International Landscape

Geopolitical instability consistently disrupts the status quo of international relations, giving rise to trends that could potentially challenge the U.S. Government’s competitive edge, influence, and global reach. Recent concerns over Russian activities in Europe, Iranian political maneuvering in the Middle East, and Chinese expansionism into the South China Sea are putting into question the resiliency of the international security order. While uncertainty is ubiquitous, the U.S. military has many tools to combat current threats.

                                             

Security cooperation – a foreign policy tool that encompasses arms transfers, trade of aerospace and defense exports, and training assistance – supports the mutual security and economic interests of the U.S. and its allies. Driven by a strong manufacturing and defense industrial base, U.S. trade in defense systems and services is the cornerstone of the U.S. military’s international engagement with allied and at-risk countries to balance the influence of competing countries. Security cooperation does the following to support mutual U.S. - partner interests:

 

  • Regional Security: Increases the security of a foreign ally in an unstable region, while signaling to competing states of the risks of asserting their influence;

  • Defense Readiness: Supports interoperability and overall joint operational readiness levels between the U.S. military and its foreign allies, reducing the burden of the U.S. taxpayer and overall readiness costs for the U.S military;
  • Collaboration: Creates close relationships of mutual understanding for future policy collaborations; and
  • Synergy: Influences foreign countries to adapt to international liberal standards of behaviors and norms.

Current Tends

As the Budget Control Act (BCA) of 2011 significantly impacts the U.S. Government’s acquisition of defense systems, U.S. aerospace and defense companies have begun, in recent times, to focus on the international market – with emphasis on commercial defense exports.

 

While the United States dominates the global aerospace and defense export market, a shifting business and political landscape, coupled with domestic acquisition hurdles, are constricting industry’s competitive edge.

 

Shifting in size and scale, the current global aerospace and defense market is changing the dynamics between suppliers and purchasers. Foreign governments now invest in, and heavily subsidize, their own industries to meet current needs. Through offset arrangements, foreign customers exact more ownership in the production process through either the foreign military sales (FMS) or direct commercial sales (DCS) programs. As foreign customers now advocate for more local input in the assembly process, and for a more hands-on approach in the sustainment of procured defense systems, they will be able to mirror the U.S.’s capacity for innovative systems and products. For example, several countries working with the U.S. government on security cooperation, such as Israel and South Korea, are expected to increase exports of domestic aerospace and electronic products in the near future.

 

Predictions

While low oil prices and BREXIT create short term anxieties for the global aerospace and defense industry, the United States will likely see overall growth in the Persian Gulf in the short term and in the U.K. in the long term period. Military spending in the Persian Gulf will not significantly decrease, due to the ongoing conflicts in Syria and Yemen, fears of the specter of Iran, and the growing influence of Russia as the U.S. seemingly disengages from conflict zones in the Middle East. As these trends continue to play out, the Persian Gulf, led by Saudi Arabia, will most likely move to consolidate military power and political influence regionally.

 

The U.S. will likely see increases in growth in the defense sub-sector, and in commercialized aerospace exports. This is postulated on the severity of BREXIT negotiations between the U.K. and the E.U., as well as on U.S.-U.K. trade re-negotiations regarding aerospace and defense matters.

 

Conclusion

Sequestration, an overburdened acquisition process, and a strict export-control regime in Washington D.C. are creating sluggish performance metrics for the delivery of aerospace and defense products to foreign customers. Not only will these trends create commercial burdens for U.S. companies, they will have long-term implications for U.S. foreign policy and national security strategies.