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Industry consolidation, supported by its major players and Private Equity funds, is necessary to secure the Supply Chain and speed up the recovery

The Covid-19 crisis has left its mark on the aircraft and defense industry, with the decline in activity changing the break-even point for firms across the sector. Nonetheless, the industry held out well in 2020/21 due, in particular, to State-guaranteed social and financial assistance programs which limited the number of bankruptcies.

However, there will be a higher risk of failure in 2022 for firms whose sales volumes do not pick up fast enough to secure sufficient cash flow. There are opportunities to be seized for the creation of European alliances in order to take part in the reindustrialization in France, a historical aviation nation.

Challenges

A consolidation of the industrial landscape looks inevitable and will no doubt gain speed. Current mergers and pressure on supplies, which were heightened during the crisis, will require new supply chain organizations and adapted business models.

Tier-two suppliers will face a higher risk of going out of business. This is particularly the case of players positioned in niche segments which suffered the most from the drop in traffic (cabin interiors, fleet maintenance, etc.).

The recovery will generate or heighten tensions on supplies (with the likely disappearance of certain critical suppliers), and impact purchasing costs due to the rising prices of certain raw materials and distribution costs (cost of containers). For winning businesses, a new race for the talent released by layoff plans has already begun.

Ideas for Solutions

It will not be possible to anticipate the recovery without challenging industrial organizations. Now is the time to evaluate external growth deals aligned with diversification, growth or vertical integration strategies. In addition, the continuous cash burn and high level of debt require companies to find additional sources of cash flow, and restructure their debt over the short term.

Players with stable financial conditions can take advantage of the quiet period to streamline their processes, digitally transform their internal operations and customer and supplier interfaces, and measure their suppliers' capacity for recovery.

EFESO supports aircraft manufacturers with their transformation and the improvement of their operating performance, as well as private equity funds in M&As, from sourcing to integration.

The authors:

Louis Catala

Louis Catala, Vice President Operations

With the contribution of 

Lionel Bosquet Lionel Bosquet, Senior Manager Operations.
Federico Pasquali Federico Pasquali, Senior Consultant Operations