DIIG Current Issues No. 27: Internal R&D Productivity in Aerospace and Defense

In an environment of declining defense spending by what have traditionally been the largest customers on both sides of the Atlantic, aerospace and defense companies face difficult decisions on how to deploy their cash. Specifically, with uncertainty regarding both budget and operational requirements, such firms have shown a hesitancy to reinvest their own capital in research and development (R&D) as they await demand signals from governments. With pressure on profits, firms will need to weigh the costs and benefits of companies’ R&D investment in a lower revenue environment. Assessing the productivity of this spending is therefore paramount.

This paper analyzes internal R&D (IR&D) in the aerospace and defense sector based on data from the European Commission’s Joint Research Center (EC JRC). It compares both the extent and productivity of IR&D from 2007 to 2010 in the top companies in the United States, Europe, and the rest of the world.