The global economy is facing its worst downturn in 60 years, and aerospace companies are seeing dire implications due to the cyclical sensitivity of the industry. In the civil sector, the volume of international air freight is falling at an 'unprecedented and shocking' rate, while passenger traffic is also declining sharply, according to the International Air Traffic Association (IATA).

Financial crises

In the military sector, defence budgets are likely to come under pressure as government bailouts of the financial sector and other industries drain the public coffers. Certainly, many defence analysts argue that President Obama will have to reduce the current record levels of defence spending in order to fund his big economic stimulus plans. Lockheed has already begun an advertising campaign to promote the F-22 Raptor, perhaps from fear that the fighter-aircraft programme may be axed.

The financial crisis is also hitting aerospace companies directly. Lockheed Martin has slashed its earnings forecast for 2009 and Northrop Grumman warned it will report a loss for 2008. In Lockheed's case, the company needs to make up shortfalls in its pension fund, which has been hit by the financial crisis. Meanwhile, Northrop said that the fall in the stock market had prompted it to take a $3bn to $3.4bn charge in the fourth quarter as it writes down the book value of businesses it
took over in 2001 and 2002.

Inevitably, these developments will slow the pace of technological developments as companies cut their R&D budgets and focus on surviving the downturn. Boeing has already announced that it is looking to cut 10,000 jobs, or about 6% of its workforce, this year. Many airlines are expected to defer or cancel orders outright as demand for travel plunges in the global downturn.

The real pressure on aerospace companies and their R&D budgets is likely to come from 2010 onwards, even though the global economy may be recovering by then. Most of the civil aircraft currently being built (accounting for around the next year's worth of orders) will be complete – it's expensive and impractical to cancel an aircraft that is already under construction.

Furthermore, it will be politically difficult for President Obama – and the leaders of other governments – to cut back on defence spending in the recession, since this would simply add to the jobless total. Moreover, it will take time for the US to scale back on its overseas commitments in countries such as Iraq. But given the need to reduce budget deficits, the defence sector could experience a long period of retrenchment from 2010 or 2011 onwards. After all, it's always easier to cut defence spending than to build fewer hospitals. Similarly, the civil aviation sector, facing a glut of new aircraft, could see a dearth of orders after 2010.

Does civil aviation need nationalisation to survive?

View Results

Loading ... Loading ...

And what about oil?

The low oil price is also likely to have an impact on technological innovation in both the civil and military sectors. There's obviously far less incentive to invest in new technology when oil is at $40 a barrel than when it's at $150 a barrel and analysts are forecasting that it will rise to $200 a barrel.

“The civil aviation sector, facing a glut of new aircraft, could see a dearth of orders after 2010.”

Of course, it will be argued that the oil price will rise sharply as the economic recovery gathers pace and that we need to prepare for that eventuality now by investing in fuel-efficient technology as well as alternative fuels. But history suggests that energy price hikes are unlikely. After the last global downturn in the early 1990s, oil prices fell in real terms for a decade. The same was true after the previous global economic slump in the early 1980s.

Pressure from the environmental lobby will no doubt continue as before. But their message is unlikely to resonate as loudly with the electorate as it did in the boom years. Voters will be more worried about keeping their jobs and their homes than saving the planet.

Of course, nobody is going to admit that they're investing less in new technologies than before. Governments will say that they're just as committed to tackling climate change and the major aerospace companies (in both the military and civil sectors) certainly won't advertise the fact that they're slashing their R&D budgets.

But the cutbacks will take place and across the globe, from Sacramento to Shanghai, and the pace of technological change will slow – perhaps for as long as a decade.