Parting ways: The aerospace and Defense Industry

The aerospace and defense industry comprises firms that produce products for the purpose of defense of a country. Such products include the likes of aircraft, weapons, watercraft, spacecraft, and intelligence information systems. Federal governments are the major customers of these products.

The industry constitutes of a small number of big firms, who ha e the power to influence the market forces. Therefore, the firms operate in an oligopolistic market, with companies such as Boeing, United Technologies, Lockheed Martin, and Honeywell being a few industrial leaders.

When it comes to analyzing the aerospace and defense industry, one has to focus separately on its two components (that are aerospace and defense), before a conclusion can be arrived at for the general industry. To begin, trends in the aerospace industry suggest that this component will see an increase in its revenues. Countries such as India, China and the Middle East are continuously experiencing wealth accumulation. Such wealth leads to an increase in demand for business and leisure travel. Even the amount of freight to be transported increases. A burgeoning use of airplanes for travel has driven up the revenues of many aerospace industries, and their future stock performances look increasingly promising. The companies are now better able to devise lighter material with which to build aircrafts, and this has greatly enhanced efficiency and reduced costs. An example of such a company is that of Boeing. The company experienced a three percent increase in its revenues in H1 2013 as compared to the identical period in 2012. Boeing earned revenues of up to $40.7 billion in a period of 2013 alone. Then, there is the United Technologies Corporation. This company reported total revenue of $30,405 million, with its profits amounting up to a whopping $2826 million for just the first six months of the previous year. Such impressive profiles of aerospace companies speak highly of the rampant growth of the industry.

On the other hand, a declining trend is observed in the global defense spending. This is perhaps due to a decline in the number of conflicts all over the world; particularly the armed conflicts in Afghanistan, Iraq, and the Middle East that now cease to exist. Yet, countries that have just begun to experience wealth accumulation are steadfast on increasing their defense spending, and to arm their militaries with technologically modern warfare equipment. Such countries include the likes of Russia, China, and India. Nonetheless, such increases in defense spending by these countries are offset by a general worldwide reduction in defense spending. The decline was reported to be 1.3 percent in 2012. Back then, just two of the top twelve defense companies were fortunate enough to witness growth in their revenues. The general revenues for all the defense companies reduced by almost 1% in 2010, even though in 2009, the overall revenue had experienced a growth have over 4 percent. This is a clear demonstration of the government’s shift away from defense spending. In 2013, the decline was reported to be 2.5 percent. In this year, it is projected that the governments will continue to decrease spending on defense. The companies would continue to lose their customers, as a few other national priorities would spring up for the governments. The defense companies would therefore suffer from a reduction in revenues and profitability. The need to search for additional supplies of revenue will be high. There would be a great need to invest their existing profits elsewhere, most likely in possible growth areas in order to exercise sustainability. Moreover, techniques that curtail costs of the companies must be created. Such measure may include downsizing and decreasing overhead costs as the budgets of the governments face a downfall.

Overall, for the general aerospace and defense industry, the prospects are calculated to be bright. For this year, revenue growths are expected to be around 5 percent, just like in the previous couple of years. The increase in revenues can be attributed to the burgeoning revenues of the aerospace companies. Quite evidently, the revenues that these firms earn outweigh the deductions in revenues faced by the defense firms. The trend is expected to continue till the near future at least, or until a war breaks out and defense spending skyrockets. To keep updated about trends in the industry, please visit www.bidnessetc.com.