series of co-production agreements evolved into initiatives by allies to become more involved in development, as well as licensed manufacturers. Data collected between 1980 and 1995 show no clear trend in the percentage of weapons systems sales accounted for by offsets, with a bump up to 80 percent in 1995 but long-term fluctuations around an average of 45-55 percent. There is a clearer trend, however, in the increase in the proportion of indirect to direct offsets. Only half of these indirect offsets involve aerospace; thus, an increasing number of military offsets affects companies outside the aerospace industry. This is especially true with respect to military exports to Pacific Rim countries.

There are complex interactions between commercial and military offsets. The many military co-production and licensing agreements allowed the reconstruction of significant manufacturing capacity, employment bases, and aerospace infrastructures in countries allied with the United States. This in turn created a demand for offsets, much of which was sought in the form of civil or commercial business. Demand for commercial offsets began in a significant way in the 1960s and 1970s, a few decades after the beginning of military offsets.

Motives for Commercial Offsets

There are three motives driving commercial outsourcing:

  • market access;
  • a desire to spread risk and gain access to capital, including financing from governments interested in building their domestic aerospace industries; and
  • access to product and process technological skills that are equal to or superior to that of U.S. domestic suppliers.

It is important to remember that these motives are reactions to both purely technical and commercial forces, and to trade-distorting government interventions. Separating these two factors, market forces and government intervention, is very difficult.

Dr. Mowery also noted that the U.S. firm that was the least successful in managing this international outsourcing and strategic alliance building was McDonnell Douglas. This inability to manage effectively these relationships, especially the inability to tap into funding sources to expand and maintain its product line, reduced McDonnell Douglas' share of business. Thus, there is a question as to whether aerospace companies can remain viable without maintaining these complex strategic alliance networks.

Impact of Offsets

Dr. Mowery observed that the effects of offsets are difficult to assess for three reasons:

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