Aerospace feels the first effects of the new administration

Madonna Walsh, Head of Defense Consulting, Altitude Strategies Friday, 17.02.2017.

Mr. Trump’s first weeks in the Oval Office showed his determination to fulfill his campaign promises. In many sectors there is great debate whether his abandonment of the Trans-Pacific Partnership and threats to the North American Free Trade Agreement (NAFTA) and NATO relationship will help or hurt the U.S. economy; none more so than the aerospace and defense industry.

Interestingly, the new administration’s recent actions and verboseness show a lack of concern over its relationship with the U.S.’s major trading partners1 of Canada, China, Mexico, Japan and Germany, in that order, which are worrying quite a few industries.

However, it seems thatU.S. companies who are expanding their global footprint are the ones being called out on the carpet for “outsourcing” American jobs to other countries as well as their high price of products and services.

In the aerospace and defense sector,Boeing was recently singled out for the cost of Air Force One, a 747 derivative. The assertioncompared the cost of thehighly weaponized, airborne command and control center to that of a commercial airliner, as well as a lack of understanding on how the U.S. military procurement process works.

It did not appear that consideration was given to the company’s global presence. Nor did it matter that 30 percent of its 787 Dreamliner’s purchased parts and assembly are from non-U.S. suppliers2 and that majority of its future sales are to non-U.S. airlines.The company even built a new factory in China3 to support its growing diversification; a business position some would argue helps maintain U.S. jobs, not displace them.

Similarly, Lockheed Martin was questioned with regards to the F-35 stealth fighter with Defense Secretary James Mattis calling for a review of the program, which already has nine committed foreign operators including Australia. Lockheed also has a significant global footprint with more than 3,000 employees operating in more than 40 countries across the world managing.4

Of the world’s largest aerospace companies, six out of the top eight are U.S. companies, all of whom have spent the better part of the last decade trying to expand their global footprint.

  • Boeing $86.6 billion
  • Airbus $78.7 billion (France)
  • Lockheed Martin $45.4 billion
  • United Technologies $33.1 billion
  • Northrop Grumman $4.7 billion
  • Raytheon $23.7 billion
  • General Electric $21.9 billion
  • Finmeccanica $19.4 billion (Italy)

Before many countries agree to buy U.S.-made products, especially on the scale of airplanes, jet fighters, and helicopters, a commercial arrangement benefiting the local economy is not only expected but often required by law. This includes having parts made in the purchasing country included in the product, and sent to the U.S. for installation. These parts would be considered imports by U.S. law. Imagine what a35% increase in tariffs would do to contract negotiations for U.S.-based companies when they are up against a worldwide backlash of tit-for-tat.

And then there is the Open & Fair Skies debate over subsidies, again. While the three big U.S. air carriers, American, Deltaand United, are lobbying the new Secretary of State to reopen the debate, many in the industry including the U.S. Travel Association and FedEx are saying that it would be bad for business.

The reaction in the aerospace industry to what is heralded in the media as “Trumpisms” have been mixed. Outside the U.S., there is a significant “wait and see” approach, while strategy teams are quietly preparing for worst case scenarios. In the U.S. there is a mixture of panic, resistance and kowtowing. Unfortunately, there has yet to be a unified approach amongst industry leaders who are all keeping as low of a profile as possible.

In the weeks, months and years ahead, history will show the long-term effects of decisions made hastily and without full thought and consideration by both politicians and companies. Until then, the trick is to “keep calm and carry on” but make sure your crisis communications team is on speed dial.

Contact us

Alex J. Armentano
Partner & Managing Director
+1 202 215 8802
Tamara Bullock
Partner & Managing Director
+381 60 3009035
+971 528069250
Copyright © 2016 Altitude. All rights reserved.