Covid-19 Insights: Aerospace Defense Manufacturing (Part 2)

View initial Insight into this topic (published May 19, 2020)
  • Supply chain risks remain one of the industry’s biggest challenges. In a few instances, we’ve had key suppliers shut down due to confirmed COVID-19 cases. We’re currently working through a risk assessment of our critical suppliers and developing contingency plans in an attempt to better prepare as we move into the back half of the year.
  • Noteworthy Developments: We have been able to continue operating in large part because of our early adoption of safety protocols, including but not limited to our approach to quarantining certain employees. For example, if an employee travels to a hotspot for personal reasons, they are restricted from returning to work for a period of time (usually 14 days) to ensure they haven’t contracted COVID-19, and to limit the risk of spread to other teammates. Measures like this appear to be working, as we have had no confirmed COVID-19 cases to date.
  • Additionally, we set up a Pandemic Response Team to evaluate ways to keep our workforce safe. One new policy we recently implemented is requiring the use of face coverings in our facilities for all common areas, walkways, and conference rooms.
  • Important Variables: As stay-at-home orders are relaxed and businesses are reopened, there is a potential for additional spread of the virus. We have facilities in Arkansas and Texas, two states that have reported an increase in positive cases since Memorial Day. This is more of a concern than a challenge, but it underscores the importance of continued safety protocols even as communities reopen.
  • On a positive note, we’re seeing more consistent guidance from the governing organizations from the different geographies that we operate in. Additional time has been provided for an iterative process of learning, benchmarking and short-term forecasting. This has translated into more stable operations and increased predictability in our supply chains.
  • Emerging Players or Themes: The Department of Defense continues to use multiple levers to help small and medium sized aviation suppliers in these times. A few efforts that are making a difference include: Accelerating upfront progress payments to prime contractors; Raising the amount large contractors can receive before delivering a contracted item from 80 to 90 percent and from 90 to 95 percent for small contractors; and Accelerating contract awards in certain situations.
  • Despite these efforts, there is still a growing concern that we could see up to 20% of smaller suppliers exit the Aerospace and Defense market, mainly due to liquidity concerns. That is a sizeable knowledge base that could be lost within 18 months and it could take years to build that knowledge base up again. There was a great article on this topic last month in Aerospace Daily & Defense Report.
  • On the Horizon: We continue to watch for accelerated contract awards, changes to contract terms that could be beneficial, and any other overall changes/programs that could benefit our organization or our supply base at the local, state or federal levels. The state of Arkansas recently established the “Ready for Business Grant” under the CARES Act, which we received through our facility in the state, and which has assisted with the cost of additional PPE such as masks, hand sanitizer, third party disinfecting services, air filtration systems, thermometers, etc.
  • Useful Sources: We continue to find the websites for the Centers for Disease Control and Prevention and the Johns Hopkins Coronavirus Resource Center extremely helpful for almost all things related to the pandemic. Industry-Centric Information is available through Space News, Aerospace Daily & Defense Report, Defense News, The Weekly of Business Aviation, GovCon Wire and ExecutiveBiz have all been extremely helpful for industry-specific news, trends and updates. Customer and supply baseshave also been very helpful by providing us with their perspectives and insight during the pandemic. Specifically, we have taken a proactive approach to potential supply chain interruptions, plant closings, and downstream market influences that could impact our ability to meet demands or schedules.
  • Personal Note: I have always been a fan of consistent communication with as many employees as possible and have traditionally held face-to-face all hands meetings. Since this is no longer prudent, we have had to develop new internal communications methods in the first quarter, which included my first ever virtual all hands session. Most of the feedback I received was about me keeping my day job, but in the end it provided a new way to communicate what is important to us as an organization, and to thank the work force for their efforts and dedication. We plan to continue using this new tool as we continue to adapt.

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