U.S. Aerospace & Defense: Armed To The Teeth Or Dodging A Bullet?

Global military expenditures surpassed the $2 trillion1 milestone in 2021 with the United States, China, the United Kingdom, India, and Russia, being the top spenders. Amongst these countries, the United States was the largest spender, with military spending of $801 billion in 2021, steadily increasing from $662 billion in 2015.2

The nation’s growing focus on research and development has translated into an increase of 24% in R&D spending between 2012 and 2021.1

According to Alexandra Marksteiner, Research for SIPRI Military Expenditure and Arms Production Programme, “The increase in R&D spending over the decade 2012-21 suggests that the United States is focusing more on next-generation technologies.”

President Biden has also announced an estimated $722 billion budget for the Department of Defense for 2022 and $773 billion in funding for 2023.2 These numbers may change as demand from the war in Ukraine continues to deplete US stockpiles and reserves (more below). A massive defense budget, along with steadily increasing spending, makes the United States a global leader in the aerospace and defense industry.

The defense funding will be primarily focused on innovations to improve the nation's competitive advantage as well as upgrading capabilities in the air, sea, and ground warfighting domains. These statistics demonstrate the continued focus of the US government on strengthening the nation’s defense capabilities.

1.HERCULEAN RISE IN DEMAND & AN UPHILL STRUGGLE TO SUPPLY

Each month, the United States produces around 15,000 artillery rounds. Since the onset of the Russia-Ukraine crisis, Russia has been firing 40,000 to 50,000 rounds a day whereas Ukraine has been firing 6,000 to 7,000 rounds.3 In addition to the conflict between Russia and Ukraine, 2022 also witnessed political tensions in Taiwan and the South China Sea. The occurrence of such geo-political crises across the globe led to an increase in demand for ammunition worldwide to the highest levels since World War 2.

Owing to their dependence on a few countries for crucial raw materials, leading aerospace & defense companies in the U.S. were also unable to meet these surging demands. For example:

• China supplies around 80% of the rare earth minerals 4 to the U.S. Aerospace & Defense industries.[1] These minerals are used in producing magnets that are crucial in weapons guidance system.
• Russia’s VSMPO-AVISMA is the world’s largest exporter of titanium and supplies 35%-40% of its total output to companies like Boeing and Airbus. 5
• Russia also supplies 11% of the world’s most high-grade nickel6 used in armor plating and production of rocket engines.
• Ukraine supplies 70% of the world’s neon gas, that is used in chip fabrication for semiconductors.7

The escalating tensions between the United States and China, combined with the supply chain disruptions due to the Russia-Ukraine war, further aggravated the shortage of these critical components of the aerospace and defense value chain.

Figure: Global Defense Spending in 20218 (in billion USD)

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2. ROAD TO RECOVERY

Recognizing the need for the expansion of its ammunition and missile production which was brought to light by the Russia-Ukraine war, the United States recently approved $600 million in emergency Defense Production Act spending to boost production.9

“If you want to increase production capability of 155 [mm] shells, it’s going to be probably four to five years before you start seeing them come out the other end.”, said Mark F. Cancian, a former White House weapons strategist.3

The U.S. aerospace & defense sector is also undertaking several measures to ensure the smooth supply of important metals and components in the aerospace and defense value chain. It is implementing strategies to reduce their dependence on other countries for raw materials and parts. For instance, the U.S. reliance on China for military aircraft and weapons’ manufacturing components is intended to be withdrawn in FY 2022-23. The U.S. Congress is currently considering a new bill that would limit the use of any minerals or components obtained from China after 2027.4 As an alternative, they now intend to import these rare earth minerals from Australia. Various steps are also being undertaken by original equipment manufacturers (OEM) in the U.S. to build up titanium inventories. Furthermore, they are also looking for ways to channel resources from other nations such as Japan.

The U.S. aerospace and defense (A&D) sector has been the archetype of innovative defense apparatus for decades. The growing investment in R&D will enable the nation to continue harnessing technology to drive innovation and meet surging demand. These innovations are also helping the advancement of missile defense systems, hypersonic strategic strikes, space resiliency, cybersecurity, and other fields. The construction of smart factories across the U.S. will also help connect people, machines, data and, most importantly, value chains in smart factory networks. This will facilitate the production of better-quality parts in the country thereby easily fulfilling the demands and reducing costs.

The growing investments to expand manufacturing capabilities, implementation of policies to reduce dependency, and adoption of technology, will help drive the growth of the aerospace and defense industry in the U.S.. Such measures will also play a pivotal role in helping the nation maintain its dominance as the global aerospace and defense leader in the coming years.

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