The U.S. Aerospace & Defense (A&D) industry is the world leader in the design, development and manufacture of technologically advanced aircraft, space systems and defense capabilities. Since the Wright Brothers’ first powered flight in 1903, the aerospace industry has grown by leaps and bounds and produced iconic achievements such as landing a man on the Moon, transforming modern transportation and generating technological spinoffs that have served as the foundation for modern computers, telecommunications and medicine.
The aerospace and defense (A&D) industry is critical to our nation’s well-being, providing major contributions to our economic prosperity, national defense and homeland security, education, and quality of life. Indeed, the A&D industry is one of the largest contributors of employment, earnings and wages to the nation’s economic baseline, and represents one of the last pillars of U.S. manufacturing strength.
Looking back on the world before COVID-19, the A&D industry maintained its decade-long growth trend. With increases in nearly every metric and an economic footprint that represented 1.8% of total U.S. Gross Domestic Product (GDP), 2019 could be considered one of the best on record for our industry.
As 2019 drew to a close, the A&D industry posted strong annual growth with combined industry sales revenue amounting to $909 billion, – a 6.7% increase from 2018 industry output. Of these sales, $399 billion was attributed to our extensive, shared supply chain that supports both our aerospace and defense sectors. The companies making up our industry’s supply chain provide vital products for end use manufacturers,
such as bolts, wiring, hoses, and electronics. The total industry sales revenue left a significant footprint on the American economy, contributing to a combined economic value of $396 billion that represented 1.8% of total U.S. GDP.
Our workforce, the cornerstone on which our industry’s success has been built, grew by 4.8% At nearly 2.2 million strong in 2019, A&D workers represented 1.4% of America’s total workforce. This was a nearly five percent increase in the total industry workforce from 2018. The average wages and benefits boosted 46% higher than the national average.
These high wages were supported by a 6.8% increase in industry sales revenue, which formed a combined contribution of $63.6 billion to federal, state, and local tax coffers. These figures, once again, underscore our industry’s vital role in the American economy, writes Aerospace Industries Association (AIA). The industry’s workforce is highly skilled and leads our nation in global competitiveness, providing current and future opportunities for young people to have high-paying careers that will keep the industry strong for the future while advancing our national and economic security. The A&D industry can be found in every state of the nation. The top states with the highest numbers of industry employees are California, Washington, Texas, Florida, Arizona, Connecticut, and Virginia.
Commercial & General Aviation
The commercial and general aviation aircraft segment is composed of private companies that design, manufacture and service commercial aircraft, business jets, helicopters, personal aircraft, unmanned aerial vehicles, and their subsystems and components, such as engines, flight controls, avionics, parts, and raw materials. In sum, commercial and general aviation aircraft manufacturing is the largest sub-segment of the A&D industry and is characterized by a supply chain comprised of over twenty thousand supplier companies – most of which are small and medium sized businesses.
Directly related to the design and production of civil aircraft, the military aircraft segment is defined by the manufacture of combat and non-combat aircraft and related systems including transports, fighter aircraft, patrol aircraft, bombers, helicopters, unmanned aerial systems, and other platforms. This sector also includes the design and manufacture of specialized avionics, radars, engines, guidance-and-control systems, reconnaissance and surveillance systems, and navigation systems.
Owing its heritage to the early research and technological development conducted by Robert Goddard in the 1920s and by the Defense Department and NASA in the 1950s, the space industry today has emerged as a critical pillar of the nation’s security and driver of the modern economy. Presently, the domestic space industry is defined by the design, manufacture and operation of space launch vehicles, satellites, spacecraft and ground systems for both the commercial and government end-use markets.
The U.S. military relies on an array of ground-based platforms and systems designed to address the rigorous needs of the U.S warfighter and the nation’s armed forces. This segment includes the manufacture of tanks, tactical vehicles, transports and related platforms and systems such as communications, computers and electronics. The ground defense segment also includes the manufacture of armaments, ordinance, small and light arms, and related components and supplies.
The shipbuilding segment of the U.S. A&D industry is composed of a handful of companies that manufacture and service the nation’s military seagoing vessels, including submarines, destroyers, aircraft carriers, cruisers, cutters, transports and amphibious assault and transport ships. The industry traces its formal beginnings in America when Henry Knox, the first U.S. Secretary of War, commissioned six naval frigates for the U.S. Navy in 1794.
The aerospace and defense industry is dominated by the trifecta of Boeing, Airbus, and Lockheed Martin. The big 3 are responsible for the majority of the business or contracts aerospace and defense OEMs get which leads to fierce competition and industry rivalry.
The US aerospace industrial base cannot meet emerging the Air Force’s or the wider military’s needs for rapid innovation to stay ahead of peer competitors, the Mitchell Institute says. “What we found was that the structure and business models of today’s aerospace defense industrial base is not configured to invent, develop or deliver the force, the future needs, and certainly not at the pace that a technological peer adversary will demand,” Heather Penney, senior resident fellow at Mitchell, said today. “Time is the new offset; adaptation is our new advantage,” said Dave Deptula, the institute’s dean, in May 2021.
The aerospace industrial base just isn’t capable of delivering those new capabilities fast enough because it has not been incentivized by the Air Force or DoD to do so, he explained. To change that, Deptula said, the service needs to overhaul how it develops and buys weapon systems as fast as possible — without waiting for overarching DoD policy reforms to kick start its internal efforts.
“To field advanced capabilities at the speed that our warfighters need, the defense industry needs to expand and business models must shift away from sustaining the past toward developing the future, he said. “The Air Force doesn’t have to wait on acquisition reforms, or other policies to make this happen. It can change his procurement paradigms to accelerate its own transformation and rejuvenate the aerospace industry.”
The report, Building an Agile Force: The Imperative for Speed and Adaptation in the U.S. Aerospace Industrial Base, cites three critical industrial base problems that the Air Force must address if it is to meet the goals of Chief of Staff Gen. CQ Brown’s “Accelerate Change or Lose” strategy.
Lack of competition among today’s few, vertically integrated mega-corporations, resulting from a paucity of development opportunities. The report notes that in the 1950s there were 19 companies building fighter aircraft; now there are two. A shift in defense sector skill sets from those needed to innovate to those focused on integration. This focus “limits innovation,” because it is tied to legacy platforms and thus creates a “barrier to advancing capability.” “Sustainment as a primary profit center disincentivizes innovation and new designs.”
In 2020, Industry faced an unprecedented challenge: the COVID-19 pandemic. Global air traffic has dramatically decreased as the world fights this deadly virus. A&D sector and consequently impact the nation through Enormous revenue losses, Large-scale unemployment of a significant portion of the industry’s skilled workers, Erosion of military capabilities relative to adversaries, and Breakdown of essential supply chains that cannot be easily reestablished. Civil aerospace, which accounts for 61% of US industry, has been particularly hard hit, with the impact likely felt for years to come.
As end-use civil aviation manufacturers face decreasing passenger demand, the industry’s shared supply chain will also see substantial impacts. In addition to a reduction in airframe production and its associated supply-chain components, the significant reduction in passenger mileage may result in an excess of aftermarket parts. These factors will pose a serious barrier to the recovery of the industry’s
Both the civil and defense sectors depend on the same shared supply chain, and as a result, the defense industry is unlikely to be spared as its’ suppliers face disruptions in their civil manufacturing consumer base. In addition to further supply-chain disruptions, the defense sector will likely be challenged by fiscal pressures from reduced tax receipts during the recession, heightened competition among federal priorities, and growing concern about deficit spending
Reports peg the Pentagon’s share of the overall defense budget in the range of $704-$708 billion. That’s in line with the $705 billion the department received as part of the fiscal year 2021, but department officials have claimed anything less than 3-5 percent growth annually amounts to a cut due to inflation.
The national budget deficit has multiplied as a result of the stimulus packages that seek to save the economy. Downward budgetary pressure
on federal agencies on which the A&D industry depends, such as the DoD and NASA, could occur in the out years. This will adversely affect the industry and academia, the latter due to possible long-term reductions in basic research tied to dependence on funding from the same agencies as industry.
According to senior executives at manufacturing and service companies that support the U.S. military, additional DOD budget cuts projected over the next decade could cripple certain defense sectors, resulting in an industrial base that is smaller, less innovative, and less responsive to urgent wartime needs. The impact would not just be felt by the large prime contractors but felt more deeply by the lower-tier subcontractors who tend to be smaller and less diversified.
Impacts of major cuts would most likely include:
• Forcing firms to close production lines and lay off skilled full-time workers – beyond the thousands already let go in the wake of previous budget cuts and program cancellations –specialized manufacturing capacity and human capital that cannot be regenerated without great
cost and significant time.
• Reducing or eliminating investments in capabilities beyond those needed to meet existing contracts;
• Making defense companies and business units – manufacturing and service, up and down the supply chain – more likely to exit the sector altogether, consolidate further, be divested by their parent corporation or, in the case of smaller companies, either be acquired or just go out of business.
Likewise, future U.S. space operational capabilities face industrial base challenges, both from reduced production capability and from loss of supporting human expertise.
Another challenge is maintaining legacy systems. Though the U.S. spends three times more on defense than any other country, its technological edge is eroding — due in part to the cost of maintaining aging weapons programs. The share of military spending devoted to operations and maintenance — a major profit source for the defense industry — is 42%, compared to 28% at the height of the Cold War, while weapons procurement has fallen from 30% to 19%. In real dollars, U.S. investments in defense research and development are nearly 40% lower than a decade ago. The disproportionate spending on legacy systems is driven by how long it takes to develop, test and deploy them.
The “life cycles” of contracts for major programs, such as the F-35 Joint Strike Fighter, can stretch for decades, forcing the military to sink money into keeping existing programs in operation, rather than investing in new ones. The cost of the Pentagon’s 93 major defense acquisition programs (MDAPs) totals $1.8 trillion, which is $628 billion larger than was projected when the programs began. As a result, the U.S. is spending more than ever on a dwindling number of dated weapons systems.
Nearly 75% of the Air Force’s fleet is at least 20 years old, for instance. According to a 2020 report by the congressional Future of Defense Task Force, legacy programs will account for 70% of the military’s capabilities by 2030, even though many of those systems “lack the lethality and survivability to be effective in the future.”
Developing a Sustainable Supply Chain
The requests for metal parts by OEMs and Tier-1 suppliers have been met with delays from local shops that don’t have the capacity to meet increasing demand. Therefore, aerospace and defense OEMs must search for alternative suppliers and routes to meet customer demand.
The time it takes for materials to get to specific warehousing facilities or the shop floor determines how quickly orders can be fulfilled. An inadequate internal supply chain management strategy within the shop floor can also lead to delays and downtime. Today, the ongoing digital transformation provides the tools needed to capture supply chain data while IoT platforms have the computing resources needed to receive insight from supply chain data.
Government Regulations and Environmentally-friendly Policies
The need for controlled emission rates during manufacturing processes and the demand for more efficient engines and propulsion equipment are factors that must be considered when manufacturing equipment for the aerospace and defense industry. It’s imperative that aerospace and defense OEMs design innovative equipment that supports the drive to reduce emission rates from the factory floor and the engines used within the industry.
To develop sustainable operational strategies and to improve the efficiency of manufacturing equipment on the shop floor, there needs to be an understanding of how operators use this machinery. This is where IIoT solutions and their ability to track machine utilization, throughput, and emission rates come into play. The captured data and insight from monitoring deployed equipment will then provide the information needed to develop equipment that meets specified government regulations.
Implementing Digital Transformation Strategies
Aerospace and defense OEMs that understand the value of implementing digital transformation initiatives to optimize factory floor processes still struggle with extracting data from the shop floor and then putting it to use. Challenges with data extraction include the age of communication components on legacy machines and difficulties with developing interconnected environments.
IIoT solutions such as smart hardware ease the data collection process while IIoT platforms provide an environment for extensive data analysis to receive insight into factory floor processes.
On July 21, 2017, President Trump issued Executive Order (EO) 13806, Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States. The Executive Order required an interagency assessment of the manufacturing and defense industrial base and their supply chains with considerations of the following nature: single sources of supply, workforce skill gaps, and access to goods and raw materials critical to national security.
There are also a variety of potential steps that can be taken to support the entire aerospace and defense industry, including Sustained investment in research and development (R&D), which would fuel the innovation that is the foundation of A&D and help the industry meet the growing demands of the Great Power Completion; and Ensuring a robust talent pipeline in STEM and critical trades, building the 21st
century workforce that will be crucial to turning innovative research into reality.
› Ensuring the health of the A&D supply chain, which also supports other key industries.
› Transitioning the global space economy to a sustained and expanding enterprise. NASA, the new Space Force, and U.S. industries would
lead this new enterprise, including access to and return from space, and in-space operations around Earth, in cislunar space, to the moon,
and ultimately to Mars.
› Addressing the ongoing shift of national security threats from force projection toward management of digital disruptions and cyberattacks. These evolving threats affect public and private systems in all domains. Domestic A&D organizations will necessarily be at the
heart of the DoD’s reliance on U.S.-developed technologies to address this urgent need.
› Investing in foundational experimental and computational capabilities for research that will drive the United States to preeminence in
global science and technology will be required to counter increasing threats from adversaries and to strengthen national product sourcing
› Stabilizing and growing alliances and exchanges with current and new international trade partners, while building on the U.S. A&D
industry’s in-place capabilities and already large positive trade balance.
› Maintaining predictable and sustainable budgets to assure timeliness and efficiency in realizing the above objectives.
The American Institute of Aeronautics and Astronautics believes that addressing the pandemic-derived issues is crucial to the continued
health of our industry, as well as the continued competitiveness, security, and growth of our nation.
AIA worked closely with the Department of Defense (DOD) throughout the assessment and provided the following recommendations:
Repeal the Budget Control Act (as amended) caps for defense spending.
Leverage smart procurement practices to increase DOD buying power and support industrial base health.
Support long-term research and development and infrastructure investments.
Reorient oversight and compliance practices from existing transactional approach to one that operates on a systemic basis.
Streamlining acquisition process by tailoring oversight requirements to risk.
Exempt statutory acquisition reforms from EO 13771.
Establish overarching DOD strategy for intellectual property.
Support and protect industry independent research & development efforts.
Unleash industry investment through contract financing.
Promote mechanisms for government-industry communication throughout the lifecycle.
Implement a National Security Cooperation Strategy.
Monitor and address the impact of commercial trade agreements and policies on the defense industrial base.
Enhanced government and industry support of STEM education.
Incorporate workforce considerations into acquisition strategies and contracting decisions.
Ensure sufficient and separate funding for the Office of Personnel Management and the Defense Security Serivce.
Modernize the security clearance process.