Dear Intrepid Readers,
“Procurement holiday. What a sham.”
I had just given a briefing analyzing the sluggish market for a certain military product. Even though I had referred to the procurement holiday in my presentation, I don’t think the author of the above quote—a beleaguered director of sales—meant it as a challenge. I think he expected me to agree with him. Perhaps, in his mind, I had only mentioned it as a way of softening my criticisms of the program itself.
That’s partly true. But when I thought about it, I found myself examining the whole concept of the procurement holiday. It’s a simple concept—after building up large arms inventories during the Cold War, the bigger powers were taking a procurement break. As systems aged and stockpiles shrank, procurement programs would resume, and long-delayed programs would go ahead. Aside from some industrial base shrinkage and a few nomenclature problems (“NATO Helicopter for the ‘90s”?) there would be relatively few hiccups.
I still believe that this is the case. But what if it isn’t? What if the procurement holiday concept really is a sham? Who can say if Germany’s defense spending—which now threatens to fall below 1.5% of GDP—will ever recover? What about France? And while US defense spending never fell as far as in these countries, a great deal of new systems are depending on an upsurge. The FY2001increase does not look particularly huge. What if the current levels remain constant at best?
If that’s the case, there are serious problems with a lot of my market forecasts. Think of the systems that depend on additional procurement money that may not be forthcoming: Eurofighter, Dassault’s Rafale, Lockheed Martin’s F-22, Eurocopter’s Tiger, the NH-90, Boeing CH-47 ICH rebuilds, etc, etc. These programs comprise a big part of our industry’s future, and fuel all of the growth anticipated by my rotorcraft and fighter market overviews.
Even more concerning—think about those programs that aren’t in my forecasts—Airbus’s A400M/FLA, Boeing/Sikorsky’s RAH-66, the much-lauded Joint Strike Fighter (series production). Is there really any hope for these systems for the foreseeable future?
Anyway, there’s a lot of risk in the defense part of our industry. The biggest risk, to put it simply, is the validity of the concept of the procurement holiday. This risk largely explains why defense stocks continue to be depressed. It also explains why I always feel like I need a vacation.
This supplement has a World Aircraft Overview that addresses some of these issues. Next month, our Fighter overview will deal with the issue too. And, February’s supplement will have an Airbus A3XX report with a production forecast—with the first few planes delivered in late 2009. Hey, it’s a start.
I will be out of the office from February 18 through March 1 (Asia Aerospace), so let me know if you need anything by then. I would also like to say that after several recent embarrassing episodes involving supplement printing mistakes, we have moved to a computerized new system of monthly letter printing. This, as a side benefit, allows CD-ROM clients to read my purported wisdom. Next month’s letter may even have a computerized signature at the end. And, thanks to this promising new system, nothing can possibly go wron
Hasta Siempre a la Victoria,
Richard Aboulafia