A&D companies need to plan now for the long-term effects of Brexit.
The full impact of Brexit on the A&D sector will become evident only over the next two to five years, as changes in the UK’s international standing affect investments, government and civil programs, and representation in policy and industrial forums. But forward-looking A&D firms are already gearing up to manage whatever change comes their way.
One thing is certain—A&D companies will have to redouble their efforts to reduce costs by adopting new technologies and approaches. BCG has helped industrial firms reduce production and supply chain costs by 15% to 20% through Industry 4.0—new technologies that capture and analyze prodigious amounts of data to improve operations.
BCG has also partnered with OEMs and suppliers to use big data and advanced analytic approaches to generate profit from data that already exists in their systems.
At the 2016 Farnborough Air Show, the influential biennial trade show for the aerospace and defense sector, BCG talked to Marcus Bryson, keynote speaker at the show and chairman of the UK government’s initiatives in aerospace. We asked Mr. Bryson about the UK government’s ongoing investments in aerospace and defense and the challenges faced by the sector in the wake of Brexit.
The relatively long lead times of major A&D programs mean that any substantial changes in demand levels or supply costs due to Brexit will take months, if not longer, to emerge and directly affect corporate performance.
However, the A&D sector will have to assess and address a number of potential 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 standards that govern multinational defense ventures could have an adverse impact.
The near-term challenges of Brexit for the sector don’t appear to be unmanageable. However, companies should assess the long-term risks they could face—and formulate strategies or contingency plans to mitigate those risks. In particular, A&D companies should take these steps: