FORTUNE -- Last week, Secretary of Defense Chuck Hagel warned that the projected $500 billion worth of sequestration-related cuts to the defense budget over the next 10 years "will cause an unnecessary, strategically unsound, and dangerous degradation in military readiness and capability."
The cuts come with another consequence: They'll likely make the aerospace industry workforce crisis even worse.
The so-called silver tsunami -- the aging of the country's population -- will hit the aerospace industry especially hard. It received an influx of workers in the Apollo era, when the country's space program was shooting for the moon and generating buzz. Cuts to that program in the mid- to late-1970s and 1980s, plus the Vietnam and Cold Wars, kept the industry from ever receiving a major infusion of fresh talent. As a result, the average age for an aerospace and defense workers is 45 -- 47 for an aeronautical engineer -- compared to the median age of 42 for all American workers, according to a survey by Aviation Week and the Bureau of Labor Statistics.
The Aviation Week survey -- which tallied responses from companies like Boeing (BA), BAE Systems, Lockheed Martin (LMT), and Northrop Grumman (NOC) -- showed that this year 9.6% of employees, or 62,000 individuals, in aerospace and defense were eligible for retirement. That figure is set to increase by about two percentage points every year for the next four years, reaching 18.5% in 2017, the survey says. "There's a wave of retirements coming," says Annalisa Weigel, a senior aerospace policy and economics lecturer at the Massachusetts Institute of Technology. "The question is will they be able to replace that talent."
The aerospace and defense industries are pondering that question carefully. Twenty-two percent of respondents to the Aviation Week survey said that the shortage of scientists and design engineers was the most significant factor affecting their organization's ability to expand operations or deliver to customers, and 35% said that a highly skilled workforce will be the most important element to their organization's success over the next three to five years.
Though it often receives the lion's share of attention, student enrollment in college's science, technology, engineering, and math (STEM) programs isn't necessarily the problem. The National Science Foundation found that between 1972 and 2007, about 30% of freshmen planned to major in science and engineering disciplines. By 2010, that figure was 38%. The issue isn't the number of STEM graduates, it's aerospace's ability to attract them, says Weigel. According to Aviation Week, 60% of students at universities favored by aerospace and defense employers said they had considered a career in the industry in 2013, down from 72% in 2012 and the lowest in four years. "Younger folks are taking a keen interest in industry outside aerospace; in health care, technology, and the Googles of the world," says Weigel, who administers a survey on aerospace students' attitudes. That's because STEM students -- like their counterparts who major in other topics -- want responsibility, the ability to move around in a job, and an instant sense of achievement, which is not typical in aerospace jobs, where one project can take a decade to complete.
Then there's the issue of compensation. While the average annual salary for a mid-career aerospace software engineer is $93,288 -- several hundred dollars above the national average for a software engineer -- Google (GOOG) pays its software developers $128,336 on average, according to GlassDoor. Software developers at Apple (AAPL) receive an average base salary of $114,413.
Competing for talent with the likes of Google is an arduous task for many high-tech companies, but aerospace's recruitment challenge comes with an added twist: Not just anyone can fill the roles vacated by retirees. The International Traffic in Arms Regulations governs many of the aircraft, rockets, satellites, and missiles that aerospace and defense companies produce, which means most employees must be U.S. citizens and the positions available to foreigners are limited. Because of these restrictions, immigration reform and additional skilled foreign worker visas that other high-tech industries are touting as a solution to the skills gap won't have the same effect in aerospace and defense, unless such reform offers a pathway to citizenship.
The Defense Department budget cuts will make the hiring hurdle even higher. "It's always difficult to bring people into the industry, says Weigel, "and the budget cuts to Defense and NASA that have trimmed the employee population certainly don't help." Layoffs and restructurings at companies like Boeing don't make the best recruiting tools.
New and groundbreaking aerospace programs are the best lures for young talent, says Christian Marrone, vice president for national security and acquisition policy at the Aerospace Industries Association. But the planned $14 billion reduction in the Defense Department's research and development spending for the next two years presents a threat to new projects that are farmed out to graduate school engineering programs and aerospace and defense companies. "How do you retain when you don't have that high level of new work? How do you attract new grads?" Marrone says.
Companies are trying to answer those questions on the university level by establishing close ties to programs known for cultivating STEM talent. Boeing -- where 30% of its workers could retire today if they wished -- has teamed up with 17 engineering schools, including the University of Washington and Northwestern University, on technology and R&D projects, according to Duane Schireman, director of strategic workforce planning at Boeing. Last year, Boeing invested about $48 million in education programs for young engineers, scientists, and technologists. "Boeing is an engineering company. If we cannot develop solutions for our customers, we're out of business," Schireman says.
Other companies have taken a similar, education-based approach. Last month, General Electric Aviation and the University of Cincinnati Research Institute announced the launch of a research center at GE's Evendale, Ohio campus. GE (GE) will contribute $6 million to sponsor six UCRI researchers and 19 UC undergraduate and postgraduate students over the next three years. And earlier this year, Northrup Grumman recommitted to sponsoring CyberPatriot, a high school competition put on by the Air Force Association to encourage students to pursue careers in cybersecurity and the STEM disciplines.
Marrone of the Aerospace Industries Association is encouraged by companies' university outreach, though he admitted that the results of the programs were "a mixed bag." His own efforts to address the workforce crisis are now focused on Capitol Hill, where he's trying to build awareness of the perils of cutting Defense's research and development budget. His pitch: There's a lot at stake. Demand for civilian aircraft has never been higher, with the backlog for non-defense aircraft reaching a record $582 billion earlier this year. Aerospace generated a balance of trade of $64 billion last year -- the most of any industry. And then there are the national security concerns.
"At the end of the day, this all effects what the department can give a warfighter," says Marrone. The defense cuts and the workforce shortage threaten to break the promise made to military personnel, he says, to give them the best technology available.
Congress and the Obama Administration will need to strike a new deal in late March to avoid chopping billions from defense budgets. The major contractors are preparing now.
By Elizabeth G. Olson
FORTUNE -- Budget watchdogs of all political stripes and military contractors are sparring furiously over the effects of truncated government spending, a matter where emotions soar over such hot-button issues as unemployment and national security.
While even the most ardent MOREJan 23, 2013 10:23 AM ET
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