Aerospace and Defense: Dynamic Analyst
When President Eisenhower left office he warned against letting a "military-industrial complex" dominate the nation's economy. It was almost 30 years before the sledgehammers flew, the Berlin Wall crumbled, and the pretext for defense-industry domination vanished in the dust. But the industry is still key to national defense, which grants it immunity from many of the criticisms, and free-market forces, to which other industries are subject.
The defense industry, including aerospace, is huge and complex. It serves both military and commercial markets. It designs, manufactures, and services everything from commercial planes to jet fighters to single-prop private planes and traffic helicopters, from the space shuttle to mission control software, from radar systems to rocket-guidance systems, from missiles and submarines to aircraft carriers.
Its vast array of products includes tanks, spy satellites, flight simulators, munitions, commercial and private jets, communications satellites, consumer electronics, and (job seekers take note) countless small parts, components, and subsystems. The industry comprises not only the big employers (Boeing, Lockheed Martin, and Raytheon are the big three in aerospace), but also thousands of smaller suppliers—makers of everything from airplane cabinetry to high-tech materials to specialized machine tools for cutting silent submarine propellers.
Today, the industry is significantly smaller than it was in its heyday—and that translates to more competition for fewer jobs. But make no mistake about it: The aerospace and defense industry remains immense.
The Peace Dividend
The fall of Communism in 1989 removed the major pretext for bloated defense spending, and more moderate defense spending became inevitable with the political mandate for a balanced budget. The industry responded by diversifying into new commercial markets—often using technology originally developed for aerospace and defense purposes. Hughes, for example, used satellite technology to develop DirecTV, while AlliedSignal used satellite technology to develop commercial applications of global positioning system (GPS) technology.
Private business planes began rolling off the assembly lines in record numbers. National defense labs like Lawrence Livermore and Sandia started research projects on civilian uses for defense technologies. As a result, the defense department is funding a dramatically smaller percentage of U.S. research and development, and a much larger portion consists of civilian, commercial projects that are being funded by other government agencies or by the private sector.
At about the same time that Communism fell, the U.S. economy was wracked by recession, and foreign companies began mounting big-time competition to American firms like Boeing and Lockheed. In response, the American aerospace and defense industry began cutting costs, slashing the industry workforce and consolidating left and right. (Among those to join forces: Northrop with Grumman, Lockheed with Martin Marietta, Boeing with McDonnell Douglas, General Dynamics with National Steel and Shipbuilding Company, and Litton with Avondale, a deal-in-progress as of late 1999.) Many smaller suppliers are opting out of the defense business, complaining about red tape and conflicts over intellectual property rights. However, the Defense Department gets anxious at the prospect of a single supplier for important weapon systems, and it has blocked some industry mergers, such as Lockheed Martin's proposed acquisition of Northrop Grumman in 1998 and General Dynamics' plan to merge with Newport News Shipbuilding in 1999.
Waiting For Recovery
One response to the recession of the early '90s was to boost sales of defense products to foreign governments, and the strategy was working until the Asian economic crisis of 1998. Far Eastern governments cancelled or delayed orders for military equipment and weapon systems, and airlines did the same for commercial jets. In response, the industry has laid off more workers.
How It Breaks Down
Commercial Aircraft and General Aviation
This market segment makes airplanes and helicopters and the parts they're composed of. The big daddy here is Boeing, maker of the 747 and other commercial jet planes, and employer of numerous college and advanced-degree graduates, experienced industry people, and summer interns. Only Europe's Airbus Industrie challenges Boeing in sales of large passenger jets. Other members of the commercial aircraft and general aviation segment include corporate-jet manufacturers such as Gulfstream Aerospace and Bombardier, the Canadian company that makes Lear jets; industry giant Textron's subsidiary Cessna; and helicopter makers such as Bell, also a subsidiary of Textron.
These are the makers of our military's birds of prey, such as the F-15 Eagle jet fighter, made by Boeing; the F-16 Falcon and the F-117 stealth fighter, both made by Lockheed Martin; and bombers such as Northrop Grumman's B-2 stealth bomber. Also included here are makers of other military aircraft, such as transport planes and attack and transport helicopters.
Missiles and Space
The big players here depend on U.S. and foreign-government spending for the bulk of their revenues. Powerhouses in this segment include Raytheon, which makes missiles including the Sidewinder, the Stinger, the Maverick, and the Tomahawk; Lockheed Martin, maker of the Trident II missile and provider of management services for NASA operations; and Boeing, the primary contractor for the NASA space shuttle and international space station programs. As more and more satellites soar into orbit, launching has become another big part of this segment; France's Arianespace is the world leader here.
These are the makers of the tanks and transport vehicles purchased by the military. Perhaps the most important member of this group is General Dynamics, maker of the M1 Abrams tank and other armored vehicles.
Satellites, Electronics, and Communications
In all likelihood, this is the segment of the future for the aerospace and defense industry. Non-military, commercial demand is sure to grow in this segment as countries around the world become more technologically intertwined. More and more, individuals and companies are dependent on satellite-based technologies for everything from communications to accurate weather forecasts to automobile-dashboard global positioning systems. This segment also includes technologies like infrared, radar, and sonar, as well as avionics (electronics used in planes and helicopters for all sorts of purposes), missile guidance-and-control systems, and information systems (for example, mission control in Houston and aircraft-modeling systems at Boeing). Big players in satellites, electronics, and communications include Litton, Raytheon, and Honeywell.
The role of this market segment is to build and maintain seagoing vessels, including surface ships like destroyers and aircraft carriers as well as submarines. Included in this group are Newport News Shipbuilding (the sole maker of U.S. nuclear aircraft carriers), Avondale Industries, General Dynamics (maker of nuclear submarines, among other things), and Litton Industries (maker of the Aegis destroyer).