By: AccuVal Associates, Inc.
With the US economy still in recovery mode, many of us are trying to do more with less. This holds true even in the Department of Defense, which is looking to slash its spending by $260 billion during the next five years. The FY2012 budget is $644 billion, $74 billion leaner than the year previous. The following table shows the past and projected spending of the Department of Defense.
With the withdrawal of US forces from Iraq this past year and the planned reduction of forces in Afghanistan by 2014, the Department of Defense will be looking at effective ways to reduce the size of active duty forces. At the same time, the organization must be careful not weaken the security of the US in current and future conflicts. Many programs will be on the chopping block, but one area likely to see an increase in spending is the procurement of military technologies and weapon systems, such as the Unmanned Aerial Vehicles (UAVs).
Demand for these UAVs is at an all-time high, both here in the US and abroad. Market forecast for the sale of UAVs is expected to grow exponentially through the next several years. While the Army is looking into cutting down the number of active-duty combat brigades from 45 to 35 over the next five years, the organization will need to sustain the operational capabilities of this depleted force.
With an increased burden being placed on men in the field, there will be a reliance on improved technologies being supplied to the boots on the ground. The US will look to defense contractors, such as Northrop Grumman, to employ new technologies to aid these men in their intelligence, surveillance and reconnaissance capabilities.
The budget for FY2012 calls for an increase of $2.5 billion for additional Unmanned Aerial Systems. These systems include the MQ-1 Predator, MQ-9 Reaper and MQ-1C Grey Eagle: long-range reconnaissance and strike-capable aircrafts. The Department of Defense is looking to add 48 Reapers and 36 Grey Eagles, and it has the capability to support 65 Combat Air Patrols by the end of FY2013.
In the world of defense spending, US military demand/budgeting and resulting defense contracts ultimately drives supply in this industry.
As of 2011, the Department of Defense had approximately 7,000 unmanned aircraft in their inventory. They were allocated $1.5 billion for the procurement of the Global Hawk UAV and $1.9 billion for their Predator drone during that year. This reflected marked increases in spending over 2010, a jump of 6.7 percent for the Global Hawk (by Northrop Grumman) and 57 percent for the Predator (General Atomics Aeronautical Systems).
The 2012 budget continues this trend by allocating $4.8 billion to the development and purchasing of these UAVs and less expensive low-altitude portable unmanned systems. The major producer of these smaller man portable drones is AeroVironment Inc; the company supplies smaller drones such as the Raven-B, which is launched by one man in the field and provides small units real-time intelligence. Of all drone missions flown in Iraq and Afghanistan, AeroVironment-produced UAVs are used nearly 85 percent of the time. The Air Force, in 2011, had 255 active drones (Global Hawk, Predator and Reaper) in its inventory. The Air Force is looking to grow that number to 420 by FY2017. This stands in stark contrast to a decade ago, when there were approximately 50 drones total in the US armed forces.
The following table identifies funding and quantities of Unmanned Aerial Systems for 2010 through 2012.
Although the Defense Department has current plans to expand their inventory of Unmanned Aerial Vehicles in the near term, there is a history of sudden change in military spending. When the Defense Department tightens its belt, major production programs can be cut or rescaled with little notice. Due to current budget cuts, companies such as Lockheed Martin and Raytheon will certainly be facing cuts in their industry. Late in 2011, Lockheed Martin saw production of its F-22 Raptor, a joint strike fighter, stopped. Lockheed stated that the program cut put approximately 95,000 jobs at risk. Lockheed also saw production of the new F-35 Joint Strike fighter necessarily scaled back. Raytheon experienced a cut to its advanced air-to-air missile system, in the range of $190 million. This was due to delays in the system's delivery, showing furthermore that any programs perceived as either troubled or not cost-effective could be taken out of the defense budget.
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