How the Aerospace and Defense Industry Should Progress in 2016.

According to an Aerospace and Defense strategy study and article done by PWC in 2015, the aircraft and military contractors must "embrace a culture of affordability", "adopt commercial capabilities", and "partner with both customers and suppliers" in order to successfully navigate the industry waters of the future. We will discuss our own take on each of those matters as we continue.

In order to be successful, contractors must focus on affordability in 2016 and beyond. The federal budget sequestration on military spending may be coming to an end, but affordability and limiting costs is still a focus. Especially with the new market segments such as cyber becoming a prevalent new focus in the budget, other older physical segments of spending must slim down in order to compete in the military budget. That has been particularly difficult in the past due to the rates that pile on top of direct costs with larger defense contractors such as Boeing, Lockheed Martin, or Raytheon, but it has become and must continue to become a focus of the larger as well as smaller military contractors. It is also just particularly difficult because of the government regulation that comes along with military spending. In order to cut down on costs, contractors must have a 360-degree view of their costs and attempt to chip away at costs from every angle.

Another strategy that PWC has suggested is entering into the commercial market by switching their military focus to commercial capabilities. Although they suggest that, it is a strategy that we have seen fail multiple times by bigger players such as Raytheon. Although it is often justified by the fact that there are mutual crossover benefits that justify the large price tags on these acquisitions, history has shown them often to be overpaid and poorly executed. The fact remains that the government contract industry and the commercial industry are extremely different and when a defense contractor attempts to go commercial through acquisition, that acquisition is often strangled by rates and regulation. Organic market entrance into the commercial field perhaps is the best strategy.

Partnership with their customers and suppliers is another strategy that defense contractors should be focusing on going forward. Although, partnership with their customer is obvious, partnership with suppliers is focused on less than it should be. By partnering with suppliers, companies can drive down the cost of material and in turn drive down their overall cost that they pass onto their customers. What many contractors don’t realize is that their suppliers are flexible on many terms including price. Suppliers such as Pacific Shore Parts LLC have worked both directly with the Navy and Army, as well as other defense contractors to make their parts and prices more affordable. At pacshoreparts.com, besides finding millions of NSN parts and a plethora of relevant information on the part its customers are looking for, they can request a quote in seconds and receive an estimate back in as little as an hour. It is of the utmost importance that direct defense contractors partner with their suppliers to compete in the financially lean aerospace industry.

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