Industry Trends: Space Vehicle and Missile Manufacturing
By Agiimaa Kruchkin
and Brandon Ruiz
Santa Monica, CA
The effects of the Budget Control Act of 2011, widely known as sequestration, have noticeably changed the landscape of the aerospace and defense industries. Between 2013 and 2021, sequestration is expected to cut about $1.1 trillion in total government spending, while an estimated $42.7 billion will be cut from defense spending in 2013. Many defense-related industries are already in decline due to the US military winding down exposure in conflict zones such as Afghanistan and Iraq, and the automatic budget cuts will only further weaken these industries. Additionally, revenue is expected to drop for industries that are heavily subsidized by the US government, such as the aerospace industry; however, not all defense-related industries will suffer. For example, sequestration will only have limited effects on industries supported by consumer spending, such as the Gun and Ammunition Manufacturing industry.
US Government Drives Demand
The US government’s spending on defense and space exploration drives demand for the diverse product offerings of the Space Vehicle & Missile Manufacturing industry. In the five years to 2013, defense spending and the wars in Afghanistan and Iraq created the mounting demand for guided missiles, both domestically and overseas (i.e., among allied forces). Consequently, in 2013, more than 91.0% of all industry sales are expected to come from the government. This share of revenue has grown from 86.8% in 2008, indicating that private businesses have significantly cut back on investments into this industry due to recession.
Under the Status of Forces Agreement signed by Iraq and the United States during the Bush administration, all US troops were expected to leave Iraq by December 31, 2011. Before this time, the culmination of major projects in 2010 and 2011, combined with an end to most US military activity in the Middle East, resulted in industry revenue declines of 4.1% and 2.5%, respectively. Despite the fact that the final withdrawal of US forces from Iraq took place on December 16, 2011, continued conflict in the region will benefit the industry in the five years, to 2018.
During this time, the global economic downturn hampered private investment in space vehicles. Commercial customers typically approach industry operators for spacecraft so they can engage in private satellite launches; however, the global financial crisis and the US recession deterred this source of investment.
Another deterrent to industry success has been the US Department of Defenses’ (DoD) budget cuts, which started in 2011. During this period, federal funding for defense is estimated to decline marginally at an annualized rate of 0.2% to $660.0 billion. Similarly, the Missile Defense Agency (MDA) has suffered from slowly receding funding in the past five years; in 2013, the MDA’s budget is expected to total $8.3 billion, down from $8.7 billion in 2008. Because of these factors, in the five years to 2018, revenue for the Space Vehicle and Missile Manufacturing industry is expected to fall at an annualized rate of 1.2% to total $21.3 billion.
The Future is in the Stars
The performance of the Space Vehicle and Missile Manufacturing industry during the five years to 2018 depends on future federal defense funding, appropriations for the NASA budget and the intensity of world armed conflicts. The number of satellite launches and the development of space tourism will also influence industry performance. During this period, IBISWorld expects government spending on military-related equipment to ease, and growth in private investment is expected to aid the aerospace sector. However, given the global significance of engaging in an aerospace project or the possible emergence of new international conflicts, conditions in the industry will remain slightly unpredictable. Additionally, though sequestration will limit federal defense spending, many industry operators’ contracts are booked years in advance, so it will be a while before spending cuts take full effect. As a result, revenue for the Space Vehicle and Missile Manufacturing industry is expected to grow at an annualized rate of 1.9% to $23.5 billion in the five years to 2018.
The industry’s shift to private investment is already underway. The market for suborbital space travel has already started generating revenue even though the first commercial suborbital tourist flight has not taken place. More than 500 people have placed deposits with Sir Richard Branson’s Virgin Galactic for future suborbital flights. Virgin is currently undergoing extensive test phases before it begins commercial flights. Furthermore, a study by Futron Corp. projects a total suborbital launch of 852 flights through 2020, which signifies the amount of private investment taking place in this sector. Therefore, in the five years to 2018, the industry’s performance will be aided by the expected influx of private investment, which will hedge operators against the challenges from sequestration-induced budget cuts. ✈
This article was first published in the 2013 edition of the Aerospace & Defense Manufacturing Yearbook. Click here for PDF.
Published Date : 11/21/2013