The ongoing COVID-19 crisis has left a profound and potentially permanent impact on the A&D market. While the defense sector remains strong with increased spending on weapons development, aerospace is adapting to a market where both the production and aftermarket sectors will have to adjust to the current environment. Reduced demand, weakened productivity, and increased supply chain distress have forced the OEMs to Tier 3 and Tier 4 suppliers to re-examine their business model and continuity plans.
Airbus and Boeing both recently announced deep production cuts and indicated a shift to smaller-capacity aircraft may be necessary to prepare for the “new normal.” Both companies are trying to assess what the recovery in traffic might look like over the next 24 months, which will have a meaningful impact on the entire supply chain. However, today’s supply chain is significantly more prepared than in previous downturns such as 2001 and 2008. The past two decades of industry consolidation as well as a relentless focus on operational excellence and technology implementation have left businesses throughout the supply chain well-positioned to deal with the COVID-19 effects.
Many companies have already started to re-open their production facilities, drawing on best practices used in overseas facilities that were impacted by the first wave of the virus. Airlines in Asia have cautiously started to add flights with the European and American airlines to potentially follow. Boeing’s production of the 737 MAX is also set to restart this quarter and increase gradually to 30+ aircraft per month in 2021.
Although the short-term outlook remains uncertain, operators should position their business in a way that enables it to resume growth quickly.
Read Aerospace & Defense M&A Pulse Q1 2020 Full Report