Sikorsky Aircraft's strategy for navigating defense budget cuts

Sikorsky Aircraft -- Financial Plan for Looming Defense Cuts

New Defense Markets Strategy

Diversify Product Mix Strategy

Many analysts believe that the U.S. budget has grown to unprecedented levels and budget issues have become a political priority. Talks of to how reign in the deficit to a level that represents more a sustainable trajectory than its current path plagues all the media channels and political commentary. No matter which side of the political debate that anyone sides with, there seems to be evidence that massive budget cuts are on the horizon. Some of the deficit reduction measures that are being tossed around include social security reform, health care reform, social spending on entitlement programs, and last but not least, often the elephant in the room, defense spending.

The United States spends nearly as much on military expenditures as the rest of the world combined and in 2008 the budget exceeded seven hundred and eleven billion dollars (Hellman and Sharp). With the hysteria surrounding the budget, it is reasonable to suspect that the enormous military budget will not be off the table in terms of inclusiveness in budget reduction measures. While many companies have fared well financially during the military engagements in the Middle East and elsewhere, the market for wartime expenditures may finally be contracting. This research will focus on how one company, Sirkorsky Aircraft, can find new opportunities for growth in an evolving marketplace.

Figure 1-2008 Defense Spending[footnoteRef:1] [1: (Hellman and Sharp)]

New Defense Markets Strategy

One strategy for Sirkorsky is to position itself so that it can be include in contract bids for defense spending on other regions of the world. For example, China and Europe are significant buyers of arms; though they pale in comparison to the U.S. spending levels. However, when considered together, they account for roughly twenty five percent of world military expenditures. The European economy is in much of the same boat as the U.S. financial situation and it would reasonable for the market in this region to stagnate as well. Thus one might expect that the only short-term areas for growth in the U.S./European markets would come from greater market penetration as opposed to new growth opportunities.

China on the other hand, recovered from the global recession in record pace. Some estimates acknowledge that China pulled out of the recession in 2009, while other economies are still struggling to weather the storm (Watts). Additionally, while other militaries are likely to be candidates for budget reductions, the Chinese military has increased its annual spending by over twelve percent (BBC Business News). Hence the Chinese market most likely represents the fastest growing emerging market for defense spending in the world. China would most likely give priority to domestic production; however since they do not quite have the capabilities for meeting the same level of sophistication that Sirkorsky could offer and could represent one of their biggest opportunities.

Other areas of the world could also prospective clients as instability continues to rise in other geographic regions. Turkey has had a history with Sirkorsky (Lee) and is currently feeling some pressure from the recent Arab Spring. They recently agreed to a deal that included one hundred nine Black Hawk helicopters for a contract price of three point five billion dollars. Other nations such as Israel have also expressed concern for their sovereign interests and might also be potential customers for aircraft in the light of civil unrest.

Conclusion

In conclusion, even though the market opportunities that defense contractors may be shrinking in the primary markets, there are other opportunities for such equipment that may be bountiful in other markets and/or in other sectors. China represents one of the markets that is actually growing despite the fact that most others in the world are contracting their budgets. The Arab Spring also represents a geographical region in which the turmoil may bring in contract opportunities by countries that are looking to secure their position in a situation in which instability is evident. Furthermore, Sirkorsky may also look to expanding their market penetration in civilian sectors. This is another area that will not be arbitrarily subject to the defense spending cuts that are likely to be eminent in the economies that are suffering the effects of the global recession.