AIA 50th Annual Year-End Review and Forecast Luncheon

Year-End Review and Forecast
Marion C. Blakey, President and CEO, AIA
December 17, 2014

Good afternoon.  I’d like to thank Jennifer and the Communications Council for your great work this past year and congratulate Clif Berry for receiving the Lyman Award.  Clif, we appreciate your service to our country and your outstanding body of work on aerospace and defense history.

My thanks also go out to L-3’s Chairman, President and CEO Michael Strianese for his great leadership of AIA’s Board of Governor’s this year.  We look forward next year to having David Joyce, the President and CEO of GE Aviation as our Board Chairman and Marillyn Hewson, the CEO, President & Chairman of the Board of Lockheed Martin as our Vice Chairman.

Today, for the 50th time, we gather to celebrate an industry which keeps innovating, keeps saving and improving lives and keeps inspiring our youth.  Just think of the future Mars explorers who were so excited to view the magnificent launch and splashdown of Orion twelve days ago.  And that’s just one example of the kinds of things our industry does.  With the FAA, we’re rebuilding our aviation infrastructure from the ground up – modernizing a 1950s-era radar-based system into a 21st Century satellite-based system.  We’re doing cutting edge research on advanced aeronautics like hypersonic scramjets that could lead to significantly shorter trans-oceanic flight times.

But we also gather in a time of significant challenge as we witness unprecedented conflicts cascade around the globe.  The events of 2014 remind us that new national security threats can come from old foes or materialize out of nowhere due to a chaotic region’s ongoing strife.

Twenty-fourteen began when the leader of a major power hosted an international event devoted to peaceful athletic competition.  But shortly after the Olympic flame was doused, this strongman brazenly invaded a peaceful neighboring country.  And then a group of thugs tried to rewrite the Middle East map and gain new adherents through tactics that would shame a barbarian.  And tensions in the Far

East, never far submerged, have begun bubbling to the surface again.

Looking at the world’s dangers through either the rose colored glasses of a naïve isolationist or under the green eyeshade visor of a fiscal ideologue simply doesn’t work.  It presents a false-color image of reality.  It inhibits the clear headed thinking we desperately need about national security and America’s competitiveness.

Today, we’re announcing the results of a poll that shows the American people definitively share this judgment.  Right after the election, AIA commissioned a Harris Company voter survey.  Harris found that Americans widely recognize security threats are increasing, and are genuinely concerned that the U.S. is less secure than a year ago.  We’re releasing findings from the survey today.  Here are a few highlights:

• First, seventy-eight percent of voters believe the hostile activities of ISIS, al Qaeda and other groups contesting for control of Syria and Iraq represent an increasing national security threat.
• The concern about this threat is bipartisan; ninety percent of Republicans and 69 percent of Democrats are worried about our security as a result of what’s going on in the Middle East.
• Also, seventy-three percent say they believe the U.S. is less secure, due to cuts in planned military budgets of nearly $1 trillion over a decade.
I should warn members of Congress and potential presidential candidates to ignore the following survey finding at their own peril.

• Given the evolving and increased threats to America’s security, a solid sixty-nine percent of voters want to increase national security spending relative to the federal budget caps set more than three years ago.  This view is shared by a majority of voters across party lines—83 percent of Republicans, 63 percent of Independents and 60 percent of Democrats.
• And the same number of voters—sixty-nine percent—say they would be more likely to support a candidate who wants to increase spending on national security.

These numbers don’t surprise me one iota.  I’ve long felt the public understands the need to invest in national security, and in the aerospace technologies that propel economic advancement.

Unfortunately, public policies have not kept pace with public sentiment.  But that’s not for lack of effort.  You all know AIA’s Second to None public education campaign made a lot of noise about the risks of austerity imposed by the Budget Control Act.

And many officials agreed with our point that it’s irresponsible to make defense and domestic R&D investments bear the brunt of budget cuts.  And while our companies did well in the FY2015 “Cromnibus” [CROM – ni- bus] bill that passed this weekend, including bumps in the budgets of FAA, NASA and NOAA, the budget caps still remain with us going forward.  In addition, last night the Senate passed the short-term tax extenders bill including the R&D tax credit, which is of significant importance to our industry.  But the Senate failed to pass an extension of the Terrorism Risk Insurance Act, so we’re not going to take our hand off the throttle with our messaging.  And we’re going to add the voices of those pro-aerospace and defense voters to our effort.

In recent months the Second to None Campaign has morphed into a state-of-the-art on-line grass roots advocacy effort.  We call it the Second to None Coalition.  This is the first time ever that our industry has engaged in a major grass roots advocacy effort like those of other organized political movements of recent vintage.  And in just the last week, we’ve added more than 13,000 members to our daily growing list of people who are ready to advocate forcefully to our elected officials on behalf of the investments we need to make to grow our economy and keep our nation safe.

We’ll welcome the voices of our coalition members in the coming months as AIA and our member companies engage with the new Congress and with the national political figures already making travel plans to visit balmy Iowa this winter.

Our message is that elected leaders must address the need for the U.S. to maintain our military superiority and keep ahead of the technology development curve.  They also must recognize our military needs the capability to respond to new security challenges that often materialize due to major natural disasters and outbreaks of deadly disease such as the recent Ebola crisis.

We’ll also contend that the downward spiral of defense spending and federal R&D investment is leading to a dangerous decline in our highly skilled aerospace and defense workforce.  Sadly, if we woke up tomorrow to a new crisis, we just can’t snap our fingers to get many of our skilled workers back.  In addition, our skilled workforce must be reinvigorated as the baby boom generation of engineers and scientists begins to retire en mass.

A third message is that budget austerity undermines our ability to invest in critical R&D that leads to serendipitous breakthroughs like GPS.  Our Lyman award winner, Clif Berry, tells us that when he first attended this luncheon 39 years ago, the Pentagon was just beginning to develop the GPS satellite navigation system.  I have no doubt sitting amongst us is a bright engineer who’s working on the next great technological advance that will blow our socks off.  But I also fear there’s a project manager in our midst who’s worried to death that the budget axe may kill the promising concept she’s working hard to support.  Do we really want the U.S. sitting on the sidelines when the next great technological leap is launched at the Baikonur (Bike-a-Nor) Cosmodrome or occurs in China’s Center for Nanoscience and Technology?

All of these concerns translate into clear policy objectives that AIA is pursuing on the industry’s behalf.  First and foremost, we’re telling Congress it’s high time they relegate the budget caps to the dumpster of bad policy ideas.  The decade-long defense modernization holiday based on the dangerous illusion that history’s zealots have gone on holiday simply must end.

Clearly more and more legislators, alert to changing public opinion, want to address the defense cuts.  But we also recognize a one-sided deal will not pass in this divided government.  Congress should also take on the domestic R&D investment gap and address other domestic priorities, in the context—as we’ve long said—of a comprehensive deal involving revenue and entitlement reform.

As was the case in 2013, we’ll be pushing for congressional reauthorization of the Export Import Bank of the United States.   Our manufacturers of civil passenger and business aircraft, helicopters, and satellites and their thousands of workers count on Ex-Im financial support to compete for international sales on a level playing field in this increasingly competitive marketplace.

This past year, even though we were told the Ex-Im deck was stacked against us on Capitol Hill we took the attitude of “Game On.”  And let me tell you, we weren’t subtle about engaging Ex-Im’s foes by starkly pointing out the hazards of unilateral economic disarmament.  And we knew we were having an impact when at a key congressional hearing Ex-Im President and Chairman Fred Hochberg held up one of our print ads to make a vivid point.  What our ad essentially said is that the Chinese, Russians and French will eat our lunch, or more aptly, take away American jobs, if Congress doesn’t reauthorize the Bank.

Such advocacy helped win the battle, as Ex-Im was extended for nine months, but we’ve not yet won the war. You can count on AIA carrying forward the fight for a full reauthorization until a decisive victory is obtained.

AIA will also be very proactive when the FAA reauthorization bill comes up next year.  We’re hoping for a solid bill that further streamlines the aircraft certification process, accelerates air traffic system modernization, and facilitates integration of unmanned aircraft into the National Airspace System.  Further, we want the FAA enabled to freely support our superior aviation products in international forums.  If we truly want a safer and more efficient global aviation system, buy American is a good place to start.

Turning to the Executive Branch, AIA will be pounding the pavement to push the Administration to produce tangible results for our industry.  We hope to see in 2015 real movement on a National Defense Export Strategy and a broader aerospace and defense trade initiative.

We’re continuing to work with the State Department to reform the remaining categories of export controls.  By the way, since the reforms started a year ago, there has been a sixty-four percent reduction in the number of ITAR licenses submitted to the State Department to export aircraft and aircraft engine parts.  That corresponds to $14 billion in these less sensitive technologies being licensed through the more appropriate, less onerous Commerce system.

Next year we’ll also be working to ensure the Pentagon moves forward on needed defense acquisition system reform.  Ash Carter is no stranger to this issue.  We’re looking forward to his confirmation and we’re expecting he’ll provide the clear leadership that we need to achieve meaningful changes to a very cumbersome and inefficient system.  The current system hurts our smaller firms, inhibits innovation and makes it harder to get needed equipment in the hands of our war fighters.

I suspect some of you may be thinking, Marion, you’ve spoken about a lot of policy issues but haven’t touched on your annual forecast numbers.  Yes, this speech is a departure from the past, but we don’t want you to go away empty handed.  In front of you is a card with simple directions that will allow you to download our entire year end review and forecast report.
I would like to mention one highlight from the report.  Despite the downward pressure the federal budget situation has exerted on our industry, with a big boost from civil aircraft and space sales abroad, overall aerospace exports grew from roughly $111 billion in 2013 to nearly $119 billion. This resulted in a net surplus of nearly $61.2 billion, our best aerospace trade balance in history.

As you know, the Administration promised five years ago to double U.S. exports by next year.  Make no mistake this industry is doing its part to make that pledge come true.
Let me close with a few thoughts as we look back on the past few years of paralyzing gridlock in Washington.  An era I think it’s fair to describe as wrought with political polarization and dangerous procrastination.

I will offer two simple messages for members of the incoming 114th Congress, and say the same to the current Administration as well as to candidates gearing up for the 2016 elections.  First, on behalf of the aerospace and defense industry, we make one simple request – please start listening.

So to the new Congress, remember the saying “Ideology knows the answer before the question has been asked.”  Look at the polls – the American people are fed up with Washington, fed up with elected officials letting ideological extremism serve as an excuse for failing to listen to the public as opposed small factions of party activists.  They demand that you ask the right experts the right questions.

Let me put my advice in the context of our industry.  When the small business owner from your district tells you failure to reauthorize Ex-Im puts his workers at risk, listen first to this all-important voice from back home.  Be sure you remember those words when folks at the Club for Growth tell you that your “club score” will go down if you don’t vote against the Bank.  You know they’re hinting you might not see as many PAC dollars next cycle.

When the Joint Chiefs tell you American lives will be lost if we don’t restore defense investment to adequate levels….When an intelligence analyst tells you that defeating ISIS requires new strategies and new technologies for the war fighter….And when the wounded warrior at the VFW back home tells you that his mine resistant, ambush protected vehicle saved his life…listen very carefully.

And may the words of these real experts ring clearly in your ears when it’s time to go to the negotiating table and weigh America’s national security and investment needs up against our fiscal challenges.

Yes we can have a “grand bargain,” but one that doesn’t force us to sacrifice the very activities that make our nation strong and secure.

My final message for the 114th Congress and all candidates looking at a run in 2016 – is remember those sixty-nine percent of voters who want to back candidates who support more spending on national security.   Ask yourself; am I ready to make the tough decisions in the next twelve months to protect America?
If not, we respectfully suggest you consider the words of Winston Churchill, who in a more dire time said, “the Americans will always do the right thing…after they’ve exhausted all the alternatives.”  I sincerely hope you’re at that point.

With that, thank you again for the tremendous opportunity to speak to you at this, my eighth year end luncheon, and I’ll be happy to take your questions.  When you step up to the microphones please identify yourself and your organization.