Senior Partner & Managing Director
How will the sector—which has enjoyed years of steady profitability across the entire value—weather emerging technologies, changing dynamics in global demand and production, and disruptive forces like Brexit? By focusing on continued growth, innovation, cost containment, and operations.
With the nomination of General James Mattis for Secretary of Defense, President-elect Trump has made clear his ambitious plans for the Department of Defense and, more broadly, for American national security. Whether Congress will allocate the funds needed to pay for his programs is an open question. But the results of the recent election are likely to be significant for the Pentagon and the defense industrial base. Indeed, President-elect Trump's campaigning suggests a defense buildup rivaled only by that of the Reagan Administration.
BCG's Tom Peddicord, Brad Carson, and Greg Mallory explore how the government, the defense industry, and the supply base will need to adopt new ways of working.Read more
At the influential biennial trade show for the aerospace and defense sector this summer, we engaged the industry’s major players in discussions about the opportunities and threats emerging in the market.
The discussions explored many topics, including how new technologies that capture prodigious amounts of data that can be analyzed to improve operations. They also covered how OEMs and suppliers can use big data and advanced analytics to generate profit from the data already in their systems.—
BCG also engaged Marcus Bryson, keynote speaker at the show and chairman of the UK government’s initiatives in aerospace, chairman of the public-private Aerospace Growth Partnership, and former chief executive of GKN Aerospace.
The Prospects for UK Business in the Global A&D Market
The Brexit referendum and its implications were a frequent and serious topic of discussion at the 2016 Farnborough Air Show, which convened just two weeks after the UK results were announced.
BCG has tapped those conversations—and our own experience and proprietary analysis—to consider what the long-term implications of the referendum might be and how the near-term turbulence in the UK business environment might play out.
Of course, the full extent of the impact of the EU exit on the A&D sector will become evident only over the next two to five years—as material changes in the UK’s international standing affect investments, major government or civil programs, participation in international research programs, and representation in policy and industrial forums.
The UK has long operated under well-established trading and technology transfer arrangements with other leading nations across Europe, North America, and Asia-Pacific. The country’s strong links with nations in the Middle East, Asia-Pacific, and elsewhere, have prompted several major international A&D companies to locate their international headquarters in the UK to enable easier access to export markets. The UK also plays a lead role in international defense and security matters through its participation in NATO, various European bilateral and multilateral groups, and the UN Security Council.
In 2015, the UK’s aerospace and defense sector:
In the immediate aftermath of the referendum, A&D share price experienced ups and downs in line with the general market and other comparable sectors. The markets do not appear to have singled out the A&D sector in any way.
The relatively long lead times inherent in major A&D programs mean that any substantial changes in demand levels or supply costs will take months, if not longer to emerge and directly affect corporate performance.
The A&D sector will have to assess and address a number of down-side risks to business:
Each segment of the A&D industry faces unique concerns as well: The greatest threat for the UK aerospace industry is that a small adverse change in the UK’s export performance could significantly cut revenues.
For the UK defense industry, medium-term pressures on overall government spending, high costs for international procurement, and reduced UK influence over the frameworks and standards that govern multinational defense ventures
The near-term challenges for the sector do not appear to be either overly problematic or unmanageable. Companies should assess the long-term risks they could face—and formulate strategies or contingency plans to mitigate those risks, for example: