NSS Capitol Capsule

Vol. 5 No. 4
June, 2001

The Greying of America's Aerospace Industrial Base

After examining various space programs and budget problems at NASA, the Science Subcommittee on Space & Aeronautics stepped back to get a broad view of America's aerospace industrial base.

The past decade, the industry has undergone dramatic change.  To remain competitive,

chairman Dana Rohrabacher (R-A) said at Wednesday's hearing (5/15) the industry "must find ways to become more cost-driven and "first-to-market" focused."  He also advocated greater cooperation among "military, civil, and commercial technology development planning and investment."

To assess the health of America's aerospace industry, congress passed legislation last year to establish The Future of Aerospace commission. It will be examining issues, such as trade, tax, contract financing and education.

Following are highlights from the testimony:

John Douglass, President of Aerospace Industries Association

America's "aerospace industry has grown increasingly dependent on export sales for its growth and ability to develop new technologies," John Douglas said.  "From 1985 to 1999, exports grew from 29.1 percent to 41 percent of total U.S. aerospace sales."

During the same period, our nation's share of the global market declined from 72 percent to 52 percent.   From a peak of 144,800 aerospace scientists and engineers in 1987, the industry  declined to less than 77,000 in 1999.  The share of aerospace R&D dropped from about 20 percent in 1987 to six percent in 1998.

Douglas said the pace of global business is speeding up.  "Designers work on common electronic bases in real time, often in several companies and several countries."

But government agencies have not kept up with the changes.  "There are too many export licenses required and too many agencies involved in the review and administration of such licenses, and the process takes far too long," Douglas said.

As an example, he said it took three months for a company to obtain a license for 200 radiator hoses for Swiss M-113s.

General Thomas Moorman, USAF (Retired), Vice President, Booze Allen & Hamilton     

"US firms still hold technical and market leadership in spacecraft and satellite system integration," General Moorman said.  But the future is uncertain.

"With the end of the old War," he said, "defense spending has declined in real terms to levels that are approximately 40 percent lower than peak spending during the mid-1980s."

The space industry has  'significant production overcapacity," Moorman said. "The global market for launch vehicles currently operates at approximately 35 percent excess capacity."

"Excess capacity will grow over the next three years as Europe continues the transition to a new generation of larger Ariane launch vehicles and the US introduces the Evolved Expendable Launch Vehicle," he said.  "By the middle of the decade, worldwide launch capacity could be more than twice projected demand under a conservative scenario."

Moorman warned "human resources issues are the largest, long-term problem the industry faces."  "The industry faces significant operating risks resulting from the lack of key program management skills at the middle management level as well as lack of interest from college recruits because of the increasing perception of aerospace as a slow-moving industry."

"If the present trends continue," he predicted, "many space primes may lack the critical mass of talent required to design and integrate complex national security spacecraft."

Gayle White " chairman, Space committee, National Defense Industrial Association

"There is a clear need for more qualified, well educated employees to keep the aerospace industry strong in the face of growing technological change," Gayle White said.  "The workforce shortage has had, and will continue to have, a profound impact on the cost of doing business in our industry."

All technology-based industries are facing a shortage of workers skilled in math, science and engineering, she said.

"GAO indicated that NASA had identified 30 areas at the Kennedy Space enter that do not have enough staff to meet required backup coverage," White said.  "This workforce shortage has forced NASA to use personnel lacking in experience level and training to perform required safety inspections."

Heidi Wood, Vice President, Morgan Stanley Aerospace/Defense Analyst

Funds are flowing out of the aerospace and defense sector to other industries, said Heidi Wood.  The outflow of capital reflects that fact that the aerospace companies, as a group, "under-performed the S&P 500" even during the 1990's bull market. 

"Lockheed Martin, the #1 defense contract," she said, "had a market cap of $23 B in 1997, which dropped to $15 B today.  That's a steep 23% drop in four years."

Even the perception of the aerospace industry has been downgraded.  According to Wall Street, she said, the aerospace industry is no longer considered "high technology," but a "basic industry."  In reality, "this sector designs and builds satellites that can track license plates, is on the cutting edge of advances in artificial intelligence, robotics, laser optics, advanced electro-optics, missile guidance systems.  The list goes on and on."