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What Happens to the Aircraft and Spacecraft Industries after US Government Shutdown?

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By: Justinas Liuima

    On 30 September 2013, the US Congress failed to reach an agreement on budget allocation for the 2014 financial year, meaning a partial shutdown of some government services. Such situation could have far-reaching consequences for the US economy. What implications will this have on the aircraft and spacecraft industries?

    Background

    The situation looks like a déjà vu of the government shutdown in 1996. Back then, the government shutdown continued for 21 days after politics failed to reach an agreement on funding of public
    institutions. The cost of this stalemate situation was US$2 billion, according to the White House Office of Management and Budget.

    The full impact of this recent government crisis is not fully known yet. According to initial estimates, a government shutdown could cost US$300 million a day, a fraction of the US economy of US$15.7 trillion. However, such a situation is likely to heavily influence industries largely dependent on defence sector and government spending, such as aircraft and spacecraft.

    Aircraft

    Stalled government funding is likely to adversely influence the US aircraft industry, worth US$104.6 billion in 2012. Even though the Department of Defence is exempt from the full effects of government shutdown, the new contracts with private companies are likely to be stalled until funding is restored.

    This is expected to negatively influence the largest aircraft companies, such as Boeing and Lockheed Martin, which provide military aircraft for the US army. In addition, if the government crisis is
    prolonged, it is expected to negatively influence many smaller component suppliers in the defence sector.

    Foreign suppliers are likely to feel the consequences as well, since imports account for nearly half of the total US aircraft and spacecraft market. France and Canada are the main suppliers, accounting for 22% and 18% of total imports to the US in 2012.

    However, the effects on the aircraft industry are expected to be short-term, with little long-term influence. The aircraft industry is therefore forecast to grow at a CAGR of 3% during 2013-2018.

    Spacecraft

    The US spacecraft industry is expected to be hit most by the government shutdown. Due to stalled financing, US space agency NASA was forced to temporarily furlough nearly all of its employees for an unlimited time. This could also have long-lasting consequences, since many space programmes and employee trainings are likely to be cancelled as well.

    Declining funding also has an influence. In 2013, NASA’s budget amounted to US$17.7 billion, its lowest over the last four years. NASA also forecasts that financing will remain at the same level up to 2017; however, due to ongoing negotiations in the US Congress, the level of funding is not clear and could be significantly less.

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