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Despite the blundering, uncertainties and inefficiencies, defense sector maintains momentum as first quarter comes to a close

by Asif Anwar | 4月 11, 2011

The Libyan crisis saw use of the RAF Nimrod aircraft triggering the inevitable questioning of UK defense spending logic and the resultant decisions undertaken as part of a UK Government Strategic Defence and Security Review. Other platforms affected by the last round of cuts include the Tornado fast-jet platform and Royal Navy frigates. Whether or not this will lead to a review of the situation remains to be seen though official statements issued on Friday (April 8th, 2011) suggest that this is unlikely.

The US Government was another great example of how bureaucracy can hinder ran than help industry. The recent inability of the US government to set a FY2011 budget six months into said fiscal year had industry closely monitoring every political twitch and spasm from Washington as the threat of a government shutdown loomed. Fortunately, the powers-that-be managed to come to a decision literally at the eleventh hour which will allow programs and contracts to revert to some degree of normalcy.

Unfortunately, according to the US GAO (Government Accountability Office) the industry cannot claim to be an innocent bystander in a situation that now has defense budgets stretched to the limit. An audit of Pentagon spending found $70 billion in wastage with the GAO particularly unimpressed with the F-35 which accounted for $28 billion. The report indicated that the Pentagon also had to spend $9 billion more on R&D to fix problems with satellites and other systems that had already entered production and that the Pentagon?s largest programs had risen by $135 billion, or 9%, to $1.68 trillion since 2008. There was also another $70 billion of increases "to be indicative of production problems and inefficiencies or flawed initial cost estimates."

Despite the blundering, uncertainties and inefficiencies, defense sector contract orders have again showed few signs of let up in the past month. Merger & Acquisition activity in the sector has also been sustained with eight defense-oriented mergers, acquisitions and partnerships in the past four weeks. Further analysis of the defense industry including business news, contracts and new product launches during the month of March can be found in the Strategy Analytics report, Defense Electronics Industry Review: March 2011

Despite the uncertain start to the year as defense budgets were squeezed and /or finalized, Strategy Analytics expects the second quarter of the year to continue apace with the preceding one as the emphasis for electronics is maintained through the continued advancement of next generation radar, EW, communications and EO-IR technologies. Examples include the continued expansion in UAV use with export markets being opened up and their application expanding to maritime surveillance (see Maritime Surveillance Expanding Electronic Systems Opportunity from UAVs) as well as upgrading more traditional platforms as exemplified by Raytheon delivering its 250th APG-79 active electronically scanned array (AESA) radar to Boeing for use on F/A-18E/F and EA-18G aircraft. Opportunities yet to be realized include the conclusion of the Indian M-MRCA (Medium Multi-Role Combat Aircraft) competition with the current set of bids due to expire on April 30, 2011.

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