WASHINGTON — The aerospace industrial base is healthy but entering a transitional period, a panel of experts said Monday at the Air Force Association Air and Space Conference.
Richard Aboulafia, an analyst with the Teal Group; Jim McAleese, consultant and founder of McAleese associates; and David Melcher, president and CEO of the Aerospace Industries Association discussed the coming paradigm shift as the US country transforms from an aviation nation to an aerospace nation.
On the positive side, total output by the US aircraft industry totaled $96.9 billion in 2014, which accounted for 54.3 percent of production worldwide, Aboulafia said. But in the coming years, the landscape will be transformed by the retirement of numerous aircraft platforms.
"If you look at production programs in the US aircraft industry, man there is a lot scheduled to die over the next couple of years," including the C-130J, the longest lived aircraft in US military history, he said. During that time, the F-35 takes up the lion’s share of the military aircraft budget before the T-X trainer and Long-Range Strike Bomber LRS-B come online.
It will be a big challenge for both the US military and the industrial base to develop more capabilities with fewer platforms, he said.
During the Reagan administration, the US produced almost 400 tactical combat aircraft a year, but that number is currently closer to 75.
"From a national security standpoint, we are coasting on a legacy fleet of F-15s, F-16s, FA-18s and whatever else. They're aging, they're still being used constantly, and there really isn't enough cash to recapitalize them," he said.
Melcher noted that while the Murray-Ryan budget agreement gave the defense industry a respite from years of declining defense budgets, there does not appear to be a Murray-Ryan 2.0 on the horizon.
"That dialog doesn't seem to be happening," he said of the current Congress. "If we're facing another long term [continuing resolution], we have all these programs that were talked about as being important to produce capabilities and effects [that] are not resourced; that's going to be a problem for us."
McAleese said the industrial base would be reshaped by mergers, acquisitions and spinoffs, particularly in the professional services sector. Companies will be opportunistic, as Lockheed Martin was in its $8 billion bid to buy Sikorsky Aircraft earlier this year, he said.
All three panelists agreed that consolidation was inevitable, as tight defense budgets will support only a limited number of defense companies.
The decision on the Long Range Strike Bomber contract, expected in the coming weeks between competing teams from Boeing/Lockheed Martin and Northrop Grumman, will have "tectonic consequences," said Aboulafia. However, there is no evidence that decision makers will give the losing team preferential consideration for the T-X contract, he said.