Bailouts Could Dampen Growth in Aerospace Industry

Federal spending in other areas expected to impact aerospace and defense budget

Federal economic stimulus spending and declining military action in Iraq are expected to slow growth for the U.S. aerospace and defense industry in the coming years, according to a Deloitte Touche study released earlier this week.

While defense spending climbed more than 60% during the Bush administration and will total at least $612.5 billion in 2009, Deloitte projects Department of Defense budgets will, at best, flatten as soon as 2010.

Despite the expected spending decreases, U.S. defense contractors' financial performance should fare better that of their European counterparts in 2009 because of foreign exchange differentials, program delivery challenges and European job protection policies.

Revenues in the large commercial aircraft sector will primarily come from Asia Pacific Japan and the Middle East instead of the United States because of the current economic climate. In the next two decades, Boeing forecasts delivery of 29,400 new commercial aircraft worth $3.2 trillion. But in the short term airline companies worldwide will continue to see declines related to the global economic recession, fuel price fluctuations and the difficulty in raising ticket prices, which could impact airplane and engine purchase orders in 2009.

Major commercial aircraft manufacturers are somewhat buffered with solid multiyear backlogs, including 2009 deliveries on the order of 900 large commercial airplanes.

Business aircraft production could decline by as much as half because of short-term customer financing challenges for some jet orders.

The Deloitte study concludes there are five key challenges the U.S. aerospace and defense industry will continue to face in the coming years. They include reducing technical complexity of software-based technology, a lack of skilled workers, manufacturing delays related to increased supplier outsourcing, federal budget cuts and program management challenges such as cost overruns.

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