The Ukrainian crisis and its consequences on aviation, aerospace and defense

The Paris office of global consultancy AlixPartners recently presented its latest forecast for the global aviation, aerospace and defense industry, with a particular focus on the many impacts of the war in Ukraine.

As usual, AlixPartners separates the relationship between a commercial aviation forecast including the supply chain on the one hand, and aeronautics & defense on the other.

According to Pascal Fabre, managing director of AlixPartners in France, it is interesting to note that the sanctions against Russia have had only a marginal impact on OEMs, with Russia accounting for less than 1% of Boeing’s total orders and Airbus (95 orders), although there is an impact on A350 production. schedule for the next two years, linked to the 14 orders from Aeroflot. That said, the impact is much greater in terms of supply: “the commercial aircraft supply chain, already stretched by previous crises, has a certain dependence on Russia for raw materials, especially for titanium and via VSMPO-AVISMA”, explains Fabre. Titanium and palladium shortages could hamper production of 787 and A350 landing gear, engines and pylons, as well as further affect next-generation long-haul jets (up to 15%) .

As traffic slowly recovered from recurring waves of COVID, analysts at AlixPartners are now anticipating aftershocks from the war in Ukraine. The sharp rise in the price of oil (x1.7) in one year – fuel represents 20 to 25% of the cost structure of airline companies – will impact their profitability by up to $40 billion, they say – adding that in the most cases; they should be able to “pass on much of the increase to passengers via ticket increases and fuel taxes”. In the medium to long term, the new global inflationary environment will weigh on household budgets and risks slowing the return of air traffic to pre-COVID levels, even if this recovery is mainly based on leisure/VFR (Visiting Friends & Relatives) traffic. .

Fabre is enthusiastic about the quality and attractiveness of the value position of the Airbus A321XLR. As it stands, there’s no real competition and the more it sells, the more it dries up a big chunk of the so-called “mid-market”, and the less attractive any Boeing NMA business case becomes…Boeing is indeed in a corner and should react quickly in order to regain the hair of the beast on this lucrative market.

But at the same time, Fabre remains quite concerned about Airbus’ very ambitious ramp-up plan across its best-selling A320 family. The European OEM wants to go from around 40 planes per month now, to 65 by mid-2023, and no less than 75 by 2025.

According to Aymeric Gobillard, director of AlixPartners defense & Space, the war in Ukraine and the strong reaction from the West is certainly a turning point. In terms of doctrine, almost all European staffs are evaluating the lessons learned from the Ukrainian battlefield, particularly in terms of drone warfare. “Typically in the field of drones: on the battlefield, they have a very strong impact for a very low cost. With four drones at €1,000 each, we can prevent or make it difficult for a €10 million plane to take off,” Gobillard explains. These lessons will have to be learned one way or another, and Europe will also have to decide what kind of equipment it needs.

“The budget constraint, reinforced by rising interest rates, involves trade-offs between technological equipment – ​​hypersonic missiles, for example – and cheaper, high-volume equipment,” he adds, referring to a recent parliamentary report on high intensity warfare. .

In view of the number of frontline combat aircraft or main battle tanks, there has recently been an emphasis on technological sophistication over mass and the number of robust platforms… In terms of resources , many countries will aim to reach the 2% of GDP target as soon as possible. . If adhered to, European military spending could result in “a real increase of up to 41% by 2030”.

Germany will spend no less than 100 billion euros to fill some of the equipment gaps in the Bundeswher. But just by looking at early purchase decisions, AlixPartners consultants are impressed by the level of penetration of American-made equipment, such as Lockheed Martin F-35s, Boeing Chinook CH-47 heavy helicopters and probably Raytheon Patriot ground-based air defense, amounting to at least $15 billion… They go further and assess the French budget trajectory. At first glance, this looks positive, with FYDP on the rise. But when you look at the details of the new requirement – training hours or exhausted missile stocks, for example – the national defense budget would have to be increased to 60 billion euros by 2030! A considerable effort, while the 2019-2025 programming law plans to reach “only” 50 billion euros at the end of the period…

Written by ADIT – The Bulletin and republished with permission.

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