Comments at AIA 49th Annual Year-End Review and Forecast Luncheon by Marion C. Blakey
Wednesday, December 18, 2013
Marion C. Blakey, President & CEO, Aerospace Industries Association
Remarks as prepared for delivery
Good afternoon. I’d like to thank the Communications Council for your great work this past year and congratulate Defense News founding editor Rick Barnard for receiving the Lyman Award. Rick, we appreciate your decades of journalistic excellence.
I’d also like to take this time to thank Northrop Grumman Chairman, CEO and President Wes Bush for his outstanding leadership of AIA’s Board of Governors this year. Wes did an exemplary job carrying the banner for our entire industry. We look forward next year to having Michael Strianese, the Chairman, President & CEO of L-3 Communications serve as our Board of Governors Chairman and David Joyce, the President and CEO of GE Aviation as our Vice Chairman. And we thank the L-3 and GE representatives here today who will serve on our Communications Council.
As many of you know this event is usually about numbers – the sales and exports generated the past 12 months by our industry and prospects for the year ahead. While I’ll touch on that information–which you’ll find in greater detail in the reports at your table–for the second straight year I’m going to depart a bit from tradition. My focus once again is on the critical issue that underlies our industry’s health. That, of course, is the willful neglect of investments in unique aerospace and defense capabilities that measurably save and improve lives and make America strong and secure.
A decade into flight’s second century America still enjoys our hard won leadership position in all aspects of defense, civil aviation and space. We’re proud of what we do to advance freedom’s cause, propel economic growth and light the spark of innovation. But this industry and its skilled workforce are a perishable asset, folks.
The recent budget deal notwithstanding, you can’t keep cutting and cutting and expect us to do more with less. At some point you can only obtain less from less: less defense readiness, reduced aviation system capacity and fewer missions to chart the cosmos. Less of the innovation that is vital to long-term economic growth and prosperity. And with fewer exciting and challenging projects to make our industry attractive to job seekers, fewer of the bright young minds we’re counting on to replenish a graying workforce.
Regrettably, at some point the excessive pursuit of fiscal austerity over and above all other national objectives will come back to haunt us. And let’s remember, while we advocated for the budget agreement and it was welcome, it only reduces the level of cuts 2
for the current and next fiscal year and provides a two year window to craft a better solution to avoid another half-dozen years of enforced budgetary pain. We hope Congress will use this time wisely to develop a long-term plan that doesn’t sacrifice needed investment in our nation’s future on the altar of budget austerity.
Recent events put in sharp focus the importance of investing in the incredible capabilities our industry has to offer. For example, the Defense Department committed over thirty years ago to invest in a tilt rotor aircraft combining the functionality of a helicopter with the long-range, high speed performance of a turboprop aircraft. This capability came in quite handy last month when the U.S. Marines used the MV-22 Osprey to safely and quickly deliver relief supplies to stranded victims of Typhoon Haiyan (High-Yan) in the Philippines. I can guarantee you those desperate people were glad the MV-22 wasn’t given the budget boot before it got off the ground.
I suspect that few here remember this, but four decades ago, during another budget cutting campaign, Congress deleted all funding for a large space telescope–now known as the Hubble. Fortunately, the telescope’s backers kept persevering through thick and thin, and fought to include Hubble in NASA’s long-range astronomy plan.
Just last week came the announcement that Hubble has spotted water geysers erupting from the south pole of Jupiter’s moon Europa. This finding, said NASA’s science chief John Grunsfeld, is “getting to the question of ‘Are we alone in the universe?'” With the benefit of hindsight, I dare anyone to tell me that we’d be intellectually–and yes materially–better off without Hubble’s profound influence.
With that food for thought, let me return to the current state of our industry. Despite the unrivaled pressures we’ve faced since the funding drought began, we’re fortunate our aerospace and defense companies are led by able and stout hearted leaders. By and large they saw the gathering fiscal storm and acted appropriately. They worked hard to support our allies through defense exports and to assist global air commerce’s rapid expansion. They helped NASA free up funds for exploration through creative commercial approaches to cargo and crew transportation to the International Space Station. They pioneered new applications for the Unmanned Aircraft Systems that will soon be operating in our national airspace as a normal part of our day to day lives. And they took the hard but necessary steps to streamline their operations and cut costs.
Because of this prudent and forward looking management, I can report to you today that despite the headwinds, our industry had a fairly solid year. We estimate overall aerospace industry sales for 2013 at $222.1 billion, which represents a nearly $2 billion decline from last year. Significantly, a nearly five billion increase in civil aircraft sales was offset by a nearly four billion decrease in military aircraft sales, and a two billion decline in civil and defense space sales. We believe strong civil aircraft sales growth and an uptick in the space sector will contribute to a total of roughly $232 billion in sales next year.
On the export front, spurred by a nearly $100 billion year for civil aircraft and space exports, overall aerospace exports grew from $96 billion in 2012 to $112 billion. This resulted in a net surplus of $73.5 billion, our best aerospace trade balance in history.3
In a reflection of the sequester impact, employment in the aerospace sector–a category that doesn’t include employment for ships, tanks and ammunition–dropped from 629,000 to 618,200, the lowest level in eight years.
In light of these mixed results, I recognize the naysayers out there will be quick to point out AIA’s gloomy past predictions about sequestration.
So let me address this matter head on. Yes, we’ve certainly raised the alarm about what mindless budget cutting would do to national security and the economy, including my remarks at this venue last year. And I’m not going to walk away from the tenor and tone of those remarks.
The fact is we had a much different year than anticipated because the sequester was reduced and mitigated. The budget axe fell on March first as opposed to New Year’s Day, saving us two months of the cuts. Also, federal agencies were able to use unobligated funds and other one- time flexibilities to lessen the blow.
But lest we forget, even under a truncated year of sequestration, negative impacts to national security were tangible and alarming. You don’t have to take my word for it. This video demonstrates how concerned our senior military leadership is about the situation.
VIDEO OF MILITARY LEADERS Sobering words indeed. Now in addition to the issues the military leaders discussed, we continue to be worried about the industrial base’s long-term health and sustainability. When you look at employment throughout the aerospace and defense sector, which includes non-aerospace related defense jobs for producing tanks, ships, guns and ammunition–the trends are clearly not good. The consulting firm Challenger, Gray and Christmas conservatively estimates that aerospace and defense firms shed at least 160,000 jobs over the past five years, with industry layoffs on pace to exceed last year’s totals by 30 percent. And because they relied largely on reporting by prime contractors, the figures likely underestimate the extent of industry downsizing.
At the level of companies at the second and third tier of the supply chain companies the ripple effects of disruptions and delays to contracts are really hitting home. Last month, at a Senate Appropriations Defense Subcommittee hearing, Larry Williams, then President and CEO of the parachute maker BRS Aerospace, laid it on the line. He told the senators that “as a small business, we are the first to see the impact of cuts and generally the effects are more deeply felt with a company like ours.” His company’s employment was down 80 percent. And Williams rightly warned, “there are not adequate plans or programs in place to maintain the industrial base to meet this need in the future.”
This is just one of many such stories that illustrate a larger problem. Slashing procurement now and failing to invest in future defense capabilities means at some future time the Defense Department may be forced to “buy back” deferred military modernization. Depending on the urgency and criticality of the request, it may be too late for industry to ramp up in time. Do we really want to wake up the morning after another devastating attack, whether by air, land, sea or cyberspace, wondering why in heavens name we weren’t ready?
As we’ve been saying all along, this issue is not only about defense. And it’s also not only just about critical projects at the FAA, NASA and NOAA. It’s about our4
commitment to the broader science, technology and research enterprise that for decades has spurred the engine of innovation.
But let’s face it. How can people appreciate what they’ll miss out on in the future when once steady streams of R&D investment become parched arroyos? How can you tell them, they’ll miss not having the next GPS, or the next implantable heart valve or the next fire retardant fabric when we plainly don’t know what will come next?
That’s our big communications challenge, but it’s not an insurmountable one. For one thing, we have great partners helping us to make this case. We’ve been fortunate to work with a variety of diverse organizations that care passionately about the need to plant seed corn in scientific and medical research, in education and workforce development, and in the programs that make us safe and secure. This afternoon, I’ve invited some of the leaders of this broad coalition to be recognized for their tremendous work in the fight against sequestration, and respond to press questions after my remarks. Would the following individuals please stand up and be recognized:
* Rachel Gragg, Co-Chair of NDD United, the coalition dedicated to protecting the core services that government provides for everyone’s benefit.
* Peter McPherson, President of the Association of Public and Land-grant Universities.
* Barry Toiv (Toy-v), Vice President of Public Affairs at the Association of American Universities.
* Danielle Troyan, the Vice President of External Relations at the Business Higher Education Forum.
* and Dorothy Coleman, Vice President for Tax and Economic Policy at the National Association of Manufacturers.
Now let’s briefly look ahead to the challenges and opportunities we anticipate in 2014.
If you haven’t guessed already, our number one priority will be to ensure stable and predictable budgets for national security, civil aviation and space.
On the national security front, we especially want to see adequate funding for the investment accounts–research and development and procurement. These accounts have taken a big hit under what has been described as a “modernization holiday.” They now amount to 29 percent of the defense top line budget, well below the 35 percent our analysis shows is necessary to maintain a healthy industrial base.
In 2014, building upon a very productive dialogue we’ve had with Secretary Hagel and his leadership team, we will continue to advocate for a rebalancing of the defense acquisition system. Our goal is to reduce unnecessary industry and government costs while ensuring the health and security of the defense industrial base. To the end of achieving an efficient and simplified acquisition system, we will advocate for the following:5
* the continued use of commercial products, practices and processes in defense procurements
* The elimination of barriers to innovation
* improvements to the government’s oversight practices
* and an open, transparent and participatory regulatory review process.
We’ll also continue to push for a national defense export strategy. Export control reform is already a solid pillar of the strategy we seek. In 2014, we’re hoping to see completion of the transition of items to the Commerce Control List even as we ask for further action addressing technologies remaining on the U.S. Munitions list. We’ll also work with the government to identify defense trade priority partners and programs in line with our national security strategy. We want to ensure industry and government’s views on technology trends and developments are in sync, and to enhance advocacy for defense exports.
Speaking of exports, a key AIA goal for next year is congressional reauthorization of the U.S. Export-Import Bank. It would be absurd to pull the plug on export credits that promote U.S. jobs and result in savings to the treasury, while our foreign competitors continue to enjoy heavy financial backing from their governments. This is especially true when key parts of our supplier base are counting on civil aviation to help keep them going as the defense budget draws down.
In civil aviation, we’re going to focus on improving and streamlining the aircraft certification process. We want to give the FAA the tools it needs to address economically harmful delays in getting new aircraft to their rightful owners. We’re also going to continue pushing for the full implementation of NextGen air transportation modernization and for meeting the congressional mandate of Unmanned Aircraft Systems integration into the National Air Space by 2015. The advent of domestic UAS received a lot of public attention this year, and if you haven’t noticed, AIA has been a leading advocate of the many beneficial uses of these revolutionary systems. I can’t predict for you exactly when UAS will be used to deliver packages to your front door, but I can tell you this–with the support of groups like AIA, we will get these benefits, while also safeguarding property and privacy.
On the civil space front we will continue to support policies that are making our nation’s space enterprise more robust, more innovative and more commercially driven by industry than any other in the world. There are some exciting milestones in the year ahead: the first test flight for the Orion Multipurpose Crew Vehicle, NASA’s award of contracts for commercial crew transportation to the International Space Station, and test missions for public suborbital crewed space flights.
Now, I’m not yet signed up with Richard Branson’s crew for one of those flights, but I must tell you, his venture represents the forward arc of progress that we should all be talking about.
So with all that lies ahead, and with all that remains to be done, let me conclude today’s remarks with these thoughts. Yes, I’m glad that we don’t have the specter of the worst two years of sequestration hovering over us, and yes it’s nice the government won’t shut down in the foreseeable future. But we can do better folks. As we enter the season of resolution making, let’s continue to resolve to do our utmost to ensure that when we 6
gather 12 months hence, we can at least say that the precious national resource that is our aerospace and defense industry and our scientific and research enterprise is as strong and vital as ever.
Thank you and with that I’ll be happy to take your questions. When you step up to the microphones please identify yourself and your organization.
