To couples and card manufacturers, 14 February means Valentine's day but for the Obama Administration it was the date for submitting a five-year spending plan to Congress with long-term implications.
The US defence industry is standing on the brink of a down-cycle. Military spending in the USA tends to ebb and rise again across roughly 15-year periods. The great military build-up of the 1980s preceded the 1990s crash. The cycle began its reversal in the late 1990s, with new heights hit in the five years following 9/11.
This time the fiscal apogee may have arrived slightly prematurely. Pentagon officials asked for a comparatively paltry $18 billion budget increase this year - hardly an overreach - but Congress has not been obliging, slashing $8 billion off the top in a preliminary review by Senate appropriators, then holding the entire federal budget in limbo since the fiscal year began in October.
Now, it is entirely possible for a divided Congress to simply fail to pass a spending bill this year. In the USA's somewhat convoluted system, this means the Department of Defense (DoD) in Fiscal 2011 is allowed to spend up to $530 billion, which is equivalent to last year's approved budget - and a real-terms decline.
By those standards the budget climate actually seems to be improving - but these looks can be deceiving. It is true base defence spending could grow 3% to as much as $553 billion next year, but Congress has shown no signs of accepting the administration's budget requests at face value. At this point, spending cuts will be expected and the DoD is not likely to be spared. The long-term outlook is similar. Gates' latest five-year spending plan basically proposes a spending freeze, in real terms, but that represents a $78 billion total cut through 2016.
The budget forecast by TechAmerica, which represents a consortium of defence companies, is much gloomier, predicting a dramatic cut in real defence spending to about $440 billion in 2016.
What does this mean for the aerospace industry? The spending cycle that produced new cottage industries for unmanned air vehicles, aerial networking and long-term sustainment deals is over.
A fiscal policy that reshaped the defence industry around five major integrators is waning. Unrestricted airspace in two combat zones that fostered an era of aerial experimentation with vehicles and payloads will likely disappear or at least be sharply curtailed.
The defence industry that emerges from the bottom of the down-cycle 15 years hence will look and feel completely different.
There may be trouble ahead
Source: Flight International
