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Industry Profiles: The Defense Industry

The business of armaments and defense - what President Dwight D. Eisenhower referred to as "the military-industrial complex" in his 1960 farewell address to the nation before leaving the Oval Office - is without a doubt a massive segment of the global economy. Arguably, it is the biggest, depending on how one chooses to compare it to others by looking at various tangential metrics, such as expense versus profit.


Any proper examination of the defense industry requires taking a closer look at the role electronics play in it - as well as the many functions served by the preforms, soldering and brazing wire, hermetic glass to metal seals, ceramic packages and other electronic components produced by AMETEK ECP. Over the course of many decades, AMETEK has stood at the vanguard of component manufacturing for this vital sector, helping to ensure that all of its most mission-critical machinery, arms, vehicles and other technologies perform up to par at all times - whether high above the earth's atmosphere or miles below the surface of the sea.

Global defense spending at a glance

Research from Statista noted that as of 2017, the most recent year for which such wide-ranging data was available, the world's countries allocated almost $2 trillion toward defense expenditures of all kinds, with the U.S. leading the pack at $610 billion in defense-related purchases during that calendar year. China was the only other nation to hit a 12-figure margin by this measurement, with $228 billion spent. The gap between second and third place for the most spending is massive - Saudi Arabia was well behind China with its $69.4 billion defense budget for 2017.

All evidence available thus far seems to indicate that while 2017 was a year of relative contraction for defense when examined together with global aerospace, 2018 will bring about significant reversal of that particular trend.

According to the 2018 Global Aerospace and Defense Industry Outlook compiled by Deloitte, this year should see 4.1 percent growth in the aerospace and defense markets worldwide, which would be a near 100 percent rate of increase compared to 2017's expansion of just 2.1 percent. When examined on its own, global defense spending is predicted to experience a compounded annual growth rate of approximately 3 percent between 2017 and 2022, exceeding $2 trillion in total monetary output. Defense-related aircraft and related expenditures, meanwhile, will most likely grow by 3.6 percent during 2018.

Rebounding from several years of decline

The most notable factor behind 2018's growth projections for the defense sector is that they constitute considerable reversals of fortune for the industry. While the realities of modern geopolitics dictate that defense spending will never truly falter, the past several years had seen something of a drop-off in overall transactions for the aerospace and defense markets all over the world, with the U.S. keeping the industry alive almost entirely on its own. Further research from Deloitte identified that 2015 had seen a 3.6 percent growth in this metric, followed by a sharp decline to 2.5 percent expansion in 2016 and falling even further in 2017 to the aforementioned 2.1 percent.

defense industry

Electronics as a reliable constant

Few things kept the aerospace and defense industry going more than the U.S.'s expenses in that vein - as was to be expected based on historical precedent - even during the two years of slight decline noted above. But the others providing the most value were original equipment manufacturing and electronics development, both of which are major areas of the industry that AMETEK ECP helps to support. Parts that were designed and fabricated by our experienced metallurgists and mechanical engineers contributed to the proper operation of products by Airbus, Harris Corp. and Lockheed Martin. All three of these leading firms in the field saw robust revenue growth in 2016, even when the sector as a whole experienced contraction, according to Deloitte.

Future trends to observe

Even in a down year like 2016 or 2017, aerospace and defense contribute so much to the U.S. economy: As noted by the Aerospace Industries Association, the industry supports 2.4 million American jobs - 845,000 positions directly involved in the sector and 1.6 million jobs involved with it at various points along the supply chain. Defense also makes up a massive share of the American export market, accounting for $146 billion in foreign trade. Parts and components constitute the lion's share of these exports - 56 percent, or $81.8 billion in oversea sales.

As existing international tensions between various nations increase their intensity and new conflicts always remain a threat to develop, there's no question that there has been an increase in overall global security risk, which has undoubtedly driven up global cash output toward defense. Countries that are lower on the ladder in terms of overall spending in this category than the U.S. but still allocating considerable funds toward armaments and related technology - such as China, India, Russia, Japan and France - are also expected to put even more of their national budgets toward defense.

Finally, Deloitte's predictions also included the expectation of a major uptick in mergers and acquisitions within the aerospace sector during 2018, with price increases by aerospace OEMs responsible for a lot of this consolidation. This could lead to a number of significant changes throughout some of the major players in the industry, so all stakeholders involved should keep an eye out for any signs of such potentially impending upheaval.

AMETEK ECP on the front lines

If anything can be said about the defense industry with certainty, it's how much is at stake surrounding it - everything from jobs and budgets to the security of the entire world as we know it. No matter what, every step of the way, AMETEK ECP will be there on the front lines of electronic component manufacturing for this field.

Our products help guarantee the optimal mission-critical function of radar and navigational systems, unmanned aerial vehicles for surveillance and targeted strikes, precision guidance for smart weapons and much more. With the ability to function in high-pressure underwater depths, the space surrounding the earth, desert heat, urban warfare settings and other extreme environments, AMETEK ECP microelectronic packages and other parts can withstand any beating the opposition might throw at them, as well as the much more routine rigors of day-to-day operations. Contact us today to learn more about AMETEK's facility with defense and military aerospace products.



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