Opinion: Six Ways COVID-19 Could Change Defense Sector

From Aviation Week Network:

The coronavirus pandemic is going to be as consequential for defense and security as were the Sept. 11, 2001, attacks in the U.S. For the defense sector, there are multiple implications to ponder and possibly to begin to position for as these play out in 2021 and beyond. 

Large contractors should fare relatively well in 2020, compared to other sectors. They will not see the demand destruction that is ripping through commercial aerospace and therefore are unlikely to experience financial duress. That alone may enable them to act strategically and aggressively in 2020 and beyond, although there are risks to weigh as well. Here are six changes to ponder:

First, a crisis the size of the COVID-19 pandemic is bound to spawn new government investment and organization to address future outbreaks. The Sept. 11, 2001, attacks led to the formation of the U.S. Department of Homeland Security and creation of the position of director of national intelligence. It’s fair to assume there will be changes in the wake of the current pandemic. Some contractors already have federal services segments that address U.S. health care. Core skills they can bring are dealing with bureaucracies, technology and regulations. There should be new opportunities in 2021 and beyond from whatever changes are made to improve the national resilience and response to future pandemics.

Second, small and medium-size businesses are being stressed. The CARES Act in the U.S. may help somewhat, and changes in Defense Department progress payment rates could be another short-term relief. Large contractors might choose to vertically integrate to improve their fortitude against future shocks. Or there could be further consolidation, particularly of distressed suppliers.