SIC 3812 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instruments
SIC 3812
This category includes establishments primarily engaged in manufacturing search, detection, navigation, guidance, aeronautical, and nautical systems and instruments. Important products of this industry are radar systems and equipment; sonar systems and equipment; navigation systems and equipment; countermeasures equipment; aircraft and missile control systems and equipment; flight and navigation sensors, transmitters, and displays; gyroscopes; airframe equipment instruments; and speed, pitch, and roll navigational instruments and systems. Establishments primarily engaged in manufacturing aircraft engine instruments or meteorological systems and equipment, including weather tracking equipment, are classified in SIC 3829: Measuring and Controlling Devices, Not Elsewhere Classified.
334511
Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing
In the mid-2000s approximately 500 U.S. companies were involved in the manufacture of search and navigation systems and instruments. Together, these companies shipped $34.2 billion worth of goods in 2003 and employed 151,284 workers. Defense budgets decreased significantly after the end of the Cold War in the early 1990s, which negatively affected the industry, but spending picked up again during the first half of the 2000s as the United States launched the War on Terrorism after the attacks of September 11, 2001, and then entered into war with Iraq in 2003. While the military continued to upgrade communication, defense, and weapons systems, in the mid-2000s the commercial use of global positioning systems (GPS) was experiencing strong growth for navigational purposes.
The United States was expected to continue leading the world in new technology in this market for years to come. In April 2003, the U.S. Air Force launched the fifth and final Milstar satellite to complete the first worldwide, secure, anti-jam communications system for military use. The civilian sector, which remained a lucrative market for new technology, also was advancing new consumer technologies. The United States was expected to continue to be the leading exporter of search and navigation equipment, as other countries sought to upgrade their air safety and NATO allies continued to procure the latest defense technology.
With few exceptions, the principle suppliers of search and navigation equipment are the same contractors who comprise the larger U.S. aerospace and defense industry, to which search and navigation equipment contribute significantly. Although not necessarily the most prolific producers of search and navigation instruments, many of the largest and most recognizable corporations in the United States have been involved in the business, including AT&T, Boeing, General Electric, General Motors, and IBM.
Along with such aerospace sectors as the business and commercial jet, helicopter, aircraft maintenance, and spare parts industries, the search and navigation industry comprises a so-called "niche segment" of the larger aerospace manufacturing group. A substantial majority of the industry's product types fall into the avionics (aviation electronics) product classification, which includes aeronautic radar systems, air traffic control systems, weaponry sighting and fire control systems, and autopilots. Product groups traditionally associated with the avionics industry but excluded from the search and navigation industry include flight trainers and simulators, which are included in SIC 3699: Electrical Machinery, Equipment, and Supplies, Not Elsewhere Classified; and radio communications equipment and telemetry systems and equipment, which is classified under SIC 3663: Radio and Television Broadcasting and Communications Equipment. However, product groups classified as search and navigation industry products but excluded from the avionics industry's product mix include such nautical instruments as fathometers, hydrophones, sonabuoys, marine sextants, sonar fish finders and other sonar systems, and taffrail logs (torpedo-shaped instruments dragged behind ships to determine distance traveled or speed).
Historically, the primary customer for industry products has been the U.S. government—in particular the Department of Defense, Federal Aviation Administration, and National Aeronautics and Space Administration. Industry sales to commercial establishments adhere to the traditional terms and conditions of the business marketplace, and products are evaluated in terms of competitive value for technical superiority, reputation, price, delivery schedule, financing, and reliability. Sales to the federal government, however, tend to follow a highly specialized and structured set of procedures.
Funds for government search and navigation equipment contracts are authorized by Congress based on budget requests submitted by the executive branch for the agency or department requiring the equipment. Congress appropriates specific funding for programs on an annual basis, which often means that programs originally approved for development over several years are subject to adjustments or outright cancellation on a yearly basis. Contractors submit bids to government officials at bidding conferences attended by "prime" contractors—firms or consortia who submit the final integrated system directly to the end-user agency—and subcontractors who attend the conferences to seek out prime contractors with whom to team.
Contracts may be awarded to a single contractor in a "winner-take-all" competition or divided among several contractors or consortia as a percentage of the total awarded contract. Contracts may cover specific phases of the product development process: the concept/design or project definition stage, the prototype or demonstration/validation stage, or the execution or large-scale production stage. Government contracts also are warded according to the method by which the contractor is paid. In cost reimbursement contracts, the contractor is paid for allowable or "allocable" costs such as engineering and manufacturing expenses, special tooling and test equipment costs, marketing and administrative expenditures, and the cost of the bid proposal itself. Cost plus fixed fee contracts involve payments to the contractor by the government of a pre-established fee regardless of the firm's actual final costs. Such contracts award contractors who deliver systems below the contracted price and penalize contractors who experience cost overruns. In cost plus incentive fee contracts, the government reimburses the contractor based on the firm's ability to meet certain targets such as cost guidelines, "mission success" parameters, and delivery time constraints. The average industry "win rate"—the ratio of contracts awarded to total contracts bid on—is about 25 percent in the aerospace, and thus the search and navigation, industry as a whole. Some firms, however, achieve win rates nearly twice as high.
Contractors are generally paid through periodic "progress payments" for work performed with a final payment for remaining costs paid upon delivery of the product. Contracts may be extended through "replenishment" and "follow on" orders by the government customer and may be terminated without cause at the sole discretion of the government. Disputes regarding unpaid or overpaid amounts are handled by a Defense Contract Management District Termination contracting officer to whom settlement proposals are submitted by the contractor for claimed expenses and "termination costs." The contracting officer may award the contractor funds for work performed prior to the contract's termination, or may require that the contractor reimburse funds paid out for canceled work.
The "monopsonic"—or single customer—nature of the government procurement market has led to a unique division of operations in the search and navigation industry: one set of rules and procedures for commercial clients and a second, completely segregated set of rules and procedures for government contracts. The purpose of the complex government procurement apparatus is to protect the government's interest in fair and reasonable prices, to eliminate contractor fraud, to ensure equal access by all bidders, and to guarantee that federal funds appropriated for government contracts reflect the economic and social priorities of the government. As a result, the process of bidding on federal contracts entails separate data collection and accounting procedures, conformance to supplier network requirements, adherence to hiring and personnel guidelines, and the disclosure of the contractor's corporate financial information to government auditors. These and other requirements regarding contractor certification and auditing and oversight conformance have resulted in historical labor costs for the industry, three times higher for federal contracts (as a percentage of sales) than for equivalent commercial contracts.
Several government agencies perform oversight and other procurement-related functions that directly affect search and navigation industry activities. The Defense Contract Audit Agency...
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