In growth as well as in times of crisis, the aerospace & defense industry still focuses on program management, market strategy and globalization

• Survey among 100 top managers from six countries
• Half of the interviewees expect the industry to return to pre-crisis growth trend no sooner than 2 years from now
• Sector remains focused on program management, market strategy and globalization

The aerospace & defense industry in Europe is still feeling the worldwide crisis. In its yearly "Top Management Issues Radar 2010 – European Aerospace & Defense industry" study, Roland Berger Strategy Consultants surveyed more than 100 top managers across six countries to identify the industry's main current and future issues. More than half of the interviewees expect the industry to return to pre-crisis growth levels no sooner than 2 years from now. However, following the crisis of the commercial sector, the defense segment is expected to suffer from cuts in state spending made to limit budget deficits. In this context, aerospace & defense companies have remained focused – for the fourth year in a row – on program management, market strategy and globalization.

"For the European aerospace & defense industry, the crisis is not over yet," says Stéphane Albernhe, Senior Partner and global head of the Aerospace & Defense Competence Center at Roland Berger Strategy Consultants as well as author of the yearly "Top Management Issues Radar 2010 – European Aerospace & Defense industry" study. The study surveyed more than 100 top managers in Belgium, France, Germany, Italy, Spain and the UK, representing all segments and several positions in the industry value chain, about their strategic priorities. "More than half of the top managers we interviewed for our study expect the industry to return to pre-crisis growth levels no sooner than two years from now," says Albernhe. "But once the crisis is over, the defense segment is likely to suffer from cuts in public spending, as governments need to limit their budget deficits." In this context, aerospace & defense companies have remained focused – for the fourth year in a row – on program management, market strategy and globalization.

In addition, product strategy (e.g. product positioning and innovation strategy) is expected to be a key focus for companies in 2010 as they keep on looking for additional development options to augment market strategy/globalization. Furthermore, supply chain management is an important issue because of the strong need to monitor the impact of the crisis on suppliers. "The majority of suppliers share financial and development risks with their customers and the decreasing demand in established programs is resulting in significant cash constraints for financing new programs," says Manfred Hader, Partner in the Aerospace & Defense Competence Center.

Defense segment will suffer from public budget cuts

Industry segments serving commercial end customers (large commercial aircraft, regional aircraft and business jets) have been most affected by the crisis. However, in the long term, the defense segment is expected to suffer from cuts in military spending as governments seek to reduce their budget deficits. Despite increased constraints on sales, few aerospace & defense companies were forced into bankruptcy during 2009. "Companies had benefited from several years of positive results prior to the recent downturn and carefully managed their investments over the last ten years," Albernhe explains. To counter the crisis and outperform competition during the recovery, most companies have favored improvement actions over the medium to long term. "Performance improvement programs and working capital reductions are among the most frequently and successfully used actions to remain competitive," says Berger expert Hader. In addition, many companies intend on increasing the share of work outsourced abroad to reduce costs and to gain access to new markets. Mergers and acquisitions projects were largely put on hold in 2009, and the number of deals decreased by 35%. But the majority of the decision makers foresee an increase in M&A activity in 2010.

Need to improve program management

More than 40% of the respondents think that their companies are not state of the art in basic program management areas. Program management methods and tools are well known, but their implementation remains problematic. Significant efforts to improve this are often undertaken only when performance recovery is required. But efforts should be made before firefighting becomes the standard operating procedure. Almost half of the respondents have already pursued new collaborative models of joint improvement with customers and suppliers. "Change is not easy," states Albernhe. "The first steps appear to be the most difficult when implementing new collaborative models. But the business partners need to join together to meet the challenges ahead."