Defense Spending Expected to Remain Stable Despite Budget Cuts

Government

Despite cost-cutting measures by the Department of Defense and funding at 2010 levels due to a continuing resolution, the 2011 U.S. defense industry revenues are expected to be consistent with 2010 spending levels.

2010 was another strong year in the aerospace and defense industry, as the top 100 companies in the sector achieved record financial results with a combined $646 billion in revenue and $58 billion in operating profit, according to the PricewaterhouseCoopers (PwC) US Aerospace & Defense 2010 year in review and 2011 forecast. Defense revenues are expected to be fairly consistent with 2010 levels and profits are expected to be slightly higher for defense companies, the report stated.

"Despite all these unknowns, we expect in 2011 and subsequent years that defense contractors will face the reality of flat to declining spending," the report stated.

Some legislators are also fighting to keep defense spending stable for 2011. Rep. Howard "Buck" McKeon, chairman of the House Armed Services Committee, doesn’t expect to see dramatic cuts to defense in the 2012 budget reported Defense News.

McKeon told House leadership he would like to see a $7 billion increase to the president’s request of $553 billion for defense spending.

Still, with continuing pressure to cutback defense spending and for contractors to improve productivity, many defense contractor companies have trimmed payrolls, consolidated operations, and deferred some non-product investments. “Defense spending is clearly softening and we are starting to see modest erosion in defense backlogs, so defense contractors are preparing for leaner times ahead,” the PwC report stated.

The report suggests the biggest future opportunities for contractors will be in the following areas:

  • Program management/shortened development cycle
  • Supply Chain Management
  • Information technology
  • Knowledge management

Chandler Harris is a freelance business and technology writer located in Silicon Valley. He has written for numerous publications including Entrepreneur, InformationWeek, San Jose Magazine, Government Technology, Public CIO, AllBusiness.com, U.S. Banker, Digital Communities Magazine, Converge Magazine, Surfer's Journal, Adventure Sports Magazine, ClearanceJobs.com, and the San Jose Business Journal. Chandler is also engaged in helping companies further their content marketing needs through content strategy, optimization and creation, as well as blogging and social media platforms. When he's not writing, Chandler enjoys his beach haunt of Santa Cruz where he rides roller coasters with his son, surfs and bikes across mountain ranges.

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