Monday, July 19, 2010

Canada, bucking the trends

Tony Clement's abroad today, speaking at the big Farnborough International Airshow, promoting Canada's aerospace industry, all fine. And timely given the Friday announcement of Canada's purchase of F35s from Lockheed Martin to the tune of $9 billion plus. Here's a weekend analysis in the New York Times of the show and the economic undercurrents driving the international aerospace industry. Some highlights:
...for those who supply the world’s militaries, the environment has grown decidedly more challenging, with governments in the United States and Europe preparing sharp cuts in military spending as they seek to rein in ballooning budget deficits.

Some analysts have begun to describe the downsizing of Western military budgets as the “new normal,” a trend that may have manufacturers looking to export more to emerging markets or to branch out into areas like space, security and civil nuclear businesses.
The British Treasury Department asked Defense Minister Liam Fox this month for proposals to cut 10 percent to 20 percent from his $16 billion budget over the next four years. The German defense minister, Karl-Theodor zu Guttenberg, said he was looking for long-term budget savings of about €1 billion, or $1.29 billion, a year. France is also looking at cuts of more than €3 billion between 2011 and 2013.
The F-35 Joint Strike Fighter is another troubled plane that will most likely face order reductions, analysts say. Its manufacturer, Lockheed Martin, is in negotiations to cut the price of some of the 2,457 planes it has contracted to build for the U.S. Defense Department over the next 25 years.

The plane is more than two years late in development and 64 percent over budget. Eight other nations, including Britain, Italy and the Netherlands, have invested in developing the F-35, but some have recently wavered in their commitment to ordering the plane.

“I don’t believe any major program will be canceled, but they will probably be stretched” over a longer period of time, Mr. Lasou of Accenture said.

As military budgets shrink, competition among manufacturers for new contracts will continue to grow more intense and in some cases more acrimonious, analysts say.
Lucky Canada seems to be avoiding the need for competition among manufacturers and is sending a high profile international signal that it doesn't have any concerns over the F-35's production. Clement's probably a pretty popular guy over there right about now.