Following two years of COVID-19 related disruption, 2022 was expected to be something of a reset for the aerospace and defense sector. Challenges caused by delayed procurement processes, supply chain constraints, and reduced production capacity were expected to ease as economic normality gradually returned. Simultaneously however, government support for the sector was expected to phased out with governments shifting focus towards dealing with the vast debts and budget deficits caused by attempts to mitigate the pandemic.
With economic support and investment in healthcare set to be prioritised in parallel with attempts to bring budgets back to balance the prospects for defense spending appeared muted. In the West real terms cuts to defense spending were in prospect with only limited growth expected to follow thereafter. The return of budgetary control and the potential for austerity meant that while production constraints would ease, demand looked set to slacken significantly over the medium term.
Two months later on February 22nd Russia invaded Ukraine bringing high intensity interstate warfare back to Europe. To transatlantic leaders and military planners, the war represents the most significant threat to Western security since the end of the Cold War. Within weeks of the invasion capitals throughout NATO and beyond announced plans to rapidly bolster military capabilities backed by massive increases in military expenditure.
On the other side of the world concern mounted as China undertook a series of live-fire exercises of exceptional scale around Taiwan when Speaker of the U.S. House of Representatives Nancy Pelosi visited the island, raising tensions within the region and between the world’s two largest military powers.
At the close of 2022 geo-political considerations have returned as the main driver of defense market prospects, supplanting the economic, fiscal and political factors which have dominated trends since the early 2010s. The key challenge for the defense sector has now become meeting these heightened levels of demand on an expedited timeframe.
