Cost containment will influence aerospace, defense, and security (ADS) R&D, where industry investment is linked to government needs and funding. In the west, large new weapon system development programs will continue to give way to technologies that extend the life of extant platforms. In space-related research, budget constraints at NASA may stimulate additional new private sector investment in the U.S. and abroad. In civil aviation, China's ambitions to penetrate the world market will depend on their ability to deliver lower procurement and operating costs from airliners now in development.
Cybersecurity continues to be a leading area for rapid cycles of defense R&D and deployment. Autonomous systems, advanced data analytics, and critical infrastructure protection will also remain research priorities with common reliance on advancements in information and cyber technologies.
The U.S. Department of Defense also creates market pull for technology in non-defense domains. As one of the world's largest energy users, DOD mission needs drive sustainable energy deployments in renewable fuels, installation-scale smart electricity grids, and portable power for the warfighter.
Leading U.S. R&D Firms
Though R&D at a number of firms has been affected by divestitures or acquisitions, the top ten ADS R&D spenders remain the same as last year. Once again, Boeing leads the segment in R&D spending by a wide margin, but it is on pace to invest nearly $500 million less in 2012 than it did in 2011. Perhaps this could be attributed to a post-Dreamliner launch, revised level of base R&D activities. Our estimates for most of the leading aerospace/defense/security companies, however, show 2012 R&D investments are likely to be below 2011 levels. This common theme indicates that real R&D budget reductions are being enacted by the segment’s firms as a result of continued cuts in federal defense spending.
Of the leading ADS industry R&D performers, only Raytheon and Lockheed Martin are projected to have higher 2012 R&D expenditures. Beyond the top ten, a number of key technology firms such as L-3 Communications, BE Aerospace, Esterline Technologies, and Orbital Sciences are also likely to exceed their 2011 R&D levels.
U.S. Industry Perspectives
Many aerospace/defense/security industry survey respondents reported a negative perspective on their 2012 R&D budgets, reflecting concerns over reduced defense spending. Nearly half (46%) of the respondents were concerned that their 2012 budgets were too low, and 62% have become even more pessimistic in their outlook for 2013.
This concern is manifested in 2013 R&D spending plans as 42% of the respondents state that their 2013 budgets will be decreasing over 2012. Only 25% of the ADS respondents expect their 2013 budgets to increase, the smallest share among the industry segments we examine. Overall, the industry is working to get the most value out of limited funding with 79% of the respondents seeing even tighter budgeting requirements this year than last.
Though R&D spending may be declining, industry respondents are still positive about the level of current U.S. technology development. Their views of the future are not as positive, however. More than three quarters (77%) perceive the U.S. is at some risk of losing significant technological leadership in the next three years—33% feel this risk is significant.
U.S. and Global Industry Forecast
These aerospace/defense/security industry R&D spending levels are forecast in terms of the internal resources that firms will invest. These values, to the extent possible with reported data, exclude the value of government contracted research. Significant cuts to contract R&D, related to federal budget reduction, do affect the level and priority of internal investments. Reductions in overall sales to government agencies further limit the internal resources available for R&D.
These continued reductions in federal defense spending, in conjunction with industry acquisitions and related R&D rationalization (such as UTC’s purchase of Goodrich), may continue to restrain U.S. ADS R&D. We forecast a 2.0% decline from 2012 falling to $15.6 billion in 2013. Globally, we forecast a net 0.9% increase as China and other emerging markets increase their investments in both civil aviation and defense-related technologies.
Cost Pressures Influence R&D
Spiraling development costs are limiting the number of new platform systems in western defense budgets, while creating new opportunities to develop technologies for platform and service life extension. For example, advanced sensors will enable condition-based maintenance to increase efficiency, while next-generation avionics will further extend aging aircraft like the B-52.
High development and procurement costs may threaten the preservation of industry's long-term R&D capacity. For example, when the F-35 development program is complete, for the first time in U.S. aviation history, no next-generation fighter is projected to be in development. The European defense establishment faces similar circumstances.
While in the midst of a rearmament program, Russia also continues to reduce R&D as a percentage of procurement. Nevertheless, Russia recently affirmed commitment to technological advancement by forming the DARPA-like "Foundation for Advanced Research Projects in the Defense Industry" to fund areas like unmanned aerial vehicles, new materials, advanced electronics, and hypersonic systems.
Trends and funding outlook for China's defense R&D are difficult to determine. Some have estimated expenditures of US$ 5 to 10 billion, including major programs aimed at technological parity like the J-20 fighter. In civil aerospace the Commercial Aircraft Corporation of China is developing a new narrow-body aircraft to compete with Boeing and EADS by 2016.
In 2012, shuttle retirement and cost pressures at NASA drove a historic shift toward commercial space flight. NASA and other federal government space-related budgets will remain constrained, but a corresponding increase in private-sector development will continue.
Interconnected Technology Development & Deployment
Advancements in intelligence, surveillance, and reconnaissance (ISR) systems are among the most urgent global needs for homeland security, threat anticipation, and support of asymmetric warfare operations. ISR also illustrates the need for parallel development of synergistic technologies to achieve the mission.
Air- and sea-based unmanned systems have been deployed in unprecedented levels by the United States. Other nations are investing in similar development programs, such as China's "Pterodactyl" drone. Improved autonomous operation will be an ongoing research objective for these platforms, along with stealth, endurance, reliability, and lower cost. As part of a growing network of constant-surveillance assets, sensor systems in domains like border and maritime security, and other diverse information sources, ISR technologies contribute to large data sets that must be mined using big data analytics. Like the big data challenge in life science, exploitation of such ISR data depends on rapid progress in information processing research.
At each step, ISR systems and data are exposed to cybersecurity threats, for which R&D funding will continue to be prioritized. DARPA, DHS, and the private sector see pervasive vulnerability and a need for a fundamentally new approach to make transformative advancements in areas like reusable high-assurance components, greater automation of detection and response, and more secure cyber-physical interfaces. Another critical issue is cyber exploits which arrive in the technology supply chain, e.g., compromised FPGA's and ASICs from Asia—a problem that likely can't be solved either by secure domestic production or by component testing.
ISR assets are not the only exposure. As U.S. Secretary of Defense Panetta recently warned of the cyber threat to America's critical infrastructure networks: "They are targeting the computer control systems that operate chemical, electricity and water plants and those that guide transportation throughout this country." Technology developments to defend and harden these key national resources will likely remain a priority in 2013 and beyond.