Steady spending from governments around the world on military aircraft and spacecraft will likely be a rare bright spot for the global aerospace industry in 2021.
That’s according to a report by consultancy Deloitte, which sees commercial aerospace rebounding in 2021, but not enough to match pre-pandemic levels.
“In 2021, global commercial aircraft deliveries are estimated at 900 aircraft, a decline of 44% from 2018, the peak year for deliveries,” says the report. “As new orders are likely to remain subdued in 2021 and airlines continue with order cancellations, aircraft backlog could decline further.”
Anemic commercial airliner deliveries are being driven by still depressed air travel. Passenger travel is expected to rebound, with 75% year-over-year growth in 2021, but that will still be about 40% below pre-pandemic levels, the report notes, citing figures from the International Air Transport Association.
In contrast to another difficult year for commercial aerospace, the defence sector is likely to remain stable in the short run.
“In 2021, defence budgets and revenues for defence contractors are expected to remain largely stable, as military programmes continue to be critical to national defence, especially considering geopolitical tensions,” says the report. “Global defence spending is expected to grow about 2.8% in 2021, crossing the $2 trillion mark.”
Defence spending in the USA is likely to remain flat in 2021. However, the Pentagon’s budget in the fiscal year 2022 and beyond might face pressure as Washington seeks to repay debt accumulated during the coronavirus-caused economic downturn.
“Moreover, US Foreign Military Sales, which increased $15 billion in FY2020 to reach $83.5 billion, are likely to offset some of the impact of flat domestic defence spending,” says the report. “Growth in [Foreign Military Sales] is likely to continue in FY2021, boosting export opportunities for US defence contractors.”
Many prominent foreign militaries are planning to maintain or increase spending. The report notes that China revealed a $178 billion military budget in May, rising 6.6% from the prior year. Japan announced a $51.6 billion defence budget for FY2021, which is the ninth straight year its military spending increased. India is also boosting spending. And France did not plan any reductions in its 2021 budget.
“In fact, France’s lawmakers and the defence industry were expecting additional financial support from the government to counter the effects of the pandemic,” the report notes.
Shuffling military business to commercial aerospace companies might unintentionally lead to greater competition for the defence sector.
“For instance, Spirit AeroSystems received funding from the Department of Defense to expand its production capability for advanced tooling and fabrication for the defence sector,” the report notes. “This move may lead to increased competitive pressure for traditional defence companies and disruptive solutions and technologies entering the defence marketplace.”
The space industry is likely to remain strong. The sector may benefit from military needs, including the launch of the US Space Force, as well as commercial interest in expanding satellite-based telecommunications bandwidth.
“In the first half of 2020, space investments remained strong at $12.1 billion, and the momentum for investments is likely to remain solid in 2021 as well,” says Deloitte. “Space launch services are expected to record strong growth in 2021, with the market forecast to grow more than 15% year over year.”
Ultimately, while the defence aviation and space industries enjoy strong business, the commercial aerospace industry is likely to focus on “restructuring and cost reduction to position themselves for profitable growth in the long term”, says Deloitte. “The industry is also likely to take advantage of the pandemic and drop in demand to transform supply chains.”
Look for more companies employing supply chain strategies such as onshoring and vertical integration, says the report. Manufacturers will also likely invest more in cybersecurity.
“To further strengthen supply chains, OEMs and suppliers should leverage digital tools, including automating internal processes and streamlining workflows, implementing smart management systems and using data analytics,” Deloitte says. “Also, collaboration with regional players to build capabilities and shift manufacturing capacity when needed could make the [aerospace and defence] supply chain more robust and help the industry manage business disruptions.”