Ford CEO Alan Mulally was hired away from Boeing several years ago to run the car company, and he often tells a story about how some Ford executives wondered aloud whether Mulally fully understood how complex the automotive industry really was.
“I said (to the Ford execs), ‘Yeah, I think I do have a sense of how complex it is,’” Mulally says. “’You make a vehicle that has 3,000 moving parts. I made one that has 30,000 moving parts and has to stay in the air. So talk to me about difficulty and complexity.’ And that kind of shut everybody up.”
With that in mind, aerospace is our featured topic this month in Products Finishing magazine, and one of the pressing issues facing those who make their living off of contracts from the military and aerospace companies is the health of the industry.
Last fall, the International Association of Machinists and Aerospace Workers wrote to President Obama in order to help preserve the aerospace and defense industry and its workforce from the substantial downsizing that defense budget cuts would bring.
But Craig Hanriot, president of leading aerospace metal finisher Technical Metal Finishing in Burbank, Calif., says the plea to maintain defense spending may have been too little, too late. He says the culmination of the Iraq war, Afghanistan military activities winding down and a huge national debt were enough for the U.S. Congress to cut military spending by $350 billion over the next 10 years.
Caveat: Since the Sept. 11 attacks a decade ago, the defense budget has more than doubled to $700 billion a year, and profits for those in the defense industry have almost quadrupled to about $25 billion in 2011, so many have flourished in that time.
David Berteau, a defense industry analyst at the Center for Strategic and International Studies, says, “We’re about to go into the downhill side of the roller coaster here.”
Hanriot says it’s a tough pill to swallow knowing that almost $119 billion has already been cut from the 2012 budget, a 24.6 percent decline over the 2011 numbers.
“This has led to a contraction in defense industry orders for aerospace manufacturers and their suppliers,” Hanriot says. “The aerospace manufacturing sector is feeling the pinch, as a significant percentage of their revenues stem from government contracts.”
But Hanriot predicts that commercial-sector aerospace orders will counter those cuts with rapidly expanding new orders, as well as an increasing demand within emerging markets.
He points to Delta Airline’s order for 100 Boeing narrow-body jets in a deal estimated to be worth more than $8.5 billion, but cautions that the deal appears to be no more than a stabilizing counter in light of news that American Airlines opened up their purchasing options to foreign aircraft manufacturers, including awarding European aerospace giant EADS the largest aircraft order in history for 260 of its Airbus A320 planes.
Hanriot and others aren’t too discouraged.
“Every day, new silver linings arise within America’s commercial aerospace sector as new global markets open up,” he says.
Hanriot points to the Indian aerospace market that has recently opened up its industry to private participation. He says Boeing already has established a strong presence in Indian aerospace manufacturing by partnering with Hindustan Aeronautics Limited, and that partnership — coupled with $1 billion worth of orders that Boeing expects to receive from India by 2017 — is good news to finishers who work closely with aerospace suppliers.
“It exemplifies the American aerospace industry’s resilient ability to find opportunities for growth that will offset dwindling government defense contracts,” Hanriot says.