Aviation manufacturers should pay attention to product offering and customer base as defense spending is reduced.
To meet the 2011 Budget Control Act the Defense Department is going reduce future expenditures by $487 billion over the next 10 years. Aircraft component and system manufacturers would be wise to and rebalance their aviation marketing efforts by reviewing internal and external resources and planning for new customer acquisition.
In January 2012 the defense department published, “Defense Budget Priorities and Choices.” This document laid out the Defense Departments strategic guidance for budget reduction as required by the 2011 Budget Control Act.
Total U.S. defense spending, including base funding and war cost, will drop 22% from its peak in 2010.
The defense department is adopting a balanced approach to comply with the budget reduction focusing in three areas:
- More disciplined use of defense dollars
- Strategically driven shifts in force structure and modernization
- Reducing employee cost of the all-volunteer force
Aircraft component and systems manufactures should pay attention to several programs:
Reduction in airlift capacity – plans are to retire 27 aging C-5As, 65 of the oldest C-130s, and divesting 30 C-27s. These efforts will streamline and standardize the airlift fleet, reducing the number of aircraft types and eliminating the need to operate, sustain, and maintain excess component inventory.
Missile defense – reduced spending in deployable regional missile defense with increased reliance allies and partners for future operations.
Joint Strike Fighter – slower procurement due to schedule, cost, and performance issues.
Army aviation – delayed helicopter modernization by 3 to 5 years
Aviation component and system manufacturers with Defense Department contracts have been spared the misery of their general aviation counterparts. Worldwide shipments of general aviation aircraft have dropped from a peak of 4,272 in 2007 to 1,932 in 2011.
Now, firms tied to the Defense Department are challenged with strategic business decisions. These may include:
- Scale back employees, benefits and compensation
- Close manufacturing facilities and reduce real estate holdings
- Consolidate with another aviation manufacturer
- Seek new customers outside of the U.S. Defense Department
- Innovate existing products for adoption in new markets
These manufacturers would be wise to and rebalance their aviation marketing efforts by reviewing internal and external resources and planning for new customer acquisition.