Aerospace and defense deals insights: 2021 outlook

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Executive summary

Not surprisingly, deal making in the second half of 2020 recovered on the heels of unusually low activity in the year’s first quarter.  Uncertainty surrounding COVID-19 and compounded by an election year resulted in heavily depressed volumes and values across the A&D spectrum, most notably in the commercial space.  While activity has rebounded in the 3rd and 4th quarters of the year, we believe that the recent resurgence of the pandemic and potential shifts in DoD budget priorities will likely keep transactions in check for the next few quarters.

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Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends


Aerospace and defense deals outlook

In our view, the outlook for M&A in the sector is mixed. The commercial and defense sub-sectors present two very different narratives. Commercial aerospace has suffered an enormous setback under COVID-19, with passenger traffic down massively in 2020 versus 2019.  Industry analysts see the recovery from these levels to be measured in years rather than months. Our view is that this will no doubt translate into depressed transaction volumes, as companies focus on day-to-day operations, fleet rationalization, supply-chain stability and liquidity. While we may see a differentiation between the aftermarket and airframes -- as well as some “forced” deals in the OEM supply chains -- we believe commercial deal-making overall will be weak.

On the defense side, the horizon is brighter.  Deal-making has not suffered the setbacks seen in commercial transactions, and the uncertainty around election results has now lifted. Defense budget growth during the Trump administration will likely flatten, but we believe certain areas will drive transaction activity, including cyber, unmanned, space, hypersonics and IT modernization. The impact of COVID-19 on defense players has been far more muted than commercial air, and the natural requirement for key defense programs to continue uninterrupted has been -- and will likely continue to be -- foundational to deal volumes going forward.


“The outlook for M&A in the sector is mixed in our view. There are two very different stories to be told between the commercial and defense sub-sectors.”

- Bob Long, US Aerospace and Defense Deals Leader

Key deal drivers

Shifting industry paths

As discussed previously, the paths laid before the commercial and defense sub-sectors are vastly different.  The damage to the commercial sector from the COVID-19 pandemic has been substantial and a recovery to 2019 activity levels will take 2 to 3 years according to many industry stakeholders.  Defense, on the other hand, has seen minimal impact and has recently had the weight of election uncertainty lifted.  Here, we should see transactions continue, albeit in potentially different areas driven by the budget priorities of a new administration.

Opportunities in innovation

While commercial air carriers seek to rationalize fleets and manage liquidity concerns, defense players will likely continue to focus on developing technologies and related budget allocations.  We would expect continued strength in defense transactions involving cybersecurity, federal IT modernization, ISR and other technologies.  Additionally, unmanned assets, space and hypersonics all present interesting and attractive opportunities.  As portfolios continue to be aligned with the areas of greatest potential, there is little doubt that inorganic moves will likely be key enablers to success for an industry with significant balance sheet capacity.

Contact us

Bob Long

Aerospace and Defense Deals Leader, PwC US

Scott Thompson

Aerospace and Defense Leader, PwC US

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