How Are Oil Prices and Defense Spending Increases Impacting Your Business?

19 July, 2018
How Are Oil Prices and Defense Spending Increases Impacting Your Business?

Geopolitical, policy and economic factors are constantly buffeting the aerospace industry. Lately, aerospace businesses have been particularly concerned with both rising oil prices and increases in defense spending by the United States government.

In addition to these two massive factors, there are a number of other major trends affecting aerospace companies.

1) Rising oil prices

Oil becoming more expensive is good for helicopter folks and not so great for aviation, airlines, manufacturer and their suppliers. According to a report from Barrons, experts are forecasting an average crude price of $55 a barrel, up from a low of around $30 and down from a peak of almost $150.

Every aerospace company should be keeping an eye oil prices figuring out what rates mean for business.

2) More defense spending

The Trump Administration has been associated with higher defense spending. Last year, the US still had the highest defense budget in the world, higher than the next seven highest-spending countries put together according to international security research institute SIPRI. However, US defense spending in 2017 was the same as in 2016, $610 million. Spending will tick higher in 2018 and 2019 as the Trump administration makes good on promises to increase defense spending. Defense spending is set at just under $700 billion for 2018, with experts saying it will top that in 2019.

While the entire aerospace industry can expect more defense spending, knowing where those funds will flow is a bit more difficult to project. Experts have said the greatest beneficiaries could include those that have contract dealing with F-35s, F/A18s, modernizing attack helicopters, tactical missiles, and unmanned aircraft.

3) More innovation

The aerospace industry is currently looking at an innovation renaissance that is powered by both manufacturers and private ventures like SpaceX. Supersonic aircraft, unmanned drones and anything associated with connectivity and data are seeing the most innovation right now. While the government is cutting back on innovation spending, leading aerospace companies are investing more. It should be noted that investing in innovation means risk. It’s critical for companies to think about how to capitalize on innovation, industry needs that innovation can meet and market trends.

4) America first

Like many of his campaign promises, President Trump is looking to deliver on his promise to put America first, especially when it comes to defense spending. If your business has an international supply chain, this issue ought to be on your radar. Aerospace companies should be prepared for possible fallout and negative publicity from protectionist policies. Additionally, companies should look to leverage their domestic focus.

5) International uncertainty

The Trump Administration has been shaking up international business in recent months, and aerospace companies must stay on their toes in this era of increasing uncertainty. Exports are crucial to the aerospace industry. They have grown by 52 percent within the last five years, and if international sales are crucial to your company, there is a great deal to consider right now. Export-Import Bank policy is particularly essential because, as the nation’s export credit agency, Ex-Im is an important tool for aerospace companies. Once against the bank, President Trump recently altered his position.

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