After a slight decline in 2013, U.S. aerospace sales are expected to increase in 2014 and 2015, driven mainly by the commercial aircraft sector this year and a combination of the commercial and military sectors next year, the Aerospace Industries Association (AIA) predicts in their annual year-end forecast.
Sales related to military aircraft, missiles and space products are seen increasing less than 2 percent this year to $121.2 billion, driving by solid gains in space systems, which will more than offset a decline in missiles, AIA said.
A year ago, AIA had predicted that aerospace sales in 2014 would reach $232.1 billion.
Although spending by the Defense Department is down, it is partially being offset by defense exports, which are estimated to jump more than 9 percent in 2014, AIA said. The forecast said that foreign buyers will continue to be a key focal point for U.S. firms but international growth won’t offset cuts in domestic defense spending.
Aerospace profits this year are expected to hit $25.5 billion, up nearly 15 percent from 2013, while margins are 9.3 percent versus 8.1 percent a year ago, demonstrating strong performance overall.
In 2015, AIA estimates that aerospace sales will rise more than 5 percent to $240.4 billion, driven by a combination of military aerospace and commercial aircraft growth. Sales for civil aircraft are projected to increase 6 percent to $79.8 billion in 2015 while revenue from military aircraft, missiles and space systems is forecast to rise 5 percent to $127 billion, AIA said.
If Congress can’t find a way to prevent another budget sequestration, which hindered federal spending toward the end of 2013 and early 2014, there will be major reductions in defense programs that will cost industry more than $86 billion in procurement, research and development cuts in the 2016 to 2019 period, AIA warned.
Despite the top line gains across the aerospace industry, AIA’s year-end review said that defense budget cuts “are adversely stifling innovation, resulting in significant layoffs of the industry’s highly skilled workforce and ultimately will hinder our global competitiveness.”
Marion Blakey, president and CEO of AIA, said Wednesday that AIA’s message is that “elected leaders must address the need for the U.S. to maintain our military superiority and keep ahead of technology development curves.”
AIA said the “brunt” of the budget cuts is being borne by smaller companies that are being challenged to remain “viable” while large companies have reacted by diversifying and downsizing.
If the government doesn’t grant relief from further spending cuts, “companies in the defense industrial base will continue to downsize or be forced out of the defense business altogether,” the report warned.
Blakey said that the aerospace industry “came out very well” in the recently approved Omnibus appropriations that funds most of the federal government through FY ’15.
Aerospace exports remain a strong point for the U.S. economy, up $8.1 billion in 2014 while the balance of trade in aerospace products is a positive $61.2 billion this year, AIA said.
This is the best aerospace trade balance in U.S. history, Blakey said at AIA’s luncheon to reveal its annual forecast.
Exports of commercial aircraft and related systems and equipment like engines account for 88 percent of aerospace exports, the report said. An “unprecedented” backlog of commercial aircraft orders is expected to continue to boost aerospace exports over the next few years, it added.
AIA also released the results of a poll conducted on its behalf by Harris Poll that shows a vast majority of registered voters favor increased spending on U.S. national security. The results show 83 percent of Republicans, 63 percent of Independents and 60 percent of Democrats favor higher security spending.
The same number of registered voters, 69 percent, also say they would be more likely to support a political candidate that favors increasing spending on national security.