COVID-19: Farnborough Cancellation Another Blow For Defense Biz

"Looking ahead, defense acquisition is in uncharted territory," says Air Force acquisition head Will Roper of the effects of the COVID-19 virus.

By THERESA HITCHENS

WASHINGTON: While the cancelation of the biennial Farnborough Air Show due to the COVID-19 pandemic may not have an immediate impact on the bottom lines of aerospace firms in the defense sector, the decision to close one of the world's top two airshows is yet another harbinger of pending upheaval in the overall market, analysts say.

In particular, it deprives US firms of publicity abroad and highly valuable face-time with customers and potential customers from foreign governments.

“Things like Farnborough are important to US aerospace companies because they help to facilitate sales and marketing,” said Todd Harrison, director of the Aerospace Security Project at the Center for Strategic and International Studies (CSIS). “It's traditionally been a place where you show off your latest technology and latest systems, but it's also where you finalize deals that have been in the works for a while. And so, some of that can still happen, but some of it may not happen.”

Richard Aboulafia, a veteran aircraft industry analyst at Teal Group, echoed: “It's just a reflection of a sad reality: economic time has simply come to a halt for our industry and for others. That means fewer big opportunities to meet clients, advertise products and capabilities, share information, and look for opportunities. Big air shows are essential for these, but here we are.”

The Farnborough Air Show — which takes place south of London — registered representatives from 96 countries in 2018, and some logged $192 billion in orders and contract commitments. The cancelation of the 2020 show, slated for July 20-24, was announced today.

“I don't see the cancellation of Farnborough as a big blow to defense contractors. It is generally a way of raising their profile, but has no immediate impact on their business prospects,” said Phil Finnegan, Teal Group's director of corporate analysis.

That said, Finnegan and a number other analysts agreed, the aerospace market is in for a rough ride — and not just on the commercial side as airlines see their profits for 2020 nosediving, making it increasingly unlikely that they will invest in new planes.

“Looking ahead, defense acquisition is in uncharted territory. Near- and far-term impacts of Coronavirus evolve daily,” Air Force acquisition head Will Roper said this afternoon. “As we complete our first week of response, our teams navigated potential work stoppages, changing local and state directives, halted supply chains, and gearing up to support any national Defense Production Act requirements.”

The Defense Production Act, which allows the government to order companies to boost production or produce new things, was invoked last week by President Donald Trump.

Finnegan said “the biggest threat to defense contractors will come to those with significant commercial aerospace operations. The cash flow drain from those operations potentially could hurt them.

“It also reiterates the importance of maintaining a balance in operations,” he added. “Obviously, in recent years commercial aerospace has offered greater growth and potentially high profit margins. This crisis reiterates the importance of a diversified approach to defense and aerospace to take advantage of the stability of the defense market in a crisis.”

Indeed, several other long-time industry analysts said that DoD may face price hikes as firms try to shift the costs of commercial overhead to the defense contracts — especially for spare parts.

Further, Harrison noted, governments around the world are going to be cash-strapped and likely loathe to make new commitments to large buys of new fighter jets or drones. According to the latest report from the Aerospace Industries Association, US aerospace and defense exports in 2018 amounted to $151 billion: civil aerospace accounted for the majority with $131.5 billion; defense products the remaining $19.5 billion.

“So, Farnborough may not be the reason that sales go down, It's more of a symptom of the fact that there just aren't going to be as many opportunities for a while,” he said.

https://breakingdefense.com/2020/03/covid-19-farnborough-cancelation-another-blow-for-defense-biz