Column: Defense spending increase helps Michigan
Last year was considered by some to be less-than-stellar for commercial aerospace and defense, but both sectors are projecting healthier growth this year. In fact, total world spending in the commercial aerospace and defense industries will continue to rise in the foreseeable future, thanks in large part to an increased demand for passenger air travel and cargo delivery and escalating tensions in some of the world’s toughest neighborhoods.
The upsurge in defense spending will be a boon to the more than 3,300 local companies that support the industry, which currently employs 94,000 workers with an average annual income of more than $91,000, according to the Detroit Regional Chamber.
In the aerospace industry, Moody’s Investor Service projects a 7 percent gain in commercial aviation sales in 2017. Along with easy credit terms and growing air traffic, the drop in fuel costs will continue to stimulate airline profits while boosting orders for additional planes. According to the Economist, however, this could be a mixed blessing for aircraft manufacturers since it also reduces the need for fuel-efficient models that manufacturers have so heavily invested in during recent years. Much of the shift in product demand can be attributed to new Asian airline upstarts that favor narrow-bodied jets rather than the wider ones — good news for Airbus A320 “neos” but not so great for Boeing’s 737 MAX’s.
Despite this, it is hardly a zero-sum proposition for these two competitors given the industry’s overall growth projections. Case in point: IHS Aerospace, Defense & Security points to a strong backlog of new orders for passenger and cargo jets that will exceed $317 billion in sales by 2018, almost double that of 2013. To be sure, Boeing’s current orders of 5,800 planes along with Airbus’ pipeline of 6,400 jets ensures that their respective supply chains will remain occupied for the next decade or so.
As for defense, worldwide military spending in 2017 should increase from last year’s $1.57 trillion by 3.2 percent, to $1.89 trillion. Predictably leading the pack is the U.S., with budget outlays slightly north of $635 billion, assuming the Trump Administration’s request to eliminate the sequestration and increase appropriations for more jet fighters, navy ships and enhanced battlefield readiness is approved by a recalcitrant Congress. In addition to the U.S., the other top-five spending nations are a distant China ($211 billion), India ($57 billion), U.K. ($54 billion) and Saudi Arabia ($47 billion).
Noticeably absent from the list this year — and, for that matter, last year — is Russia. Kremlin planners have been stung by Western economic sanctions imposed in response to their foray into neighboring Ukraine. Moreover, world oil and gas prices, which constitute Moscow’s number one export and foreign currency earner, have spiraled precipitously downward in the last five years.
Broadly speaking, most of the defense spending outside the U.S. will be concentrated in the usual trouble spots in the Middle East (e.g., Oman, Saudi Arabia and the U.A.E.) in response to threats posed by Iran, ISIS, and the simmering civil war in Syria; Southeast Asia (Japan, South Korea, Philippines, and Vietnam) to restrain Beijing’s adventurism in the East and South China Seas; and India, which is long overdue for a next-gen modernization of its dated weapon systems. But make no mistake: the Pentagon still outspends the next nine top-spending nations combined, constituting almost 40 percent of total global defense spending.
Growth in the aerospace and defense sectors is also significant because these industries are at the forefront of innovation and technological development, which cross-pollinate into other previously disparate sectors of our economy. Indeed, our nation’s future success depends on this spillover effect and wide-scale adoption of high-tech manufacturing processes practiced by aviation and defense to ensure our nation’s global competitiveness in 2017 and beyond.
Noel Nevshehir is the director of international business services at Automation Alley.