Key Trends in Aerospace and Defense

Key Trends in Aerospace and Defense

The A&D market has no lack of upside and downside scenarios plotted by analysts. While this can help to explain how many aircraft will be sold over the next 24-36 months, it offers little insight into how these changes will flow down into sales and demand for the supply chain.

Fremont, CA: In 2020, the world has changed remarkably. In both the commercial aerospace and defence industries, the new decade started with a sense of hope and historically healthy economies. A decade or more of continued growth has been seen in both industries. It seemed doubtful that healthy backlogs and high demand would end in the near future.

Uncertainty

The A&D market has no lack of upside and downside scenarios plotted by analysts. While this can help to explain how many aircraft will be sold over the next 24-36 months, it offers little insight into how these changes will flow down into sales and demand for the supply chain.In addition, with COVID-19 showing no indication of slowing down, there is considerable uncertainty about how to resume air travel, what additional stimulus packages are required, and the medium and long-term effects on government spending. This has resulted in the removal of forward-looking guidance by most publicly traded companies, along with public execution estimates.This makes preparing for the future incredibly difficult because consumers do not know what they can do in six months. This is compounded by reports that the commercial aerospace supply chain has 40-50 percent overcapacity. This hit is not binary, however, and the supply chain will continue to ramp down until the correct size of the airlines and OEMs.As the industry waits to see how far down the bottom will go, this adds to the mystery. This has contributed, in many ways, to a freeze in preparation so far into the future. This is a mistake, though: once the economy stabilises and the future becomes a little less muddled, there are things that can be done.

Cash Is Everything

The industry is burning through cash at an unsustainable pace with the uncertainty regarding future consumer demand and the decreasing order books of major OEMs. In addition to additional loans and capital-raising measures, the International Air Transport Association said the commercial aerospace and aviation industry will need more than $200 billion in stimulus capital to sustain stability in this crisis.With respect to liquidity pressures, some of the largest and most powerful players in the industry have sounded the alarm. This has contributed to a number of consecutive and important rounds of sector-wide layoffs.

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