A Guide to Aerospace Investment Decisions By Scott Thompson, U.S. Aerospace & Defense Leader, PwC
WHERE SHOULD AEROSPACE FOCUS PRODUCTION DURING A PROLONGED RECOVERY — AND FOR THE LONG HAUL?
he aerospace and defense (A&D) industry had a record year in 2019. Revenue passenger miles set a record, up 4.2 percent from 2018, and have been growing at roughly double GDP for the past two decades.1 Airbus’ and Boeing’s order backlogs ended 2019 at around 13,000 aircraft.2 The industry reported a record $780 billion in revenue — 5 percent over 2018. But in March 2020, the COVID-19 pandemic plunged the industry into crisis, literally overnight, with air traffic decreasing about 90 percent as society shut down and stayed at home.3 Hopes for a quick recovery have been dashed by the persistence of transmissions, and many believe it may take up to five years for a full recovery. Current projections are that airlines may rack up more than $80 billion in losses in 2020.4 One bright spot is demand for military equipment — it has been unscathed by the pandemic, at least for the moment. And while defense companies have had to grapple with some increased levels of absenteeism and adopt new production techniques to protect workers, the defense segment has fared relatively well. But for companies in commercial aerospace, the emphasis has switched from expansion to liquidity and de-risking the supply chain, while planning for a return of volume in three to five years. De-risking the supply chain has many consider-
ations, including protecting financially vulnerable suppliers, potential vertical integration, and deglobalization, which involve the potential for relocation. At the same time, aerospace manufacturing capacity took decades to build, and it should stay agile in order to fully rebound. Many A&D companies will likely emerge from the crisis changed — perhaps even enhanced. Industry stakeholders fully grasp that they may need to become more resilient, agile, and innovative in order to survive a disruption of this scale. So where are some ideal places for companies that need to consolidate production and relocate supply chains? What about defense companies that are still expanding? PwC’s 2020 Aerospace Manufacturing Attractiveness Rankings5 analyzed the key states and countries that drive the industry for the seventh year in a row. The report is a helpful tool in planning for production, enhancing manufacturing supply chains, and re-examining costs. We analyzed the macro considerations around the A&D industry, talent, cost, tax policy, infrastructure, and economy. The metrics and data are carefully examined to help companies find the appropriate areas to invest, build, expand, consolidate, or relocate operations. The methodology for the 2020 rankings changed when compared to previous editions. This year, the country rankings combined a total of 32 met-
~ 2020 9
GuideToAerospace.indd 9
8/27/20 1:33 PM
