Aerospace and defense: Deals 2022 midyear outlook

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A&D dealmaking slows in first half of 2022

Transaction values and volumes declined in the first half of 2022 despite rising geopolitical tensions, most notably the war in Ukraine. Early in the year, US regulators made clear that they would not support further large-scale consolidation within the defense industrial base. Perhaps one of the most notable examples of this was the Lockheed/Aerojet Rocketdyne transaction, which was challenged and, ultimately, aborted.

Though defense stocks initially rallied in the early days of the Ukraine conflict, they subsequently settled back, and deal making in the sector slowed. Further impacting the trends was the relative paucity of special purpose acquisition company (SPAC) transactions. During 2021, there was roughly $20 billion in SPAC transactions, largely focused in the space subsector. With plummeting values and increased Securities and Exchange Commission (SEC) scrutiny, those transactions have seen a sharp decline. On the commercial aerospace side, the potential acquisition of Spirit by Frontier or JetBlue has certainly grabbed headlines, although no transaction has yet been formally announced. Otherwise, activity was focused on smaller transactions involving MRO and FBO targets. 

Aerospace and defense deals outlook

We see continued challenges ahead for A&D deal volumes and values, especially for larger transactions. Despite global tensions running at high levels, megadeals may be kept at bay by the Pentagon’s stance on consolidation. There could be bright spots in areas such as AI, unmanned, cyber, hypersonics and others. However, transactions in these spaces are often at the lower end of the scale and, in certain cases such as hypersonics, perhaps still garnering regulatory attention. SPAC transactions in the industry will likely remain few and far between for the immediate future, with values dropping nearly 50%. With respect to commercial deals, we continue to see those as inextricably tied to the trajectory of the pandemic. 

Key deal drivers

Navigating uncertainty

The defense subsector faces tremendous uncertainties, both geopolitical and regulatory. The war in Ukraine has driven European nations to reassess their defense postures and, in many cases, increase spending (Germany reaching 2% of GDP). A more fragmented defense industry in Europe may experience consolidation and other partnering arrangements as it pivots to the threats made clear by Ukraine. Similarly, tensions in the Asia-Pacific region impacted certain countries’ stances on defense. Greater collaboration and interoperability are becoming areas of focus. The uncertainty of the COVID-19 pandemic is likely to continue impacting commercial aerospace. When the storm will pass is difficult to predict, but deal making may be impacted until there is greater clarity.


Return to capital discipline

SPAC transactions played a huge role in the record volumes and values seen in 2021. In that year alone, there were roughly $20 billion in SPAC transactions, largely focused on space assets. With steep value declines and higher SEC scrutiny, those deals have largely disappeared in 2022. While the largest deal of the first half of 2022 was a SPAC (D-Orbit) at $1.2 billion, it was the only such transaction of size. 

“We see continued challenges ahead for A&D deal volumes and values. Despite global tensions running at high levels, meaningful deal making will likely be kept at bay by the US regulators’ stance on consolidation.”

— Bob Long, US Aerospace and Defense Deals Leader

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Bob Long

Aerospace and Defense Deals Leader, PwC US

John M. May

Partner, PwC US

Michelle Ritchie

Industrial Products Deals Leader, PwC US

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