Aerospace & Defense – Strategic Investments
Although the acronym Aerospace & Defense may give one an impression of acronyms and long-term projects, it is nothing more than a label to identify those in charge of organizing the budgets for various branches of the military. This division is responsible for the budgets for the Air Force, Navy, Marine Corps, and Coast Guard. They also control other aspects of national defense such as intelligence, communications, nuclear proliferation, space, and other areas.
A good analogy for understanding the Air Force’s role in the overall US strategic military picture would be a value chain analysis. In this case, the value chain starts with the manufacturer where the final product is placed on the shelf and gets either shipped or flown off the shelves. From there it goes through several retailers until it reaches the customer. The chain continues in that each step of the way is vital to the ultimate goal which is a sale. Likewise, for the aerospace & defense community the key stakeholders are the service branches and the operational commanders.
One example would be the United States Army, which has its budget in the high five figures and continues to increase funds for the future. Its primary role is to protect the country from external threats so it spends large amounts on the development of new weapons systems. Its primary focus is on building and equipping its soldiers with the latest technology, armaments, and vehicles. Its secondary role is to train its airmen for future combat scenarios so it spends heavily on training and exercises. In essence, the Air Force has long been the largest user of federal funding for aerospace & defense.
Other than the military, the Department of Defense is another huge consumer of aerospace spending. For decades it has maintained a high level of spending despite declining support budgets. Much of this has been because of the “pentagon may get all the money, but how will they pay for an aircraft carrier, ships, and facilities?” question that has haunted every large-scale project in the United States since the beginning of the Cold War. The solution to this problem is to use the military aircraft carrier to transport heavy goods such as material and construction equipment across state lines if necessary, but also for humanitarian missions such as conducting passenger transportation to provide critical assistance to disaster areas.
Another key national buyer in the aerospace and defense market is the federal government. Although there are many arguments as to why the U.S. needs to maintain a large standing military force, the fact remains that many argue that it is overkill. Most agree that the bureaucracy cannot be reformed overnight and that any real improvement must come from the program management process. A key element in this process is the procurement strategy that is implemented by the various service branches, including the Air Force, Navy, and Marine Corps. One of the reasons why the U.S. civil aircraft fleet continues to decline is that the programs currently in place are not providing the needed value to support the aircraft carrier as a primary recruiter of personnel.
Program managers must consider whether or not the investments made today are able to support the U.S. Navy in the years to come as well as the long-term requirements of the U.S. military. Perhaps the biggest issue with the current program is the lack of a suitable replacement for the aging aircraft carrier USS Enterprise. Currently the Enterprise is the only operational naval vessel with a full complement of CVO’s (complementary combat vehicles). While the future look good for the Enterprise Replacement Program, the reality is that Congress may not be willing to invest the funds required into it to replace the class of ships that currently support the navy.
In addition to looking at buying programs based on their ability to replace existing systems, an enterprising investor should also consider what role military aircraft play in national security. Just as the Federal Aviation Administration needs to re-evaluate its regulations to allow civilian aircraft to fly from Incirlo Park, so too must the aerospace industry evaluate its role in national security. The commercialization of space flight may be just the answer to the question posed by Robert Kaplan in his best-seller State of the Air: “Is Commercial Space Transportation Potential?” Kaplan points out that if the federal government does re-examine its space flight regulations, it will likely reconsider the current rules requiring commercial airline carriers to provide non-military aircraft service to the military.
Aerospace & Defense funding isn’t going to come easy. Private investors can contribute to the defense budget, but only if the programs they back are designed to do what the United States needs and requires. The best defense programs depend on smart investments, which means using the money to buy the right tools and aircraft. Only then will America remain at the top of its game.