Defence supply chains unlikely to change due to Covid-19, says GlobalData Poll

17 August 2020 (Last Updated August 20th, 2020 11:36)

A recent poll from GlobalData indicates that the majority of respondents expect defence supply chains not to be structurally influenced by the COVID-19 pandemic.

Defence supply chains unlikely to change due to Covid-19, says GlobalData Poll

A recent poll from GlobalData indicates that the majority of respondents expect defence supply chains not to be structurally influenced by the COVID-19 pandemic. 37% of respondents answered that post-COVID-19 supply chains would ‘Largely remain unchanged’, as opposed 18% and 28% of respondents who respectively saw vertical integration and increased fragmentation as the more likely outcomes.

Harry Boneham, associate analyst at GlobalData, comments, ‘the results of this poll are a reflection of the success governments have had in protecting their defense industrial bases from the worst effects of the COVID-19 pandemic. Whilst producers such as Leonardo and Lockheed Martin have been driven to close facilities due to outbreaks of COVID-19, thus far the catastrophic impact that the COVID-19 pandemic has had on other sectors such as commercial aerospace has been avoided in defense markets.

Some companies with exposure to commercial markets have suffered, but the resilience of defense markets, due in part to government support, has served as an oasis to retain skilled workers throughout the supply chain. For example, on 31st July, Spirit AeroSystems, a key supplier for Boeing, announced that it would be reducing its commercial workforce by 1,100 roles due to the slowdown of 737 MAX production. However, this reduction only constituted 450 layoffs due to employees transitioning from volatile commercial programs to more stable defense programs.

“However, as the Covid-19 pandemic continues to develop, its impact on defense programs is beginning to emerge. On 29th July, Boeing announced that an additional $155 million charge had been incurred on the KC-46 program due to COVID-19 related delays to commercial production. Additionally, on the 6th August Huntington Ingalls announced that the COVID-19 pandemic has led to a charge of $111 million being incurred on the Virginia-class submarine, and the delivery schedule has slipped. These announcements indicate that whilst protection of and commitment to these programs has been assured from the onset of the current crisis, COVID-19 related delays and disruption are starting to affect defense programs.”