The American aerospace and defense industries have recently
found themselves in an odd situation of simultaneous growth and
decline. To be more precise the non defense related component of
the industry; the civilian aviation industries are bent on a course
of growth, however the other component of the industry; the defense
related aerospace industry is in decline.
Emerging Markets and the Growth of the Commercial Aviation
What lies beneath the surface for the expansion of the
commercial aerospace sector is the increasing number of passengers
especially in Middle East and Asia as well as continues demand for
the new generation of aircrafts specifically designed for fuel
efficiency purposes given the high and the volatile state of the
fuel prices. It is easy to comprehend the reason behind the quest
for the fuel efficiency when the weight of the fuel related costs
within the operational costs are considered. A decade ago, such
fuel related costs had only composed 13% of the total operational
costs in civilian air flights and now the number is jumped over to
30% and increasing. Hence it seems that the aircrafts with enhanced
technology combined with fuel efficient engines will continue to be
the driving force of the industry.
Geographically speaking, the growth of the commercial aerospace
industry is heavily contributed by the BRIC countries which have,
until very recently, been growing in significant rates and adding
up, as it is in the Chinese case, hundreds of millions of people in
to the expending middle class section of their respective societies
who are driving the newfound demand for civilian aviation. The
continuing economic growth of the emerging countries is expected to
fuel an average of 5% passenger increases over the next two
Prime Importance of the Legal Framework for the Defense
However one is confronted with a bleak picture once the state of
the defense related aerospace industry is considered. The global
economic meltdown in 2008 and the ensuing period of ill managed,
short lived and weak global recovery has led many governments to
cut down national defense budgets which means a shrinking amount of
money being earmarked for the defense needs. Moreover the fall in
demand for the products of the American defense industry, despite
their top notch quality, is related with the strict legal regime
that the defense related items are subjected to in the United
States. Not only the Arms Export Control Act which equips the
President with wide ranging powers over the export of the defense
related items but also the International Traffic in Arms Regulation
(ITAR) which includes the U.S Munities List that enumerates the
items to be subjected to ITAR and the countries to be banned from
the export of such defense related items, serve as the legal
framework that the American defense industry players have to
operate in. Even though the concerns for national security are both
legitimate and understandable, the negative impact of heavy and
stringent regulations on the export of defense related and dual use
items in a global economic environment where the major buyers of
the American defense related items, including the United States
government itself, are less willing to divert its national
resources to the defense related spending and the ill effects of
such heavy regulations on defense exports which might lead some
foreign buyers to seek for other suppliers with less stringent
regulations for the export of the defense related items should be
taken in to account and addressed by the American law makers.
Two sub sectors of the American aviation industry are going
through diverging periods of their business cycles. The future
prospects for the commercial aviation is bright mainly due to the
current and prospective demand, mainly generated by the emerging
economies, of passengers and the increasing demand of more fuel
efficient aircrafts by the operators. On the other hand, the
defense related aerospace industries are operating in a heavily
regulated legal framework in which the export licenses are only
issued after a process of strict scrutiny based on the legal
requirements stated by International Traffic in Arms Regulation
(ITAR)and the Arms Export Control Act. Hence a more holistic
analysis of the American aviation and defense industry would be to
asses these two sub components of the industry separately and to
diagnose and prescribe different sets of legal and economic advise
for each of them.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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