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overview


missile defense programs to fund, killing off costly and over- budget systems such as the Kinetic Energy Interceptor and the Medium Extended Air Defense System (MEADS). Government budget cuts have also put funding for civil


space programs under pressure. For instance, NASA’s budget has been reduced by 14.0% from fi scal 2010 levels. Nonetheless, the long-term nature of many industry projects, in conjunction with their strategic importance, has inoculated them from severe budget cuts, with spending on industry products recently stabilizing.


The Export Opportunity While domestic demand remains constrained, indus- try players have increasingly looked to exports for growth. Climbing geopolitical tensions in the Middle East, Europe and Asia have resulted in increased demand for US missile prod- ucts, which account for almost all industry exports. Mounting tensions in Asia have encouraged US regional allies to import more missiles, with Japan, Taiwan and South Korea alone accounting for 30.1% of industry exports in the fi ve years to 2014 (latest data available). However, some of the strongest demand for US missiles has come from the Arab Gulf states. Competition between these countries and Iran for Middle East dominance as well as regional instability has led to a surge in demand for US missiles. In 2013, it was announced that Saudi Arabia and the United Arab Emirates were buying over $10 billion worth of missiles and munitions while, in 2014, Qatar agreed to buy Raytheon’s Patriot missile defense system in an $11 billion deal. Overall, in the fi ve years to 2014 (latest data available), the members of the Gulf Cooperation Council accounted for nearly 30% of industry exports. Indus- try exports are therefore expected to increase at an annual-


ized rate of 6.2% over the fi ve years to 2015, increasing their share of industry revenue from 7.2 to 9.9%. More importantly, strong foreign demand, combined with more stable domestic spending, has allowed industry revenue to recently increase, reaching an estimated $26.1 billion in 2015. Over the next fi ve years, exports are anticipated to continue driving demand for industry revenue. In particu- lar, tensions in the Middle East and Asia will be among the strongest drivers of this demand. Moreover, as the Ukraine Crisis persists, European states that are near Russia are expected to bolster defense budgets, including spending on industry products. Earlier this year, Raytheon won a contract to supply the Patriot to Poland, while Germany selected the MEADS missile defense system (a joint project between Lockheed Martin and various European partners). Geopoliti- cal issues are also expected to boost US spending on missile systems. Continued US airstrikes against ISIS will require the replenishment for used strike missiles, while growing missile capabilities of China and Russia add more weight to the administration’s plans to stabilize the MDA’s budget over the next couple of years.


SpaceX and the Startup Invasion While the missile segment has been defi ned by US and


foreign defense spending, the space segment has been de- fi ned by increased competition and dynamism. New players, such as SpaceX, have brought Silicon Valley-style disruption and innovation to the industry. Founded by PayPal co-found- er Elon Musk, the company has grown into a major competi- tor in the space launch market, accounting for an estimated 3.3% of industry revenue. The company already supplies the International Space Station (ISS) on behalf of NASA and


24 — Aerospace & Defense Manufacturing 2015


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