The US. Aircraft Industry: A Case for Sectoral Planning

Abstract

The aircraft industry in the United States is now operating at about 55 percent of its one-shift capability. This high level of idle physical capacity, combined with the even larger burden of laborrelated overhead structure (engineering teams, marketing organizations, etc.), is costing about $1.0 billion per year in inefficiency. The Defense Department's share of this cost is over $400 million per year. Better economic and market planning in the military aircraft sector alone could result in annual savings of at least $250 million to the Defense Department within just a few years. Over-capacity and other significant problems in the aircraft industry seem to be directly related to the unique market conditions of the postVietnam period. Of prime importance is the fact that the aircraft procurement budget of the Department of Defense dropped, in constant 1977 dollars, from $17 billion in 1968 to $7 billion in 1975. Coincidentally, the major procurements of commercial aircraft in the United States also shrank within this same period, and are expected to contract still further until major replacement buys occur in the mid-1980s. There has also been a dramatic shift in the sale of U.S. military aircraft to foreign nations during the past seven years. In 1968, this amounted to approximately 10 percent of U.S. military aircraft procurements; by 1976 foreign sales of military aircraft were up to approximately 60 percent. These foreign sales have provided a short-term stop-gap, but the pattern is now changing in the direction of co-production or host-country production agreements with other countries. Certainly, future foreign sales are far less assured than domestic procurements. Since the mid-1950s, there has been a significant shift in the number of military aircraft being bought.