Defence markets have remained relatively shielded from drops in immediate demand and supply side problems. However, they are now starting to look vulnerable in many parts of the world as the economic downturn has ignited national debates around fiscal priorities.

• The US DoD has experienced three-month delays to major defence acquisition programmes.
• South Korea, Thailand Indonesia have announced defence budget cuts in response to the crisis.
• The UK is considering potential cuts to F 35 numbers, main battle tanks and naval capability.

Short-term strategies
6-12 months

• Focus on liquidity.
• Prepare balance sheets to endure pain for at least the next two years in the most exposed subsectors.
• Implement hiring freezes, reduction of non-essential spend, reduction in executive compensation, furloughs.
• Audit immediate supply chain risk.
• Review force majeure clauses.
• Identify current losers from client and supplier base.
• Engage with trade or government initiatives to support rapid medical equipment production.

Mid-term strategies

1-3 years

• Mitigate supply chain risks, start long-term movements away from single sourcing where possible, full financial and commercial audits of supply chain, and ERP refresh.
• Position for aftermarket parts boost to extend service life of older models as well as long-term drawn down in wide body demand, particularly if oil price still depressed.
• For defence primes, future budgetary impact should be extant by this point, allowing positioning to occur.

Long-term strategies

3-5 years

• Expect higher levels of long-term government involvement and state ownership in key areas.
• Prepare for future overproduction caused by government support to aerospace pulling forward demand.
• Confront rebooted defence industrial policies a broader definition of strategic industry may emerge. Governments will pick winners in this crisis and may get used to it.
• Address regional and sub-sector variation in defence austerity.
• Expect increased localized production demand for export orders.