Aerospace Industry Analysis

Industry Overview

Aerospace and defense manufacturers develop aircraft and spacecraft for the commercial sector, and military aircraft, spacecraft, missiles, tanks, and other products for the United States and other militaries. Nearly half of the aerospace and defense industry's revenue comes from the latter half of the equation. Within the United States, there is only one major aircraft manufacturer--Boeing. Its only domestic rival, McDonnell Douglass, was swallowed up by the maker of 747s in 1997. However, buying McDonnell Douglass didn't take out the competition--Europe's Airbus Industries has been steadily gaining market share in recent years and now ranks as the number-one aircraft manufacturer in the world.

Other companies manufacture aircraft parts--GE manufactures engines and Raytheon makes radar systems--but nearly half of all aerospace dollars come from the defense market (Hoover's). Lockheed Martin derives about 80 percent of its revenue from defense contracts with the U.S. government. Additionally, aerospace firms have large contracts with NASA. Lockheed and Boeing have agreements with NASA that equal 3 to 4 percent of their annual revenue--this includes the Space Shuttle, Satellite, Rocket, and other programs.

If you're looking at aerospace firms, you'll definitely need to consider the possibility of working on defense projects. Typically, aerospace projects have a high technical complexity factor and low output--the processes aren't overly standardized and require a significant amount of engineering effort to produce products. For engineers, this means that juicy problem-solving activities abound not just in product development, but also in production. Moreover, NASA and the defense department have more far-sighted designs than the next quarter's profits, which means that their projects are often for cutting-edge technologies. The effect for people working in the industry is that you get to work on things that are decades ahead of what the general public will ever see. As an insider puts it, "defense is R&D for the rest of the economy."

Trends

Increased Defense Spending

Industry insiders say that the government has committed to defense spending increases for the next 6 to 10 years. While this might not bode well for the federal budget, it does have advantages for people looking at careers in aerospace and defense. For those going into aerospace, this is good news. Defense spending increased by more than $350 billion in 2004. This year, defense spending is set at more than $417.5 billion.

New Defense Products

With the Cold War a thing of the past, it has become less likely that traditional forms of warfare will be the United States' primary defense concern. The new threat to national security comes in the form of small, decentralized terrorist groups. This means less demand for traditional weapons like tanks and increasing demand for new defense products that can help the military locate and eliminate terrorists before they strike. In the years to come, some of the most dramatic growth in the defense sector may come from makers of defense-related information technology products.

Competition from Abroad

The commercial airline sector has seen increasing competition from non-U.S. companies. Boeing, the designated kingpin of commercial airliner manufacturing in the past, is now running behind European aerospace company Airbus. Airbus has had steady interest in its soon to be released A380, a 555 passenger jumbo jet. Airbus also has made inroads in markets that have traditionally belonged to Boeing, such as mid-size planes for discount airlines.

How It Breaks Down

Commercial Aircraft and General Aviation

This market segment makes airplanes and helicopters and the parts they're composed of. Aside from big daddies Boeing and Airbus, other members of the commercial aircraft and general aviation segment include corporate-jet manufacturers such as Gulfstream Aerospace and Bombardier, the Canadian company that makes Lear jets; industry giant Textron's subsidiary Cessna; and helicopter makers such as Bell, also a subsidiary of Textron.

Military Aircraft

These are the makers of our military's birds of prey, such as the F-15 Eagle jet fighter, made by Boeing; the F-16 Falcon, made by Lockheed Martin; and bombers such as Northrop Grumman's B-2 stealth bomber. Also included here are makers of other military aircraft, such as transport planes and attack and transport helicopters.

Missiles and Space

The big players here depend on U.S. and foreign-government spending for the bulk of their revenues. Powerhouses in this segment include Raytheon, which makes missiles including the Patriot and the Tomahawk; Lockheed Martin, maker of the Trident II missile and provider of management services for NASA operations; and Boeing, the primary contractor for the NASA Space Shuttle and International Space Station programs. As more and more satellites soar into orbit,