Considerations for your business around the world
Passenger travel and cargo freight declined dramatically in early 2020 due to the COVID-19 pandemic, and it is still uncertain how long a recovery to 2019 levels may take. In any case, airlines continue to struggle in the face of diminished revenue and cash flow. Producers of commercial aircraft, likewise, have been buffeted by cancelled or postponed orders, which have, in turn, placed pressure on the entire commercial aviation supply chain ecosystem.
COVID-19 has caused some companies to reassess their global supply chain footprints — with potential supplier risk now carrying a higher premium — and to consider alternatives to build in resiliency, such as putting insourcing or even onshoring on the table. Moving the supply chain to the OEM’s home territories — or to countries such as Mexico, Vietnam or the Philippines — can reduce risk and may also offer benefits, such as lower labor costs, favorable government policies and economies of scale. Manufacturers should also review their purchase and supply contracts to determine what force majeure rights and obligations may apply.
Considerations for your business in the United States
The US commercial aerospace industry has braved substantial disruption in the first half of 2020, and it appears it will likely continue facing challenges on numerous fronts for the rest of the year and beyond. While this year has been a painful one for OEMs and the supplier network — especially for those furloughed or laid-off — 2020 may actually be the year that the industry can make real improvements. The current urgency is helping drive some companies to fast-track initiatives, such as greater adoption of automation and smart factory technologies, innovations in workforce and training, and rebalancing supply chains to make them more resilient.
As our state ranking demonstrates, the US has strengthened its position as the world’s most important hub for production of both commercial aircraft and military systems. Going forward, the states that continue to support the growth of A&D clusters will likely continue to attract the domestic and foreign investment they need to sustain themselves through the COVID-19 recession and to continue at the forefront of innovation — not only in what they produce, but, just as important, how they produce.
At the same time, the industry should attend to the perennial challenges of attracting talent and nurturing the next generation of engineers and shop-floor specialists. Greater collaboration with secondary schools, technical colleges and university systems is crucial. The industry would also do well to make a strong push for apprenticeship programs, especially in the wake of high unemployment in many of the country’s A&D hubs.