Because of the pandemic, the commercial aero market was profoundly impacted by the sudden disruptions in travel. Jason Riggs, Director of Strategy at Technetics Group, discussed this phenomenon and how the market has rebounded with Host Tyler Kern.
Globally, air traffic is down by 30% from pre-pandemic levels, and airframers are making calls to increase production rates to 75 per month, which is double what it is today. What does this mean for the supply base? This will create more strain, especially in the skilled labor workforce.
Skilled laborers faced layoffs in 2020, and now the workforce is 10-20% smaller than it should be. Like many other industries, businesses are having difficulty recruiting employees back, and Riggs said a hypothesis for the cause is that the younger generation is switching industries. An additional source of pressure in the industry is the semiconductor and chip shortages. The shortages have caused more customer interest in dual sourcing to mitigate supply concerns and drive down costs.
Because of stressors like these, 2021 has seen a lot of defense-related merger and acquisition transactions. “Defense-related content typically stays strong during downturns, and that certainly was the case during the pandemic,” Riggs explained.
Businesses are trading multiples significantly higher than a few years ago, and commercial deal flows are predicted to continue increasing next year as businesses improve.
Despite these challenges in 2021, the fundamentals for aerospace and defense remain strong. Riggs knows the market will make a full recovery, hopefully by 2023 or 2024. “It’s just a question of how and when, but we feel really good about the market; we are excited about where things are going,” he stated.
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