Flying High: The Military/Aerospace Market for Cable Assemblies

The military/aerospace market for cable assemblies has been a good market to serve over the last five years. This segment represented approximately 7.9 percent of the worldwide market for cable assemblies in 2009, at a value of $6,933 million. It has had stable growth of two to three percent, other than 2009, when it declined the least of all the market segments, at 9.3 percent. In 2009, China had the most growth, at two percent, and Europe had the largest decline, of 20.3 percent. On the average, governments worldwide have consistently spent approximately 2.6 percent of the global gross domestic product on military expenditures over the last five years.

Several factors impacted the market in 2009. We have seen improvements in most areas already, but some of these factors will continue to be in force in 2010.

The worldwide financial crisis and recession, which started in 2007/2008, had the greatest impact. For governments not involved in Afghanistan or other regional conflicts, the cuts in spending were a matter of economics. Europe, which had greatly reduced their role in Iraq and Afghanistan, cut their spending for cable assemblies significantly. According to the International Institute for Strategic Studies, Russia abandoned its program to modernize aging military equipment as the country’s GDP contracted 7.5 percent in 2009. In North America, the U.S. cut several development programs, but was committed to Afghanistan and Iraq, and was therefore unable to make more significant cuts. China and India were exceptions to cuts in military spending for cable assemblies. India had a 21-percent increase in overall military spending in 2009 and China is thought to be well into a double-digit increase.

The wars in Afghanistan and Iraq and regional conflicts in the Middle East, the African continent, Eastern Europe, and other areas had the greatest impact on keeping military spending for cable assemblies from contracting more than it did. Military spending worldwide in 2008 was approximately $1.5 trillion, with the U.S. government spending almost half of that total. The next largest spenders were Europe, at 20 percent, and China, at 8 percent. Worldwide, military spending for cable assemblies was down 9.3 percent in 2009, while overall military spending was probably about flat in 2008. This is because more spending occurred in non-equipment-related areas, such as personnel and logistics expenses.

A third factor has been the increased scrutiny on military programs and their value, resulting in the cancellation or reduction of some spending. This is particularly true in North America where the U.S. has been very active in reassessing military programs. The most notable cancellation was the F-22 Raptor, which had become too expensive and does not have a relevant mission today, as it was originally conceived for air-to-air superiority against the (Cold War-era) USSR. Other cancellations include the VH-71 President’s helicopter program and the Army’s Future Combat System for communications.

A notable North American delay is the Constellation rocket program, designed to replace the Space Shuttle. The Constellation program had two rocket designs, the Ares I, intended for lifting crew capsules into space (which was successfully tested in October 2009), and the Ares V, designed to take man back to the moon and beyond. Questions about the advisability of the Moon/Mars program have killed the chances of manned flights to the moon by 2020. President Obama’s recent announcement suggests skipping the moon program entirely, in addition to the Constellation rockets, and designing a new rocket to go to an asteroid (after 2025) and then Mars (after 2035). The new targets will certainly result in decreases in NASA’s budget, particularly as the Space Shuttle program comes to an end next year.

North American programs that will see further funding in 2010 and beyond include the Aegis BMD (Ballistic Missile Defense) system, which will replace land-based systems that were politically unpopular in Europe, the JCREW 3.3 program and the PIM (Paladin Integrated Management) mobile artillery program.

Bishop & Associates expects the worldwide market for military/aerospace cable assemblies to grow by approximately 7.2 percent in 2010 to $7.4 billion. The five-year Compound Annual Growth Rate will be in the six percent range. Cable assemblies represent approximately 0.5 percent of overall military spending.

Driving the growth in 2010 and beyond are several factors. The war in Afghanistan is far from over and will require significant spending by the U.S. for repair and replacement of equipment as well as the development of new programs. Regional strife in the Middle East is driving several countries, such as Iran, Israel, Pakistan, Syria, and many Arab states to continue to develop or purchase military hardware. China has made indications that it will reduce the growth of military spending, but it will most likely continue to grow expenditures. Aerospace spending should not be significantly affected until 2011 and beyond.