"Growth will be thirtyfold over the next few years," said John Higginbotham, CEO of SpaceVest, a Reston, Virginia venture-capital firm specializing in space companies.
These conclusions were made known at the International Business Forum and Exhibition May 10-12 in Arlington, Virginia. Attendees included some of the top aerospace and defense industry’s CEOs, as well as defense officials and members of the industry’s investment community.
Chao pointed out that aerospace stocks are outperforming both utility stocks and the broader market. Both the tech-heavy NASDAQ and the Dow Jones industrial average have been volatile recently as they continue to adjust to the "new economy" technology issues.
"In the past eight weeks [Aerospace and defense] stocks are up 40 to 60 percent from their 52-week lows," Chao said.
But even though industry stocks appear to be relatively insensitive to the economic environment, Wall Street continues to be wary of the group because "they still don’t see it as a growth industry," Chao said.
"They ask ‘Why are you still invested?’ and I say because of the consistency and the cash it generates," Chao said.
Chao also said that while growth is important, the market and the management are even more significant in making new space ventures succeed. "We need to remove aerospace and defense management from the process and put new management in place," Chao said.
"With a stellar management team, magic can happen," Higginbotham said. He points out the success of Boeing, whose management team has successfully matched its technology base with the correct market.
Over the past 12 months, the defense giant’s shares are down 13.52 percent, hitting a 52-week high of $48.50 on July 14, 1999 and a low of $32.00 in the same period on March 13, 2000.
Chao said that TRW has also been successful in establishing incubators for certain defense technologies that have commercial applications, especially in the telecommunications and information technology fields.
Both Higginbotham and Chao agreed that there is a lot of good technology entrenched in aerospace and defense companies, but getting these technologies to new markets will be challenging.
While commercial space ventures have a huge potential for growth, the investment picture for government-related space business continues to be murky.
Some industry representatives see money being driven away by the instability of government programs. Investment cash disappears quickly when there is a risk of Congress infringing on budgets for these programs, making return on investment questionable.
"There needs to be a presidential commission on the future of the aerospace industry," John Douglass, head of industry trade group Aerospace Industries Association, said on a panel at the conference earlier last week. "The issues are so broad that they have to be solved by the industry working with federal agencies."
In December, the Defense Science Board began reviewing regulatory, policy and budget changes that could help boost the industry. Years of consolidation have forced the sector to battle for fewer contracts as investors look elsewhere to put their cash.
"Unless action is taken soon, the U.S. Defense industry will likely be less competitive and financially viable in five to 10 years," the task force said in a draft review leaked to the press in April.
Pentagon officials said they want U.S. companies to be healthy enough to compete against or work with foreign firms on new programs.
"Lack of action would further undermine investment community support and work-force morale," the draft said.
The release of the review is still up in the air.
On Monday, stocks rose for a third day as investors bet a predicted half-point rise in interest rates is
already reflected in stock prices.
The Dow Jones industrial average advanced 198.41, or 1.9 percent, to 10,807.78, bringing its three-day gain to more than 4 percent. The Standard & Poor's 500 Index rose 31.40, or 2.2 percent, to 1452.36. Four stocks rose for every three that fell. The Nasdaq Composite Index gained 78.62, or 2.2 percent, to 3607.68.
Aerospace stocks closed mixed:
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