The defense industry may be adjusting to a new age of financial austerity
I've noticed a few things about the financial shape of the aerospace and defense industry over the past month or two. It seems that company mergers and acquisitions are tailing off, while the number of contracts and procurement opportunities are headed up.
Now by no means is this observation about the health of the aerospace and defense industry based on any scientific analysis. Instead, it's more of a gut feel, and as such has all of my biases and wishful thinking folded into it.
Still, my gut feel largely is based on the past month's news coverage in Military & Aerospace Electronics. We've had a lot of stories covering contract wins and procurement opportunities, and not many covering mergers and acquisitions. Have we overly concentrated on contracts and opportunities lately, to the exclusion of mergers and acquisitions?
Perhaps, but let's stipulate for a moment that our industry actually has had fewer mergers and acquisitions lately, and more contracts and opportunities than we've had in a while. How might this bode for the future -- especially for an industry that's taking it on the chin in the Pentagon's 2013 budget request?
Well, to start with, this feels like a port in the storm for an industry that has been jittery for more than a year about future prospects for defense spending. Maybe ... just maybe, our industry has hit bottom and is on the way back up. Perhaps this is an early indication that the aerospace and defense industry is starting to adjust to a new era of financial austerity.
Our industry, for good or ill, is digesting the notion that a long streak of healthy Pentagon budgets might be at an end -- perhaps for quite a while. This means competition is ratcheting up, in government and in industry.
For those in government, it looks like they have to make do with less, in measurable terms. Not only does this mean the Pentagon can no longer fund many of the things its leaders want, but also must face the inevitable challenge of deciding what projects to keep, and which to abandon.
For those in industry, it means they have to work harder than they have in a long time to prevail over their competitors for military contract wins. Price, as always, will be a driving force, but as dollars dry up, military officials will look harder at capability and quality than they have in a long time.
For industry and government together, everyone will be in the hunt for breakthrough technologies that bring serious new capabilities to the table at reasonable costs.
None of that will be easy. Still, on those rare occasions when it happens, we'll know who the real heroes are.