The COVID-19 pandemic unquestionably threw many industries into disarray. Commercial aviation was no different. In the early stages of the pandemic, an estimated 16,000 passenger jets around the world were grounded, reducing the amount of jets in service to its lowest point in more than 25 years. To give you an example of the severity of the dropoff in air travel, on January 22, 2020, there were more than 113,000 passenger flights. Just three months later, on April 22, there were fewer than 27,000. However, airlines are not the only companies being affected. Diminished demand has caused leading manufacturers like Airbus group to cut their production by more than thirty percent.
As workers are being sent home, passengers are no longer traveling, and customers are deferring delivery of new aircraft, airlines, manufacturers, and contractors alike are experiencing unprecedented disruptions in production and demand. For manufacturers, whose primary focus is capital, short-term concerns about cash flow and liquidity are the most prevalent. Contractors are in a better situation for the short- and mid-term, but are still weary of the lasting economic effects of the pandemic.
In the long term, aircraft manufacturers will likely continue to experience cash-flow shortages, production hurdles, and ripple effects through the supply chain that can weaken the industrial base that supports the function of so much of the aerospace and defense industries. Additionally, defense contractors are likely to experience slowing demand and diminishing growth as government entities aim to reduce deficits and get expenditure under control. This means three things. For one, companies will begin to lose their market shares if they cannot deliver products or are unable to develop new products in the near future. Second, the risk of failure for critical product manufacturing programs is likely to increase. Finally, key suppliers and niche providers may begin to struggle financially and require support.
To address these impacts, there are many steps the leaders of these companies should be taking. First and foremost, the health and safety of all employees must be considered. From here, the next step is to determine how the company can sustain production in the current environment, especially when social distancing protocols are in place. Third, manufacturers have to figure out how to maintain design progress even without the systems or security protocols to allow engineers to work remotely. Fourth, manufacturers should be verifying that they are taking advantage of any and all available government assistance to help avoid cash-flow problems. Finally, companies should be asking how they can work with customers to align their demand with the company’s production capacity.
For many aerospace and defense organizations, how they respond to the COVID-19 pandemic will be the main factor in their recovery. The next steps in ensuring a thorough response include: maintaining and sustaining a critical workforce of skilled employees, identifying and supporting key suppliers that are vulnerable in both the short- and mid-term, ensuring sufficient liquidity for your company and all key suppliers, and considering alternative supply chain strategies & looking into alternative sources of supply.
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