52 12.10 9.50CT East Hartford/Middletown/Cheshire 92.22 37.69 6.00MD Bethesda/Rockville/Gaithersburg 98.30 24.00 6.00MA Worcester/Marlborough 92.44 26.92 6.25IL Chicago 97.30 26.03 10.25CA Riverside/San Bernardino 93.27 10.90 8.75PA Philadelphia/King of Prussia 95.55 25.40 8.00NY Rochester 86.60 31.10 8.00AZ Phoenix/Mesa 73.29 23.80 8.30MN Minneapolis/St. Paul 91.03 40.39 7.75ME North Berwick/Portland 77.84 25.00 5.00CO Boulder/Denver 82.71 32.26 7.72OH Cleveland 87.60 21.54 7.75TX Houston 72.36 22.50 8.25OH Cincinnati 92.20 23.41 6.50MO St. Louis 88.54 17.00 8.24TX Dallas/Fort Worth/Irving 70.51 24.60 8.25NC Charlotte 62.16 12.40 8.25OK Tulsa 66.35 14.60 8.52FL Pensacola 62.14 16.90 7.50GA Savannah 63.44 20.30 7.00SC Greenville/Spartanburg 56.81 19.65 6.00IA Cedar Rapids 77.00 17.60 7.00

Source: BizCosts.com. Twenty-six of 62 major U.S. aerospace markets surveyed in 2011 Comparative Aerospace IndustryManufacturing Costs.

KEY OPERATING COSTS FOR SELECTED AEROSPACEMANUFACTURING CENTERS

As of 2011, continued


371APPENDIx

2008 2009 2010 2011 2012

TOTAL CONTRACT AWARDS $397,231 $372,923 $367,674 $373,983 $360,822

Lockheed Martin Corporation 28,054 30,648 27,889 33,192 28,398The Boeing Company 20,757 20,065 17,797 20,132 27,793Raytheon Company 14,166 15,496 14,602 13,940 14,093General Dynamics Corporation 14,997 15,842 14,671 18,593 13,541United Technologies Corporation 8,302 7,128 6,473 7,241 7,919

Northrop Grumman Corporation 15,848 14,209 15,075 6,547 7,226L-3 Communications Holdings Inc. 6,350 6,866 6,827 6,755 6,406BAE Systems PLC 15,487 7,028 6,406 6,896 5,924SAIC, Inc. 4,391 4,905 4,810 5,283 5,074Huntington Ingalls Industries Inc.b 2,618 2,021 NA 3,179 4,038

Humana Inc. 2,960 3,440 3,249 3,445 3,472Triwest Healthcare Alliance Corporation 2,369 2,672 2,722 3,093 3,008Health Net, Inc. 2,438 2,834 2,961 2,963 2,933Bell Boeing Joint Project Office 2,801 2,666 2,815 2,668 2,895Royal Dutch Shell PLC 1,594 1,908 1,044 895 2,872

Veritas Capital Fund II L.P. 67 60 42 2,862 2,850Supreme Group Holding SARL 647 913 2,123 2,033 2,828Booz Allen Hamilton 1,898 2,273 2,583 2,616 2,555General Electric Company 3,456 3,445 2,971 2,700 2,546Bechtel Group Inc. 2,056 2,328 2,106 2,490 2,441

General Atomic Technologies Corporation 1,074 1,346 1,807 1,954 2,421United Launch Alliance LLC NA 217 117 535 2,385Textron Incorporated 2,798 1,594 2,197 2,494 2,345Northrop Grumman Systems Corporation 611 943 778 1,903 2,309URS Corporation 2,338 2,495 2,146 2,153 2,257

Source: Aerospace Industries Association (AIA), based on data from USAspending.gov, Department of Defense, Prime Award Spending Data, 2013.

a. Ranking based on net value of prime contracts awarded during the last fiscal year.b. 2008 and 2009 data reflects Northrop Grumman Ship Systems, Inc.

NA. Not available.


DEPARTMENT OF DEFENSE:

Fiscal Years 2008–2012

TOP 25 MAJOR CONTRACTORSa

Major DOD and NASA Contractors

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2009 2010 2011 2012

TOTAL PROCUREMENTS $15,316 $16,106 $15,399 $15,379

Lockheed Martin Corporation $1,962 $2,096 $1,824 $1,618The Boeing Company 1,091 1,182 1,246 1,440Jacobs Technology Inc. 696 827 681 684United Space Alliance LLC 1,523 1,808 1,140 627Russian Space Agency 387 341 414 586

Raytheon Company 98 119 261 432Orbital Sciences Corporation 92 194 354 422Alliant Techsystems Inc. 710 627 505 338United Launch Alliance LLC 276 294 345 315Northrop Grumman Corporation 375 320 206 299

United Technologies Corporation 454 614 424 285Stinger Ghaffarian Technologies, Inc. (SGT) 278 306 282 276Science Applications Int’l. Corporation 364 336 273 263Space Exploration Technologies Corp. 26 115 195 256URS Corporation 156 155 204 219

Arctic Slope Regional Corporation 192 221 220 213Qinetiq North America Inc. 87 68 238 201Computer Sciences Corporation 254 239 210 194General Dynamics Corporation 58 59 126 190Ball Aerospace & Tech Corporation 141 124 138 182

Exelis Inc. 105 104 121 168Wyle Laboratories 148 144 156 104Abacus Technology Corporation 92 103 93 91Hewlett-Packard Company 2 1 3 90Honeywell International Inc. 16 22 22 83

Source: Aerospace Industries Association (AIA), based on data from USAspending.gov, National Aeronautics and SpaceAdministration, Prime Award Spending Data, 2013.

a. Ranking based on net value of prime contracts awarded during the last fiscal year. Awards are also given to non-business firms, which include educational institutions, non-profit organizations, the Jet Propulsion Laboratory, government agencies, and outside U.S. contracts.


NATIONAL AERONAUTICS AND SPACE ADMINISTRATION:TOP 25 MAJOR CONTRACTORSa

Fiscal Years 2009–2012


373

About the Authors

Robert Materna, Ph.D. CPLDr. Materna is a Professor of Business Administration and Director of Research at the Center for Aviation and Aerospace Leadership in the College of Business at Embry-Riddle Aeronautical University–Worldwide. Dr. Materna was a Command Pilot in United States Air Force and served in a number of increasingly responsible positions in the areas of program management, acquisition logistics, logistics management, and international logistics during his Air Force career. He completed his military service as an Officer Scholar at the Air Force Institute of Technology. Dr. Materna is also a Certified Professional Logistician (CPL) and possesses an Airline Transport Pilot rating.

Following his Air Force career, Dr. Materna spent over a decade as a Senior Manager at Andersen Consulting (Accenture), Director of Research at NCR Corporation (World Headquarters), and Vice President of Research for a small non-profit organization that special-ized in doing research for large corporations worldwide.

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Dr. Materna’s research interests focus on international business, aerospace manufacturing, supply chain management, leadership, and innovation. He has been a frequent speaker at conferences across the U.S., Europe, Asia, and South America and has authored a number of white papers and articles in publications such as the Air Force Journal of Logistics, the International Society of Logistics’ Spectrum, and the Academy of International Business (SE) Journal on Research, Teaching and Practice. He also wrote a chapter on Air Cargo Transportation for a widely used text on International Logistics, and was one of the primary authors of the Aerospace Industry Report 2011.

Dr. Materna is a graduate of the U.S. Air Force Academy and the Air Force Institute of Technology. He obtained his Ph.D. in Business Administration, with a major in International Business, from Georgia State University.

Dr. Materna can be reached at [email protected]

Robert E. Mansfield, Jr., Brig. Gen., USAF (Ret.)Brig Gen Robert E. Mansfield, Jr., USAF (Ret.) is the Executive Director of the Center for Aviation and Aerospace Leadership in the College of Business at Embry-Riddle Aeronautical University–Worldwide. During his time in the Air Force, Gen Mansfield held numerous assignments at home and abroad leading major Air Force logistics and management operations. Prior to retirement, he served as Director of Supply for the U.S. Air Force at the Pentagon, and led the transformation of the USAF supply system.

Following his military career, Gen Mansfield served as a senior leader in the Lockheed-Martin Joint Strike Fighter program. He also served as the Director of the National Center for Aerospace Leadership and principal investigator of the National Aerospace Leadership Initiative funded by the U.S. Congress. He has served on the Supply Chain Council’s Aerospace and Defense Special Industry Group (SIG) and founded and chaired the Supply Chain Risk SIG.

Gen Mansfield has been a member of the Clarkson University Business School’s Board of Advisors, Embry-Riddle Aeronautical University–Worldwide Industry Advisory Board, and the Missile Defense Agency’s Transforming Defense Supply Chains Technical Advisory Board. He is currently a member of the Board of Directors of the National Council for Advanced Manufacturing and chair of the Manufacturing Committee for the Aerospace States Association. He was co-chair of the Michigan Governor’s BRAC Task Force in 2005


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and a member of the Defense Science Board Summer Study on 21st Century Strategic Technology Vectors in 2006.

Gen Mansfield holds a Bachelor of Science degree (cum laude) from the University of Arizona and a Master of Science degree from the Air Force Institute of Technology. He is a graduate of the Defense Systems Management College Program Manager’s Course, the Air War College, and is a fully qualified Joint Service Officer

Gen Mansfield can be reached at [email protected]

Frederick W. Deck, IIIMr. Frederick “Derrick” Deck is the Senior Director of Research at the Aerospace Industries Association (AIA), in Arlington, Virginia, and is the point-of-contact for all economic research conducted at the association. He also prepares the annual handbook Facts & Figures, a compendium of statistics and other information relating to the aero-space and defense industry.

Prior to joining AIA in mid-2012, Mr. Deck was the Chief Information Officer at the Airline Industrial Relations Conference in Washington, DC, where he oversaw airline labor and employee rela-tions research and support, and wrote extensively on matters related to negotiations, mediation, and employee benefits plans for both U.S. and foreign flag air carriers.

He has also played a significant role in supporting Department of Labor, Department of Transportation, and Federal Aviation Administration actions on statutory and regulatory matters.

Mr. Deck has a BA in Economics from George Mason University, with a specialty in Econometrics and Economic Problems and Public Policies.

Mr. Deck may be reached at [email protected]

ABOUT THE AUTHORS

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Acknowledgements

Numerous people contributed a significant amount of time writing, reviewing, and assisting the authors with various sections of this report. To them, we are extraordinarily grateful. The list is long and we cannot thank everyone, but a number of major contributors stand out.

First, we would like to thank Professor Michael E. Porter and Mr. Richard Bryden for their assistance in developing the section on aero-space clusters. Dr. Porter is the Bishop William Lawrence University Professor at Harvard Business School and Director of the Institute for Strategy and Competitiveness. Mr. Bryden is the Director of Information Products at the Institute for Strategy and Competitiveness where his work centers on the Cluster Mapping Project, as well as disseminating research and applied economic analysis to scholars and practitioners worldwide. Their work provides extraordinary practical insight into what firms, universities, government agencies and other organizations can do to make America more competitive.

We would also like to thank Mr. K. Dunlop “Dun” Scott and the team at Columbia Partners for their assistance in writing the chapter on finance and alternative financing options. Mr. Scott is the President

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and Chief Operating Officer of Columbia Partners where, among other duties, he oversees the firm’s alternative investment strategies. Dun has been an ardent supporter of the report from the beginning and his expertise has enlightened our understanding of the critical role of capital markets and finance in the industry. Mr. Scott’s comments are useful for firms of all sizes, but particularly helpful for small to medium-size aerospace manufacturers that do not always have the resources of their larger counterparts.

Mr. William A. Chadwick Jr. was extremely helpful in framing and writing early versions of the report. Bill has an enormous grasp of the industry and his assistance in collecting and analyzing data was invalu-able. Mr. Chadwick previously served as Director of the Aerospace Research Center at the Aerospace Industries Association (AIA) and is currently a consultant to the aerospace and defense industry.

In past aerospace industry reports, the focus has been primarily on how the demand for aviation and aerospace products will impact manufacturing and sales. This year, we would like to acknowledge Dr. Aman Gupta, Chair of the Logistics and Supply Chain Management program at Embry-Riddle Aeronautical University–Worldwide, for introducing the topic of supply chain risk. Managing risk in the supply chain is a major issue for both commercial and military manufacturers, and a topic we hope to address in more detail in the future.

There are also a number of people at the Aerospace Industries Association we would like to recognize, including: Mr. Don Forest, Chief Operating Officer; Mr. Chip Sheller, Vice President, Communications; Dr. Edward Goldstein, Senior Writer and Editor; and Mr. Dan Stohr, Director, Communications. We would also like to acknowledge the following AIA staff members who wrote or reviewed specific sections of the report: Mr. Rusty Rentsch, Assistant Vice President, Technical Operations; Ms. Susan Lavrakas, Director, Workforce; Ms. Anne Ward, Manager, Team America Rocketry Challenge and International Programs; Ms. Leslie Riegle, Director, Environment & Security; Mr. Cortney Robinson, Director, Civil Aviation Infrastructure; and Mr. Dan Hendrickson, Director, Space Systems.

Finally, the authors would like to thank Ms. Marion C. Blakey, President and Chief Executive Officer of the Aerospace Industries Association, and Dr. John Watret, Chancellor, Embry-Riddle Aeronautical University–Worldwide. Without their steadfast support, this report would not have been possible.

AerospAce Industry report 3rd edItIon

The photos on the front and back of this report are pictures of Northrop Grumman’s X-47B Unmanned Combat Air System (UCAS).

The X-47B is a tailless, intelligent, unmanned aircraft under development for the U.S. Navy to demonstrate carrier-based launches and recoveries and autonomous aerial refueling.

The X-47B UCAS is based on the concept of network centric warfare where a single controller located anywhere can monitor and control several aircraft simultaneously. When fully operational, the X-47B will be able to suppress enemy air defenses and conduct deep strike and surveillance missions within a global command and control network.

Photo credit: Northrop Grumman Corporation.

Photo Credits:

Chapter 1: Boeing 787 Dreamliner in Production at Seattle. (Credit: The Boeing Company)

Chapter 2: Boeing 747 Taking Off On-Schedule. (Credit: Yao Meng Peng, Photos.com)

Chapter 3: Taking Off from New York. (Credit: John Foxx, Photos.com)

Chapter 4: The Last Lockheed Martin Raptor. Air Force Magazine. (Credit: Damien A. Guarnieri, Lockheed Martin)

Chapter 5: FedEx Boeing 777F Undergoing Maintenance, Repair, and Overhaul in Memphis. (Credit: FedEx Corporation)

Chapter 6: The New Lockheed Martin Joint Strike Fighter. (Credit: Lockheed Martin)

Chapter 7: Embraer 175 and ERJ 135 Jets in Production at Sao Jose dos Campos, Brazil. (Credit: Embraer)

Chapter 8: Keeping America Strong. Senior Airman Christopher Blackstone applies lubrication to the nose landing gear struts of an A-10 Thunderbolt II at Osan Air Base, South Korea. (Credit: Senior Airman Adam Grant, U.S. Air Force)

Chapter 9: New Bombardier Global 6000 at NetJets Headquarters. (Credit: NetJets)

Chapter 10: Qube® Unmanned Aircraft System designed to meet the needs of first responders. (Credit: AeroVironment)

Chapter 11: Night time image of the Northern Gulf coast. From 220 miles above Earth, one of the Expedition 25 crew members on the International Space Station shot this image of the northern Gulf coast. (Credit: NASA)

Acronyms and Other Terms: UH-60 Blackhawk helicopter in Kandahar Province, Afghanistan. (Credit: Sgt. Daniel Schroeder, U.S. Army)

Glossary: SpaceX Dragon Resupplying the International Space Station. (Credit: NASA)

Appendix: Bell Helicopter 412EP. (Credit: Bell Helicopter)

About the Authors: Air Force Hunter-killer MQ-9 Reaper UAV in Afghanistan. (Credit: U.S. Air Force)

Acknowledgements: The Ticonderoga-class guided-missile cruiser USS Cowpens (CG 63) fires Standard Missiles (SM) 2 at an airborne drone during a live-fire weapons shoot. (Credit: U.S. Navy)

Photo courtesy of Northrop Grumm

an Corporation

3rd

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nAerospace Industry Report

Facts, Figures & Outlook for the Aviation and Aerospace

Manufacturing Industry

Published by the Aerospace Industries Association of America and the Center of Aviation & Aerospace Leadership

at Embry-Riddle Aeronautical University–Worldwide

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Facts, Figures & O

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