2012 Global R & D Funding Forecast: Industrial R & D—Aero, Defense

Fri, 12/16/2011 - 3:59am
Martin Grueber, Research Leader, Battelle and Tim Studt, Editor-in-Chief, Advantage Business Media

2012 GFF Globe ImageThe resources invested in aerospace, defense, and national security R&D continue to dominate U.S. federal funding and constitute an important part of overall global R&D. U.S. federally funded defense R&D will reach nearly $75 billion in 2012, exceeding every other country's total R&D except that of China, Japan, and Germany. With the defense R&D of these leaders and others, global defense R&D will likely account for more than $150 billion in 2012 or nearly 10% of all global R&D. Of U.S. corporate R&D, the sector as a whole, at $13.8 billion, will account for less than 5% in 2012, though key prime contractors are investing substantial funds in activities.

Aerospace/Defense 2009 2010 Q1-Q3 2011
Top U.S. R&D Expenditures Millions, U.S.$
Boeing 6,506.0 4,121.0 3,005.0
General Electric - Aviation (e) 705.4 817.8 646.8
UTC - Aviation (e) 654.4 715.9 681.0
Lockheed Martin 724.0 638.0 537.6
Raytheon 565.0 625.0 454.0
General Dynamics 520.0 508.0 377.0
Honeywell - Aviation 463.1 469.3 370.3
Northrop Grumman 465.1 459.7 321.9
Textron 401.0 403.0 334.5
Rockwell Collins 352.5 347.5 266.3
Source: Battelle/R&D Magazine/Company information; (e) = estimated

It is important to consider that corporate R&D decisions and investments in this sector are often driven by the directives and future mission requirements tied to the federal government funding that these companies receive for both research services and procurement. Thus, corporate aerospace, defense, and national security R&D is more strongly tied to federal budget priorities than any other sector.

Continued Funding Pressure
During federal budget belt-tightening, it is not surprising that the U.S. Department of Defense (DOD) and other national security funding, the largest component of the "discretionary" federal budget, faces significant pressures. Historically, administration and congressional support has often shielded the defense budgets, especially the DOD R&D budget, from sizable cuts. This situation has changed as federal funding for DOD R&D is likely to decline for the third consecutive year. The challenges for federal defense-related funding are likely to continue, and potentially change in structure, if the automatic sequester budget cuts in the Budget Control Act of 2011 go into effect in 2013. While these dramatic cuts are seen as unlikely for many reasons, they have initiated considerable examination of spending and priorities, including within R&D efforts, which will likely exert pressure to reduce funding for the DOD and the defense industry.


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Aerospace/Defense/National Securiy. Source: Battelle, R&D Magazine

Research Shift in Federal Funding
The potential combination of two trends—(1) tightening federal budgets and (2) fairly strong bipartisan support for federal involvement in basic and early-stage research—may bring about increases in the shares basic (6.1) and applied (6.2) research receive from federal defense-related resources. Discussion and debate go on regarding the need to both improve and enhance the level of basic research funded by the DOD. Some indications of this shift, though subtle, may be impacting FY 2012 appropriation efforts. Overall DOD R&D funding is likely to be reduced by slightly more than 3% from FY 2011 to FY 2012. However, within this reduction, basic and applied research are likely to see a 6.0% to 7.5% increase (depending on final FY 2011 figures). At nearly $7 billion in FY 2012, DOD-funded basic and applied research will still account for less than 10% of the total federal defense R&D budget, with the balance funding development-phase activity. However, the increased budget for research, among the other reductions, may signify changes in the overall landscape of defense R&D as most basic and applied R&D is performed outside the corporate environment. This shift in resources, some observers suggest, may reduce overall development costs and improve program outcomes.



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Key aerospace/defense technology development areas by 2012. Source: Battelle, R&D Magazine Survey

Mission Directed R&D
The increasing importance of and reliance on unmanned and autonomous vehicles and real-time situational awareness and sensor systems continue to change the aerospace, defense, and national security R&D landscape. The unmanned aerial vehicle (UAV) sector alone is forecast by Teal Group to reach $2.6 billion in global R&D in 2011 and to more than double in less than a decade. Likewise, the autonomous underwater vehicle (AUV) market is growing rapidly, at a rate currently estimated by Booz & Co. of nearly 13% per year, with R&D investments mirroring this projected market growth. These systems, by their nature and scale, provide system-level R&D opportunities that historically were limited to major prime contractors with large manufacturing capacities. Larger corporations such as Boeing, Lockheed Martin, and Northrop Grumman are indeed engaged in developing and producing UAVs and AUVs. One of the largest and best known developers of UAVs is General Atomics Aeronautical Systems, a private corporation and manufacturer of the well-known Predator UAV. These larger companies likely dominate the R&D expenditures, but many smaller companies are also engaged both as subcontractors and primes in significant efforts in these technological areas. Kaman Aerospace, whose annual aerospace R&D investment is less than 1% of its partner Lockheed Martin, has developed key components of the K-MAX autonomous



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Global industry leaders in aerospace/defense R&D. Source: Battelle, R&D Magazine Survey

helicopter platform recently selected for full deployment. As in other industries, the R&D capabilities inherent in these small to midsized firms make them attractive acquisition targets for larger corporations. Airborne Technologies, a small UAV developer and manufacturer, was acquired by L-3 Communications last year as L-3 sought to broaden its capabilities.

Early-stage R&D efforts in these technologies, along with efforts in other sensor and monitoring technologies, cybersecurity, nanotechnology and advanced materials, biofuels, and medical technologies, will see continued defense R&D funding, for which numerous smaller firms may see a more level playing field over the next five to 10 years.




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