Booz & Company offers aerospace and defense (A&D) clients an integrated, capability-based, and authoritative industry perspective combined with deep functional capabilities as the only dedicated A&D industry consulting team among the leading management consultancies. We help clients chart new territory in such sectors as commercial aviation, military aerospace, military land systems, shipbuilding, defense electronics, and space. We have decades of experience in helping the industry achieve clarity so clients can realize their goals even in turbulent times.
The need for clarity has never been so critical for A&D firms. Although the past decade has been marked by robust defense spending—especially in the United States—the economic crisis of 2008–09 and the Obama administration’s realignment of priorities will have an adverse impact on spending in the aerospace and defense sector for the foreseeable future. It is critically important that A&D companies be aware of the implications for their business:
Greater accountability in program management: In recent years, virtually every segment of the A&D industry has suffered calamitous difficulties in the execution of major programs. No segment—neither large commercial aircraft, nor military spacecraft, nor naval surface combatants—has been immune from costly program failures. Many analysts attribute these failures to management errors, lack of self-discipline among customers, systems integration issues, or shortages of skilled labor. But we believe this spate of failures has a systemic cause, namely, the increasing obsolescence of traditional approaches to program and risk management, given the evolving structure of the A&D industry.
Ongoing consolidation of the aerospace and defense sector: The A&D sector has traditionally pursued consolidation during down markets, most notably during the slump of the 1990s. In that downturn, the flip side of widespread consolidation was a decision by a large number of companies to exit, especially on the defense side. A few companies tried to migrate into commercial markets. The one strategy that did not succeed for A&D companies in the last downturn, however, was to “hunker down” and attempt to outlast the fall in demand by cutting costs and curtailing investment.
If recent history provides a lesson, it is that action beats inaction. Executives reviewing their portfolios should decide where they want to compete and where they are apt to win, and then aggressively and confidently execute their strategy by buying and investing in the right capabilities, or by selling and harvesting existing businesses.
Intensifying cost pressures: Firms must position themselves for substantial changes to avoid the “death spiral” of rising costs and decreasing demand. Expensive defense programs that face large cost overruns and scheduling delays are at risk. Contractors must develop a demonstrable affordability strategy not only to survive, but also to find opportunity amid new defense spending priorities. Getting on a path to affordability, however, requires a fundamental rethinking of operating models and economics if companies are to successfully operate at lower production rates. All elements of cost—direct labor, material, and overhead—must be addressed in a comprehensive manner to create more affordable alternatives for customers.
Greening of aerospace and defense products: Given the volatility in oil prices, commercial and government customers for A&D products are demanding greater fuel efficiency and alternative fuel options. With the advent of carbon emissions trading schemes in Europe and, increasingly, around the globe, the need to track and reduce carbon (and therefore fuel) use will grow increasingly important. Product manufacturers and integrators will be forced to develop products that meet the needs of this new, greener future for their customers.
