Overview


Watching as US Defense Cuts Start to Hit


Finishing a Great Decade Te last 10 years were very good for defense. Te US defense budget enjoyed a very strong decade of increases, and defense contractors enjoyed a strong period of growth and profits. Between FY 2003 and 2012, weapons procurement grew at a 6.1% compound annual growth rate (CAGR).


(Market Value in 2013 $ Bns)


100 120


20 40 60 80


0


'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Civil Military


Te broad political consensus is that a serious budget deficit, a growing national


debt, and the reduction of combat operations in Iraq (to be followed by a reduction of operations in Afghanistan) mean that the current high defense plateau is unsus- tainable. While the delta of the anticipated defense spending downturn is quite un- certain, changing budget dynamics will have a strong impact on aircraſt programs.


More Than Just Numbers Te US defense budget is not historically cyclical. Tat is, there is no historical cor-


relation between defense spending and any economic trend, such as economic growth or national debt. Yet with a record national debt and an FY 2011 budget deficit of around


Richard Aboulafia Vice President, Analysis Teal Group Corp. Fairfax, VA


Aerospace & Defense Manufacturing 2013 21


’08-’12: 22.6% (5.2% CAGR)


’03-’08: 59% (9.7% CAGR)


’08-’12: 16.2% (3.8% CAGR)


’03-’08: 19.7% (3.7% CAGR)


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