All Politics is Local
Aerospace business in the 21st century.
12:00 AM, Jul 23, 2010 • By REUBEN F. JOHNSON
Cooperation, international collaboration, work sharing, technology transfer – these are all buzzwords that have been used for years by the aerospace community. The idea, in theory, is that when several companies (or, in some cases, the aerospace industries of several countries) combine their efforts to develop collaborative programs, weapon systems become cheaper. Like many economic theories, this one does not work as well in practice as it does in theory.
Formerly known years ago as the Royal Aeronautical Establishment, this now privatized facility is the site of the Farnborough International Air Show (FI). The biennial event takes place every even-numbered year and is supposed to be the equivalent of the odd-year Salon International de l'Aéronautique et de l'Espace that takes place at Le Bourget aerodrome on the périphérique of the city of Paris.
FI has never quite acquired the luster of the event in France – partly because London is not Paris, and partly because there are more participants (namely, most of the French aerospace industry) that opt out of the UK show and thereby diminish its size and importance. It is a subtle reminder that, despite all of the talk about internationalizing the aerospace business into multi-national corporations, there is still a lot about it that typifies the famous saying that “all politics is local.”
Recently, there has been major consolidation in the industry. The U.S. corporate aerospace behemoths have swallowed up most of the major companies that used to build aircrafts – to the point where there are now only two major players left – Boeing and Lockheed Martin. In Europe, the various firms have all become part of large consortiums, like the European Aeronautic Defence and Space (EADS) formation. Even in Russia, there has been a reforming of the aerospace sector into large amalgamations that control all of the aircraft builders in one group, all of the engine makers in another, and so on.
But creating economies of scale in aerospace does not necessarily make the industry more efficient of affordable. Part of this is because of the reality facing aircraft buyers, as one colleague from a European firm reminded me years ago: “50 percent of any decision to buy or not buy one airplane over another is political, 30 percent is based on cost, and only 20 percent is based on the technical merits of your design versus the competition.”
So, building the best aircraft, missile, radar, engine, etc. at the best price does not get you more than halfway to winning the contest. Therefore, the incentives for trying to be cheaper than the next guy’s product are not what they are in, say, the mobile phone world or the fast-food hamburger-selling market.
But when one gets to the heart of the matter, aerospace programs – and particularly military aerospace programs – are big job-creating efforts.
On 15 July, the U.S. Senate Committee on Commerce, Science and Transportation unanimously voted to postpone the retirement of the U.S. space shuttle. This decision was not made because it would leave the U.S. totally reliant on Russian launch vehicles. And it was not made because it was strategically unwise.
No, strategic U.S. interests were not part of this decision. Instead, this vote was taken because retiring the Space Shuttle would have eliminated thousands of jobs at the Kennedy Space Center in Orlando, Florida, and also in Texas, Alabama, and Utah. With the November 2010 mid-term elections quickly approaching, now is a bad time for jobs to be going away in anyone’s state.
But the impulse to create jobs at the expense of other considerations is causing weapon systems to spiral out of control, in terms of both their acquisition price tag and their cost of operation.
Probably the most important program in the recent history of the U.S. Defense Department is the Lockheed Martin F-35 Joint Strike Fighter. Like other aerospace programs, it’s a conglomeration of several nations that joined the program at its inception as development partners. Additional countries are signed up to be Security Cooperative Participants (SCP), who will just purchase the fighter but not have a say in the design phase.
But meeting the requirements of all these nations – and folding them into one aircraft – is causing the cost of the F-35 to continue to rise. What it now costs to just purchase the aircraft is only a small portion of what is now defined as the “total ownership cost” of this program. Plus, depending on how soon in the production process a nation buy’s the aircraft, one alone could cost well up to $200 million. This is a staggering figure when you consider how cheap and easy to operate the F-16 is – the very aircraft that the F-35 is meant to replace.
But, again, one of the main drivers is the jobs and other economic benefits that each participating country seeks to boost. There is no rationale to have more than one F-35 production line – namely, the one in Fort Worth, Texas – and yet Italy has been pushing for a second production center because it would create jobs. BAE Systems in the UK rejected the idea of a production line at their plant – but only on the basis that the upgrades and other improvements-contracts they will have over the life of the program will likely be worth four times more (in both the number of jobs and profit) than the original manufacturing contract.
Keeping people employed is always good, but especially in these economic times it seems sill to put pressure on national treasuries – regardless of whether it is the F-35 or the ridiculously expensive €140 million Airbus A400M in Europe. The latter does slightly more than a U.S.-built C-130 military transport but at a much higher cost.
Cuts will have to be made to pay for these programs, resulting in furloughing military personnel, which kind of defeats the purpose of trying to save jobs in one place only to lose them in another.
Shrinking defense resources are going to become a serious problem sooner or later. Weapons programs are going to have to go back to being affordable somehow, but it is hard to see how or when this might happen with so much of what keeps politicians in office – creating jobs – being the primary driver in how weapons are developed and procured.
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