A System Dynamics Analysis of the Interaction Between the U.S. Government and the Defense Aerospace Industry

As the sole funder of defense development programs, the Department of
Defense wields great market influence. In a monopsonistic market, the
customer has tremendous control of product specifications and effectively
sets the price. While the sale of aircraft to foreign markets brings
additional revenue to the company, as a rule these foreign governments
do not directly initiate new aircraft development. With increasing
competition for fewer development projects, many aerospace companies
have gone out of business— either through bankruptcy or merger. As
costs increase while funding and purchase quantities decrease, most
companies have not been able to continue developing and manufacturing
aerospace products in such low quantities. With no intervention, this trend
could eliminate the U.S. defense aerospace industry and seriously cripple
their efforts in the commercial aerospace industry as well.

The variability of the national security goals creates instability in the
specified requirements for a military aircraft. Typically, an aircraft that
actually passes the development approval milestone has already endured
multiple changes. Even once a development contract has been awarded,
the continuing evolution of contract requirements causes an increase in
the workload to complete the project. It also wastes a certain portion of
work already completed under the original design specifications.