Aerospace, Defense & Government Services
AD&G Market update &
opportunities
April 2022
A business of Marsh McLennan
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© Oliver Wyman
Market
Outlook
DEFENSE SPENDING PRIORITIZING MODERNIZATION, RDT&E & NEW TECHNOLOGIES;
PRIVATE AVIATION REVERSING A DECADE OF ANEMIC GROWTH; COMMERCIAL
RECOVERY VISIBLE HAVING ALREADY REACHED TROUGH LEVELS
Unfavorable
Favorable
AD&G Market Outlook
•
1
•
Defense &
Government
Services
•
•
•
2
•
Commercial
Aviation
3
•
•
•
Private
Aviation
© Oliver Wyman
•
•
Government spending set for continued broad increases under the Biden Administration, whose FY23 request
included ~$1.6T, or +$70B to discretionary accounts with +$40B increase to federal civilian spending
$774B for Defense spending in Biden’s FY23 request would result in ~6% YoY growth from ~$732B FY22 enacted
levels, however, Congress expected to plus up Biden’s request significantly for the second year in a row to ensure
real growth amid high inflation, further pressure from Russo-Ukraine conflict and tensions with China
Procurement accounts aligned to shift in focus to near-peer conflict benefitting from increased spending (e.g.,
space-based systems, integrated sensing, key USAF/USN programs), while other systems fit for anti-terrorism and
past COIN conflict seeing less favorable funding, including many Army programs
RDT&E accounts benefitting most from recent FY22 congressional markups ($116B SAC vs $107B FY21 enacted)
and record funding request for FY23; DoD prioritizing adoption of existing commercial technologies where they
can accelerate development of critical military applications (e.g., trusted AI and autonomy, integrated network
system-of-systems); longer-term R&D push continues to focus on hypersonics, directed energy, and integrated
sensing, while 'seed areas' (e.g., advanced materials, quantum sciences, biotech) receive additional focus
Near-Term Long-Term
New production dropped by >50% from 2019-2020 due to a combination of significantly reduced air traffic
demand during the pandemic, and Boeing reducing B737MAX production to a trickle following the 2019 accidents
and re-certification activities
Traffic recovery has been uneven but more aligned with the optimistic scenarios created earlier in the pandemic;
recovery has been much stronger for in-country domestic traffic as international travel restrictions and
vaccine/regulatory mandates continue (and will continue) to put pressure on international/widebody demand
Based on demand recovery scenarios, narrowbody production is expected to return to pre-COVID levels by
2023/24 while widebody production will not return to peak levels until 2030+, partly due a shift towards fleet
right-sizing, point-to-point travel and more capable narrowbodies (e.g., A321LR/XLR) able to fly long-range, thin
routes
‘New normal’ in utilization levels having eclipsed prior peaks in ’06/07 after 10 years of anemic growth and recent
pronounced pandemic-related disruptions despite slow recovery of corporate flight department & int’l travel
Sustained new normal supported by new technology platforms increasing accessibility & optimizing utilization,
deterioration in commercial connectivity and a growing addressable pool of fliers
Wave of new introductions the past decade and an aging fleet stimulating replacement demand cycle
Favorable structural shift in the fleet composition and user base likely to moderate future cyclicality relative to
prior downturns in ’01 & ‘09; variables influencing reduced volatility supported by more stable, optimized and
increased utilization as well as shift to larger aircraft and a more economically insulated operator base
4
1. Defense & Government Services
BIDEN ADMINISTRATION SIGNALLED BROAD FUNDING INCREASES TO DEFENSE AND
FEDERAL CIVILIAN AGENCIES IN ITS FIRST BUDGET REQUEST (FY22)
First Year In Office: Discretionary Funding Priorities1
Federal Agency
Trump FY18 vs. FY17 Enacted
DOD
10%
HHS
2%
-16%
23%
VA
6%
EDUC
DOS2
Biden FY22 vs. FY21 Enacted
8%
-14%
41%
-29%
HUD
12%
-13%
15%
DHS
7%
DOE
-6%
DOJ
USDA
DOT
-4%
DOC
16%
14%
-1%
-12%
6%
16%
-4%
-21%
10%
14%
-16%
28%
EPA -31%
SBA
+$116B Net
Request
5%
-13%
TREAS
DOL
10%
-21%
NASA
DOI
-$1B Net
Request
0%
22%
-5%
10%
FY22 President’s Budget Observations
• Congress tempered Biden’s request in its
FY22 Appropriations Omnibus, however,
the Admin. clearly signaled its desire to
increase discretionary budgets across
agencies government-wide
─ Included $769B for non-defense
spending (+16% v. FY21 Enacted)
─ $715B for defense spending (+2% vs.
FY21 Enacted)
─ FY22 Appropriations result in YoY
increase of ~$86B to USG
discretionary funding, vs +$116B in
request
• Major national security agencies
benefited significantly from
Congressional markups reflected in the
FY22 Appropriations Omnibus bill passed
in March 2022, including strong increases
to the Administration's DHS and DoD
requests while still crediting most
funding increases requested to Biden’s
priority federal civilian agencies
─ ~10% increase to the Admin.’s DHS
request, resulting in 6% actual YoY
2021-22 enacted growth
1. Biden FY22 & FY23 Request, FY18 Trump Request v. Prior Year Enacted, Historical; 2. Comprises Department of State, USAID, and other foreign operations
Source(s): U.S. FY22 Budget Request, FY18 Budget Request, Historical Greenbook Analysis, Oliver Wyman Analysis
© Oliver Wyman
5
1. Defense & Government Services
$1.5T FY22 OMNIBUS BILL PROVIDES +$86B INCREASE TO FY21 ENACTED; FY23
REQUEST REFLECTS STRONG GROWTH TO USAF, USN, & FEDERAL HEALTH AGENCIES
USG Department Funding Trends
President's Budget Request
Congress Increase
Congress Decrease
FY2021-23 Budget Request vs. Appropriations
$234
Significant increases to USAF and USN
budgets support defense posture
realignment to near-peer focus, Army
continues to be a bill payer
$231
$219
$215
$207
$204
$174
Healthcare and Health IT contractors
benefitting from continued investment in
federal health agencies supported by +20%
YoY growth requests to both HHS and VA
discretionary toplines vs. FY22 enacted
$168 $173
$108
$129 $131
$135
$127
$118
Funding for State and Foreign Affairs
missions rebounding under Biden
Admin. following pressure under
Trump’s America First policies
$112
$107
$105
$76
$88
$74
$66 $72
$60
$53
$56 $60
$54 $58 $57
$42
‘21 ’22 ‘23
Air Force
‘21 ’22 ‘23
Navy
‘21 ’22 ‘23
Army
‘21 ’22 ‘23
Other DoD
YoY Enacted Growth
8%
7%
2%
-2% -4%
-1%
‘21 ’22 ‘23
Veterans
Affairs
13%
9%
4%
-2%
‘21 ’22 ‘23
Health & Human
Services
7%
‘21 ’22 ‘23
Education
2% 3%
‘21 ’22 ‘23
HUD
6%
‘21 ’22 ‘23
State
Homeland
Security
13%
10%
-1%
‘21 ’22 ‘23
6%
6%
$45 $48
$38
$34 $35
‘21 ’22 ‘23
‘21 ’22 ‘23
9% 7%
3% 5%
Energy
Justice
5%
Enacted Funding vs. President’s Request
FY21
-1.5%
0.0%
-2.0%
+4.6%
+9.4%
-0.5%
+10.4%
+24.6%
+20.2%
+9.2%
+18.1%
+5.7%
+2.8%
+1.7%
-2.9%
+9.2%
-17.8%
-0.8%
-25.7%
-4.4%
-4.1%
+10.2%
-2.8%
-0.3%
FY22
Source(s): U.S. DoD FY23 Budget Request, FY22 Appropriations Omnibus, Historical Green
Book analysis, Oliver Wyman Analysis
Congress pivots from restoring requests for deep cuts to federal civilian agencies under Trump
© Oliver Wyman
Administration to discounting requests for increases under Biden
6
1. Defense & Government Services
FY23 DOD REQUEST INCLUDES $42B (6% YOY) INCREASE OVER FY22 ESTIMATE;
REPRESENTS MODEST REAL GROWTH AMID CURRENT LEVELS OF INFLATION
Historical DoD Budget Authority & FY23 President’s Request
FY23 President’s Defense Budget Observations
FY2008-27 Budget Authority; in current dollars ($B)
• Biden’s $774B topline FY23 budget request
calls for a $42B increase over the estimated
FY22 enacted budget; however, this 6% YoY
increase is more modest in real terms amid
elevated levels of inflation
Base
950
Base + OCO + Supplementals
850
800
774
691
666
666
687
686
655
645
Budget Authority ($B)
650
582
OCO / Supp.
600
550
500
790
797
809
814
─ Increasing RDT&E accounts reflect DoD
focus on countering advanced
technological threats (e.g., China, Russia)
732
750
700
FY23 Biden Request
Historicals
Sequestration
and drawdowns
drive decrease
through FY15
bottom
900
513
528
528
560
531
580
521
495
479
581
496
599
617
705
705
633
636
718
537
496
Operations & Maintenance
350
FY22 Estimate
includes $14B in OCO
and Supplemental
funding for Operation
Allies Welcome,
Ukraine support, and
other OCO activities
300
RDT&E
250
200
─ USAF and USN procurement accounts
benefitting from near-peer strategy
alignment; nuclear triad recapitalization,
missile defeat and defense, and longrange fires remain heightened priorities
590
450
400
774
• Defense stakeholders broadly expect
Congress to increase the FY23 Defense
budget well over $800B driven by concerns
the White House’s inflation forecast is
understated (assumes seasonally adjusted
Consumer Price Index drops from ~5% 2022
to 2.3% by 2023)
─ Congress increased the FY22 budget
~$25B in its FY22 NDAA, passed in both
the House and Senate with significant
bipartisan majorities
Procurement
150
100
Personnel
50
0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27
Bush
Obama
Trump
Biden
• Recent FY22 Appropriations Omnibus passed
in the Senate reflects total enacted
appropriations of ~$732B or ~4% actual
growth in funding from FY21
Source(s): U.S. DoD FY23 Budget Request, FY22 Appropriations Omnibus, FY22 Green Book and Historical Green Book analysis, Oliver Wyman Analysis
© Oliver Wyman
7
1. Defense & Government Services
NAVY, SPACE, R&D, AND MISSILE PROGRAMS REMAIN PRIORITY FOCUS FOR BIDEN
ADMINISTRATION SUPPORTED BY DEFENSE POSTURE REALIGNMENT
Procurement Funding by Category
FY10-23 Total Request; Current Dollars ($B)
$170
$157 $159
$149
$129
2011
Category
$176
$177
$175
Space Based
Systems
$149
$130 $132
$122
$111
2013
2015
2017
2019
2021
FY22-23
Category
YoY Growth
2023
FY22-23
YoY Growth
Aircraft & Systems
7.8%
Shipbuilding & Maritime
17.9%
Missiles & Munitions
21.7%
Science & Technology
12.2%
Ground Systems
2.4%
Missile Defeat & Defense
12.8%
C4I Systems
0.8%
Space Based Systems
29.9%
Source: DoD FY23 Request, Historical Greenbook analysis, Oliver Wyman analysis
© Oliver Wyman
Procurement Category Priorities in FY23 PB Request
$198
• DoD emphasizing three priority capability sets for SATCOM: 1) nuclear C3, 2)
protected tactical communications in contested environments, 3) wideband and
narrowband capability for large throughput in less-contested environments
• Next-gen Overhead Persistent Infrared (‘OPIR’) satellite development remains a
major priority for space-based ISR, funding increases ~$2B to $4.7B in FY23
Missile
Defeat &
Defense
• Allocates funding in accordance with the 2022 Missile Defense Review to
increase defensive capabilities for the U.S., Guam, and allies in INDOPACOM
• Funding surge in PATRIOT program reflects 252 PAC-3 MSE procurement
quantities (~$1B FY23), extending protection for forward-deployed forces
• Continues development of space layer, next-gen interceptors, and C-UAS tech
Science &
Technology
• FY23 PB request includes highest S&T R&D budget in DoD history
• Focus areas include next-generation technologies designed to guarantee
military superiority against near-peer adversaries, including directed energy
(e.g, partial beams, lasers, etc.), hypersonics (offensive & defensive), quantum
sciences, biotech, artificial intelligence, machine learning applications, etc.
Shipbuilding
& Maritime
• Funding increases driven by Columbia-class nuclear submarine production (full
funding increment for lead ship) and Gerald R. Ford-class aircraft carrier
construction (continued construction of three carriers)
• Other significant funding increases include procurement and development costs
for two Flight III Arleigh Burke-class destroyers and related bridge system
upgrades, one John Lewis-class oiler, and one America-class LHA ship
Missiles &
Munitions
• Major uptick in funding to support modernization of the Ground-BasedStrategic Deterrent (‘GBDS’), officially titled the LGM-35A Sentinel ICBM
• Increased production of key next-gen missile programs, including long-range
stand-off weapons and anti-ship missiles (e.g., LRSO, LRASM), production ramp
for the Army’s new long range precision fires (PrSM), and increased funding for
key USN missiles (e.g., D5 Trident II, SM-6, Tomahawk cruise missile)
8
1. Defense & Government Services
FIFTEEN TECHNOLOGIES WILL INFLUENCE PRIORITY FUNDING FOR THE NEXT
DECADE, DRIVING ADOPTION OF SUPPORTING HARDWARE & SOFTWARE SOLUTIONS
Top 15 Defense Technologies For the Next Decade
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Technology
Example Defense Programs
Example Supporting Solutions
Fifth and sixth generation fighter/bomber ecosystems
F-35, NGAD,FCAS, B-21
Mission rehearsal & preparation
C4ISR1, Network-centric warfare, and Joint interoperability
Joint All Domain Cmd & Cntl.
System communication, cloud, & interop.
Automation, autonomous, and robotics
MQ-25, MUSV
AI/ML Imagery, video, and sensor analysis
Space and missile defense
GBMD, Patriot
Strategic and operational decision support
Advanced vertical lift
FARA, FLRAA, NATO NGRC
Digital twin/digital thread
Hypersonics
HAWC, AGM-183A ARRW
Rapid prototyping
Cyberwarfare and cybersecurity
Cross-program enabler
Natural language and semantic analysis
Agile maritime assets
Unmanned vessels
Autonomous system control
Nuclear, biological, and chemical
SSBN, GBSD
System communication, cloud, & interop.
Battlefield electrification and network infrastructure (incl. 5G)
ABMS, Convergence
System communication, cloud, & interop
GPS-denied operations
PGK-M, PNT, NGJ
Autonomous system control
Training and simulation including Live, Virtual, & Constructive
Joint Synthetic Environment
Operational data analysis
Military IoT/artificial intelligence/sensor networks
WINLAS, NEC
Military training simulation
Directed-energy weapons, laser comms, and electric/rail guns
High Energy Lasers
Rapid prototyping
Warfighter health and enhancing machines and substances
Mil-grade wearable sensors
Soldier health monitoring and mgmt.
1. Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance
© Oliver Wyman
9
1. Defense & Government Services
2010S WERE A DECADE OF RAPID CHANGE FOR THE DEFENSE & GOVERNMENT
SERVICES MARKET DRIVEN BY SHIFTS IN POLICY, BUDGET, AND ACQUISITION
Major Events and Government Services Trends
2010 - 2025
Budget Sequestration Begins
Major Events
USCYBERCOM
Created
Bipartisan Budget
Act (BBA) of 2013
Budget
Control
Act of 2011
Dodd-Frank
and ACA
Afg. Drawdown Begins
Iraq Redeployment
2015
Budget Control Act
2013 BBA
Gov’t.-Wide
2019 BBA
Gov’t
Shutdown
Trump
Orders
Syria
Drawdown
BBA of
2018
2015 BBA
Dominance of LPTA Contracting
USSF
Created
Trump
Diverts
DoD
Funds
for
DHS
COVID-19
Identified
2020
2018 BBA
US Evacuation
from Afghanistan
Infrastructure Investment and Jobs Act
End of US Combat
Mission in Iraq
COVID
Bills
and
CARES
Act
Russian Invasion
of Ukraine
2019 BBA
Agency-Specific Contracts
2025
End of BCA Caps
Widespread Shift to Best Value Award Basis
Inflationary Pressure
Creation of Category Management and Procurement Consolidation to Best-in-Class (BIC) Contracts
Conventional Acquisition Methods
Increasing Use of Streamlined, Agile Acquisition Methods (OTAs, SBIRs, Orals, etc.)
IT Modernization of Basic Services
Exp. of SBIR Program?
Next-Gen IT Services (DevSecOps, Cloud, RPA, AI/ML, Analytics)
Traditional Cybersecurity (Information Assurance, NOC/SOC)
Defense
2018
NDAA
Limits
LPTA
2015
BBA
2010
GS Trends
Afg.
Drawdown
Halted
at 8,000
Troops
Russia Annexes Crimea
Withdrawal
of US Troops
from Iraq
Tax Cuts
and Jobs Act
Afg. Troops
Increased
to 14,000
Heightened Cybersecurity Focus and Innovation (OSINT, Pre-emptive Threat Detection, Cyber Operations)
GWOT CENTCOM BOSS and OCONUS CLS Focus
Near-Peer INDOPACOM/EUCOM Focus
O&M Focus On Contractor Logistics / MRO Support for GWOT
Investment in USN Mission Readiness
Fragmented COCOM Operations
JADC2 and Integrated, Multi-Domain Operations
Highly Concentrated Military Space Landscape – Exclusive and Expensive Assets
Disaggregation of Military Space Assets, Lower-Cost Commercial Platforms, Shorter Cycles
Asymmetric Warfare Posture with Current Asset O&M Focus
Large Training Range Programs for GWOT
Heavy R&D for Hypersonics, Sensors, EW/EMS Dominance, CUAS, Directed Energy
DoD Training Modernization and Shift to LVC, Breakup of Consolidated WFF Training Contract
Gov’t-Owned Legacy IT Systems Upkeep
FITARA and IT Modernization/Cloud Migration, Transition to IT Service Model and COTS
Civilian
Federal Labor Shortage and Increasing Reliance on Staff Augmentation
ACA-Driven HHS Expansion
VA Modernization Boom
Focus on U.S. Foreign Affairs, International Relationships
NASA Budget Doldrums
DoS Diminishment and Downsizing
NASA Resurgence Through Commercial Space Launch Services and Increasing DoD Focus on Space Domain
Limited Federal Infrastructure Spending
© Oliver Wyman
COVID-Sparked Health IT Boom
DoS Budget Restoration, NATO Re-Engagement
Biden Infrastructure Investment
10
2. Commercial Aviation
UTILIZATION RECOVERY IS EXPECTED TO LAG FLEET RECOVERY BY ROUGHLY FOUR
QUARTERS, WITH NORMALIZATION IN UTILIZATION EXPECTED BY 2023
Global Recovery Scenario
• Significantly reduced load
factors as airlines have
chosen to fly airplanes with
fewer passengers rather
than fully adjust to match
demand
Passengers, Fleet & Utilization Recovery Curves, Indexed to 4Q 2019
110
100
90
80
• In-service fleet decline less
than total utilization, as
capacity cuts were partially
achieved through reduction
in utilization per in-service
aircraft rather than fleet
parking/storage/retirement
70
60
50
40
30
20
Demand
10
0
Q1
Q2
Q3
Q4
Q1
2020
Q2
Q3
2021
Q4
Fleet
Q1
Q2
Utilization
Q3
2022
Q4
Q1
Q2
Q3
Q4
• NB aircraft to see an
increased share causing
utilization recovery to lag
fleet recovery
2023
Seasonality and variations expected to cause minor delays to recovery in specific regions
Source: IATA, AWIN, CapIQ, Ishka, Oliver Wyman analysis
© Oliver Wyman
11
2. Commercial Aviation
PRODUCTION NOT EXPECTED TO RETURN TO PREVIOUS ELEVATED LEVELS UNTIL THE
MIDDLE OF THE DECADE
• Near-term production driven by replacement demand; recovery will be driven by narrowbody demand while widebody
segment not expected to recover to pre-COVID levels in this decade
Widebody production to remain soft
Large Commercial Transport Production Outlook
Narrowbody production will exceed
pre-COVID levels by late 2023 or
early 2024, primarily driven by
Airbus ramp-up on A320 and A220
By Class, 2018A-2031F
OW Forecast
Narrowbody
Widebody
Drop in 2019 was due to the
Boeing 737 MAX being grounded;
drop in 2020 was due to COVID
-46%
389
1,695
1,484
1,413
385
1,140
OW Long-Term Forecast
+4%
0%
1,663
relative to pre-COVID as new, more
capable narrowbodies are increasingly
used on long-haul routes
1,813
252
1,896
264
1,962
276
2,022
291
2,110
313
2,202
333
1,274
2018
266
196
1,797
1,561
1,731
1,928
1,686
1,869
1,632
2025
2026
2027
2028
2029
2030
2031
815
179
1,449
1,217
1,099
2019
327
246
170
806
2,255
970
540
636
2020
2021
2022
2023
2024
Source: AWIN, Boeing, Airbus, Oliver Wyman analysis
© Oliver Wyman
12
2. Commercial Aviation
DESPITE COVID, FUTURE PRODUCTION REMAINS SUPPORTED BY A FIRM ORDER
BOOK PROVIDING OVER 7 YEARS OF NEW PRODUCTION COVERAGE
Backlog by Program (Firm Orders)1
7,000
6,500
6,000
5,500
5,000
Backlog in Years of Production1
• Despite the impact of COVID and 737 MAX issues,
existing backlog remains above the historical average
of ~6yrs of production
Boeing and Airbus maintained
~4yrs of backlog during
previous downturns
9.0
7.5
7.2
5.6
• Backlog health is improving, with less than 40% of
firm orders considered at higher risk of
deferral/cancellation, compared to over 60% at the
peak of the pandemic
1990
6.0
4.9
1995
4.0
2000
6.0yrs Historical Average
2005
2010
2015
2020
4,500
4,000
1,000
500
0
Years of
Production2
737MAX
787
777
767
A320neo
A220
A350
A330
7
4
10
3
10
12
5
5
1. Backlog as of March 2022
2. Calculated using monthly build rates pre-pandemic
Source: AvWeek, Boeing, Airbus, OW research and analysis
© Oliver Wyman
13
2. Commercial Aviation
BACKLOG HEALTH IMPROVING WITH ~40% OF FIRM ORDERS CONSIDERED AT
HIGHER RISK OF CANCELLATION/DEFERRAL COMPARED TO ~60% LAST YEAR
Backlog Risk Assessment Framework (# of Firm Orders)
Risk
Category
Very Low Risk
Low Risk
Moderate Risk
High Risk
Very High Risk
(Strong Balance Sheet, National
Carriers, Orders ≤ .5x Fleet)
(Orders ≤ 1 x Fleet)
(Orders ≤ 1.5x Fleet)
(Orders ≤ 2x Fleet)
(Liquidity crisis, impending
default, Orders > 2x Fleet)
17%
37%
12%
20%
26
20%
%
11%
4,384
8,192
26%
11%
8%
37%
6,685
33%
5,455
27%
26%
24%
23% 0%
527
2%
16%
41%
31%
13% 12%
644
7%
11%
23%
15%
23%
31%
6%
25%
439
29%
8%
16%
38%
27%
12%
563
20
%
16%
15%
34%
9% 34%
98
16%
12%
3%
41%
298
10%
1. Firm orders only, as of 10/31/21
Source: AWIN, Oliver Wyman analysis
© Oliver Wyman
14
2. Commercial Aviation
COMMERCIAL MRO OUTLOOK UNDERPINNED BY RECOVERY IN UTILIZATION TRENDS
AND STABLE FLEET GROWTH, BENEFITTING FROM NEAR-TERM UPTICK IN FLEET RTS
Commercial Fleet (Active at Year End)
Commercial MRO Market ($B)
Regional Jet
Modifications
Widebody
+3%
Narrowbody
Line
35,420
3,788
+6%
Component
$11
$111
7,347
$11
-31%
$91
+1%
3,204
$11
2,950
$13
$22
$20
$62
4,429
$16
$18
$16
6,589
20,675
$127
+10%
Airframe
Engine
29,987
3,493
17,712
+3%
$7
$10
$9
$10
4,025
24,285
$9
$11
19,905
$9
13,296
$65
$55
$41
10,483
$26
2010
2021
2027
2032
2019
2021
2027
2032
RTS: Return To Service
Source: AWIN, Oliver Wyman analysis
© Oliver Wyman
15
3. Business Aviation
REVERSAL IN ANEMIC GROWTH TRENDS EXPECTED, SUPPORTED BY WAVE OF
REPLACEMENT DEMAND AND SURGE IN UTILIZATION LEVELS / NEW FLIERS
•
•
Business Jet Production By Class
2001A-2027F, # of Aircraft Deliveries
•
2021A production levels nearly 55% below 2008 peaks
Large/Super Mid segments less sensitive to cyclical volatility having outperformed all other segments during
the downturn to continue driving growth in the segment
Positive indications from the OEMs heading into 2022 with record level backlogs and positive book:bills: (e.g.,
Gulfstream Book:Bill 1.7:1, 40% increase in backlog; Dassault Book:Bill 1.7:1, 60% increase in backlog; Textron
Aviation 64% increase in backlog)
Forecast
4%
1,275
1,098
VLJ
-32%
765
-54%
868
842
Light
715
704
518
741
665 644 656
709 712
669 659 644
560
710
660
553
695
731 752 741 747
592
Mid
Super Mid
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
Large
Source: Company reports, GAMA, AWIN, Cirium, Oliver Wyman analysis
© Oliver Wyman
16
3. Business Aviation
FAVORABLE AFTERMARKET TAILWINDS SUPPORTED BY STABLE FLEET GROWTH, MIX
SHIFT TO LARGER JETS AND A ‘NEW NORMAL’ IN UTILIZATION LEVELS
Biz Jet Fleet (Active at Year End)
Biz Jet Utilization (M, Flight Hours)1
VLJ
Utilization levels have eclipsed
prior peaks largely driven by
surge in new fliers & increased
access
Light
Mid
+1%
SMS
+2%
Large
Modifications
Component
Airframe
+5%
Engine
5,622
+2%
23,220
20,656
2,046
23,952
2,252
1,787
6,208
16,143
1,022
Biz Jet MRO Market ($B)2
5,697
+2%
+41%
-27%
+3%
4,317
4,216
$12
$11
$9
$4
$3
6,312
3,068
$3
4,877
$3
5,127
5,795
$2
4,899
$2
4,485
$2
4,149
4,654
$2
$2
3,602
2,563
4,056
5,690
6,641
$2
$3
$4
2,109
2010
2021
2027
2032
2019
2020
2021
2027
2021
2027
2032
1. Total Annual Flight Hours (North America & Europe) through December 2021
2. On a real basis, excl. impact of inflation and material/price escalation
Source: AWIN, Wing-X, Oliver Wyman analysis
© Oliver Wyman
17
Investment
Themes
DEFENSE & RELATED GOV’T SEGMENTS HAVE REMAINED RESILIENT, PROPELLED BY
ENABLING TECHNOLOGIES & R&D IN SEA-, AIR-, AND SPACE-CENTRIC PLATFORMS
Commercial aviation remains challenged with early signs of recovery in aftermarket & narrowbody demand
AD&G Segments Attractiveness Framework
High
Market Outlook / Size v. Depth of Competitive Moats
Emerging & Fragmented
Structurally Advantaged
Space-Based
Systems
Unmanned
Systems
C5ISR
Embedded
Systems
Market Outlook
Cloud & Data
Analytics
Engineering
& Design
Distribution
Airport
Services
Specialty
Processing
Airframe
MRO
IT
Modernization
SETA / A&AS /
PMO
Interiors
Training &
Simulation
Adv. Mat. &
Processes
Cargo
Aircraft
Hardware
Aerostructures
Engine MRO
Tooling &
Automation
Land
Vehicles
Intel Services
CLS / BOSS
Nuclear
Modern.
Weapons
Systems
Proprietary
Systems
FBO
Naval
Sustainment
Naval
Shipbuilding
Mature & Insulated
Selective Opportunities / Emphasis on Quality
Competitive Moats
© Oliver Wyman
Defense
Electronics
Cybersecurity
Testing, Insp.
& Cert.
EMS
Superiority
Fed Health IT
Hypersonics
High
19
ATTRACTIVE INVESTMENT THEMES DEFINED BY ALIGNMENT WITH EMERGING
TECHNOLOGY TRENDS & AREAS WITH FAVORABLE COMPETITIVE MOATS
Attractive Investment Themes
Recent Transactions
Potential Upcoming Processes
0-12 Months
12-24 Months
Simulation & Training
Increasing need for maximized capabilities to counter nearpeer threats has driven joint integration (advanced training
scenarios, joint all domain C2); tech. req. are rapidly
evolving towards next gen integrated mission environments
EMS Dominance
U.S. EMS Superiority Strategy released 2020 amid
constrained spectrum availability; DoD to prioritize EMS
investments to maintain and expand U.S. warfighter
freedom of action
Link/Doss/AMI
Training/Services
Commercial Training
Electron Devices
C5ISR Systems & Services
U.S. shift in focus to technological near-peers,
INDOPACOM theater’s limited basing options
driving increased requirements for sophisticated
C5ISR systems
Space-Based Systems
High growth segment fueled by “new space” trends
including a range of more cost-effective launch providers
and improving LEO/MEO disaggregated architectures &
technology
Electron Devices
Unmanned Systems
Continued shift from manned to unmanned platforms
across the air/sea/land domains; insatiable combatant
commander demand for persistent ISR coverage; Naval
USV prioritized in a distributed maritime environment
Defense Software
Next-gen emerging systems and supporting ecosystems will
increasingly rely on proven software solutions, particularly
cloud, intelligence, AI, and network-centric warfare
© Oliver Wyman
20
FAVORABLE TAILWINDS, VISIBILITY INTO RECOVERY & MARKET CAPACITY
IMBALANCES DRIVE ATTRACTIVENESS FOR SEVERAL THEMES
Attractive Investment Themes
Potential Upcoming Processes
0-12 Months
Recent Transactions
12-24 Months
Naval Sustainment
Pronounced sustainment capacity crunch at both private
and public yards; scarcity of dry dock capacity near major
vessel homeports increases competitive insulation of
established incumbents; vessel readiness a USN priority
San Diego
Proprietary Systems
‘Spec’d-in’, proprietary components / systems typically
sole source life of program with recurring aftermarket
demand; high margin, strong pricing position dynamics
PCS
Civil Aftermarket
Return of utilization rates provides visibility into aftermarket
recovery, having already reach the trough; Areas of focus on
differentiated capabilities where capacity imbalances exist
constraints (e.g., Biz jet, engine MRO, high-end repairs)
FBO & Airport Infrastructure
FBOs benefitting from surge in business jet utilization above
prior peaks and insulated moats from long-term leases, network
scale and scarcity of available land; visibility into commercial
aviation recovery increases GSE/services attractiveness
Safran Arresting Systems
Safran Non-Core Zodiac Carve Outs
Announced strategic review by Safran will lead to carveout of legacy, non-core assets acquired as part of 2017
acquisition of Zodiac Aerospace
Heath
Tecna EU
Arresting
Systems
Greenpoint
Pioneer
Parachutes
Executive
Inserts
Pacific
Precision
Northwest
Driessen
Other Processes of Interest
Likely upcoming processes with attractive characteristics
that do not clearly fit within selected investments themes
Aerostructures
© Oliver Wyman
21
GOVERNMENT SERVICES MARKET HAS REACHED UNPRECEDENTED LEVELS OF M&A
INTEREST AND ACTIVITY, PARTICULARLY IN NEXT-GEN IT AND HEALTH IT
Attractive Investment Themes
Recent Transactions
Potential Upcoming Processes
0-12 Months
12-24 Months
Cyber
Need to quickly secure DoD, IC, and civilian infrastructure
against Russian and Chinese-backed cyber attacks; recent,
high-profile data breaches have spurred increased
Congressional scrutiny; stand-up of CISA as dedicated FedCiv
cyber CoE will likely lead to standardization of requirements
IT Mod., Digital Transformation, Software
A primary focus of federal agencies as they seek to remedy
their deficient (but improving) FITARA scores; rapid adoption
of new tech (e.g., DevSecOps, cloud, RPA, AI) with COTS
replacing bespoke systems; move toward total cost of
ownership and continuous enhancement from O&M budgets
Cloud and Data Analytics
Landscape dominated by major cloud providers (AWS,
Azure, Oracle); achieving preferred reseller/integrator status
and key contract vehicles creates a nearly self-sustaining BD
flywheel; DoD aiming to resurrect $10B JEDI effort with $9B
JWCC; more likely that each major provider gets a piece
Health IT and Services
White hot market with influx of COVID-related spending
adding to existing push for federal benefits modernization,
VA improvements (CBOCs, prescription drug delivery, etc.),
data ingest/analysis, and records digitization
Building Scale for Large Fed IT Contracts
Contractor ‘Race To Scale’ driven by FedCiv and DoD
acquisitions trending toward fewer, increasingly larger
contract opportunities competed to only a handful of eligible
scale contractors (e.g., Leidos, GDIT, Peraton, etc.)
© Oliver Wyman
22
CONTINUED INTEREST IN INTEL AND C5ISR SERVICES DRIVEN BY BROAD DEFENSIVE
POSTURE REALIGNMENT TO COUNTER CHINA AND RUSSIA
Attractive Investment Themes
Recent Transactions
Potential Upcoming Processes
0-12 Months
12-24 Months
Management Consulting
Management consultancies leaning in on full solutions/
data analytics; reliance on large federal consultancies
continues with ongoing federal labor shortage and rapid
digital transformation of agencies
Intel Services
IC services market continues to be highly attractive and
insulated, favoring M&A to break through silos; MIP and
NIP are at all-time highs as agencies realign missions
and work to keep pace with rapid tech advancement
C5ISR Services
Increasing demand for C5ISR tech and services in
nearly every major COCOM; stand-up of USSF
driving heightened interest in Colorado Springs and
Huntsville as buyers position for space domain
Training Services
Military training focus increases with decreasing
deployments; current emphasis on joint, all-domain
training, LVC, and successor to legacy Warfighter Focus
taking shape as possible re-consolidation
Defense Training and
Mission-Critical Solutions
Commercial Training Solutions
Military Training
SETA, PMO, Related Support-Side Work
Traditionally less active M&A market due to OCI
considerations and more limited ecosystem of actionable
targets and interested buyers; recent activity in space/
GEOINT engineering driven by DoD space domain focus
CLS/BOSS/O&M
Evolving market as nearly two decades of heavy CENTCOM
focus and related DoS support draws down; USN and USAF
CLS, BOSS, and O&M demand growing with pivot to
INDOPACOM and EUCOM in response to China and Russia
© Oliver Wyman
Defense Training and
Mission-Critical Solutions
23
Oliver Wyman
AD&G team
THE AD&G TEAM HAS ADVISED ON THE MOST STRATEGICALLY IMPORTANT A&D
TRANSACTIONS OVER THE PAST DECADE ACROSS 400+ DEALS GLOBALLY
Civil Aerospace
Original Equip.
Defense
Government Services
Services
1. Includes advisory engagements led by Oliver Wyman Partners in previous capacities
© Oliver Wyman
25
WE DELIVER IMPACT FOR LEADING AD&G CORPORATE CLIENTS IN THE US AND
INTERNATIONALLY
Representative Clients
© Oliver Wyman
26
OUR AD&G PRIVATE CAPITAL PRACTICE ENABLES OUR FIRM TO APPROACH THE
INVESTOR COMMUNITY WITH PROVEN COMPETENCE
Oliver Wyman Private Capital supports our clients throughout the transaction lifecycle
TRANSACTIONS PREPARATION
AND EXECUTION
PRE-TRANSACTION
A•
F•
Strategy and idea generation
– Investment/M&A strategy
– Corporate & Portfolio strategy
– International & Market entry
strategy
– Acquisition target search & screen
– Market studies & reviews
– Voice of the customer
– Partnership/joint venture
(JV) evaluation
B•
Due diligence
– Commercial
– Operational
– Other special types
- Red-flag analysis
- “Value Due Diligence”
C•
M&A and corp. finance advisory
– Project management office (PMO)
– Valuation
– Negotiation support
– Sales process management
POST-TRANSACTION
D•
Value growth
– Immediate direction
- Strategy/100-day plan
- Post-merger integration (PMI)
– Long-term performance
improvement
- Holistic
- Functional, including:
- “Value Sourcing”
- “EBITDA X-Ray” (sourcing,
plant, product and overhead)
- “Commercial Effectiveness”
E•
Exit support/vendor due diligence
Bank restructuring
– Financial and strategic review
– Capital raise, sale of non-core assets/non-performing loans, etc.
– Operational performance improvement
© Oliver Wyman
27
OUR PROVEN DILIGENCE APPROACH PROVIDES A COMPREHENSIVE ANALYSIS &
FRAMES THE COMPANY’S MARKET POSITIONING, BUSINESS PLAN & VALUE DRIVERS
Commercial diligence approach is recognized as the global standard and refined over the decades
Value Proposition
1. Client deal team extension with deep domain
expertise to support target review; accelerated
validation of investment theses
Buy Side
2. Detailed assessment of the target’s long-term
financial forecast and development of scenarios
Forecast
Development &
Assessment
IC,
Management,
Bidder &
Lender Support
Market
Outlook, Sizing
& Alignment
With Trends
3. Evaluation of risks relative to market trends,
customer selection criteria and competitive position
4. How will the transaction create incremental value?
1. ‘Head start’ for qualified bidders in terms of market
analysis and forecast review
2. Analytical basis to support the Company’s forecast;
discourages arbitrary discounting
Sell Side
3. Frame the Company to ensure important value
drivers & growth vectors are highlighted and
substantiated
Beyond The
Forecast
Considerations
Definition &
Assessment of
Growth
Opportunities
Global
Standard
Approach
Voice of
Customer /
Customer &
Stakeholder
Diligence
Competitive
Positioning &
Strategy
Detailed
Program &
Contract
Review
4. Enhanced credibility and independent ‘stamp of
approval’ based on Oliver Wyman’s reputation &
track record
© Oliver Wyman
28
OLIVER WYMAN PERSPECTIVES CAN PROVIDE VALUE ACROSS THE INVESTMENT
LIFECYCLE ACROSS OPERATIONS, SUPPLY CHAIN & COMM’L EFFECTIVENESS
Overhead costs
• Efficiency improvement of overhead/back-office functions
Sourcing
Optimization
• Commercial cost
reductions for
purchased compo
nents & raw
materials
© Oliver Wyman
Product
Development
Manufacturing
& Footprint
Supply Chain
& Logistics
• Reduction of
engineered
product costs
through design
optimizations &
portfolio
streamlining
• Manufacturing
process efficiency
improvements and
global footprint
redesign
• Optimization of
freight flows,
distribution
nodes, modes
and
carrier network
Sales &
Marketing
• Commercial
effectiveness,
channel alignment
and pricing
optimization
29
POST CLOSE PERFORMANCE LEVERS EXAMPLES (1/2)
Area
Value proposition
Sourcing
Optimization
• Fast procurement savings generation
Product
Development
• Optimized product value
Manufacturing
& Footprint
Supply Chain
& Logistics
Sales &
Marketing
Overhead
Excellence
© Oliver Wyman
• Commercial cost reductions for purchased components
& raw materials
Performance levers
01
Direct material
sourcing
02
Tier 2/3 sourcing
• Engineered cost reductions through design
optimizations & portfolio streamlining
04
Product cost-down
05
Product portfolio
streamlining
• Asset performance optimization
06
Footprint
optimization
07
Mfg. operations
improvement
09
Make/buy
10
Digital manufacturing
11
Logistics network
redesign
12
Warehouse process
optimiz.
14
Inventory
optimization
15
Carrier/mode
selection
16
Sales force
effectiveness
17
Channel optimization
19
Marketing
effectiveness
20
Headcount
effectiveness
21
Zero-based
budgeting
• Mfg. process efficiency improvements and global
footprint redesign
• Improved Supply Chain performance
• Optimization of freight flows, distribution nodes,
modes and carrier network
• Best in class commercial effectiveness
• Commercial effectiveness, channel alignment and
pricing optimization
03
Indirect spend
optimization
08
MRO optimization
13
Demand
planning/forecasting
18
Pricing/customer
profitability
• Rapid Overhead cost transformation
• Efficiency improvement
of overhead/back-office functions
30
POST CLOSE PERFORMANCE LEVERS & IMPACT EXAMPLES (2/2)
Area
Lever
Impact type
01
Direct material sourcing
Cost
02
Tier 2/3 sourcing
03
Product
Development
Manufacturing
& Footprint
Sourcing
optimization
Supply Chain
& Logistics
Sales & Marketing
Overhead
Cost
© Oliver Wyman
Impact range
Months to impact

5–15%
3–12
Cost

3–8%
3–12
Indirect spend optimization
Cost

5–15%
2–23
04
Product cost-down
Cost

10–15%
12–24
05
Product portfolio streamlining
Cost

10-20%
6-18
06
Footprint optimization
Cost

10–30%
24–60
07
Mfg. operations improvement
Cost

5–10%
9–18
08
MRO optimization
Cost

7-15%
3-9
09
Make/buy
Cost

5–20%
9–24
10
Digital manufacturing
Cost

10–25%
9–18
11
Logistics network redesign
Cost

15–25%
6–12
12
Warehouse process optimization
Cost

4-10%
6-9
13
Demand planning/forecasting
Inventory

10–20%
6–9
14
Inventory optimization
Inventory

10–20%
3–8
15
Carrier/mode selection
Cost

5–15%
6–9
16
Sales force effectiveness
Revenue

5–15%
2–8
17
Channel optimization
EBITDA

3.5–5%
3–6
18
Pricing/customer profitability
Margin

15–30%
1–4
19
Marketing effectiveness
Cost

10–20%
3–6
20
Headcount effectiveness
Cost

15–25%
6–24
21
Zero-based budgeting
Cost

20–40%
12–36
31
WE HAVE A GLOBAL PARTNER TEAM OF 40+, SUPPORTED BY OVER 300 DEDICATED
AD&G PROFESSIONALS
Geoff
Murray
Patrick
Lortie
Andrei
Grskovic
Nik
Dulac
David
Stewart
Tom
Stalnaker
Matthew
Poitras
Joseph
Breda
Kostas
Varsos
Crispin
Ellison
Michael
Khan
Bo
Kaunitz
Kenneth
Aso
Joris
D’Inca
Michael
Wette
Stockholm
Michael
Sassine
Chicago
Los Angeles
Dallas
London
Montreal
Seattle
Paris
Boston
New York
Washington, DC
Roberto
Scaramella
Zurich
Milan
Federico
Ucci
Dubai
Derek
Costanza
Roger
Lehman
Scot
Hornick
Andrew
Medland
Tim
Hoyland
Brian
Prentice
Steven
Walsh
John
Seeliger
Daniel
Leblanc
Neil
McConachie
Bruce
Spear
Randy
Starr
Jatin
Goradia
Dennis
Santare
Sam
Rosenberg
Rory
Heilakka
Jessica
Stansbury
© Oliver Wyman
Thierry
Duvette
Gilles
Roucolle
Jerome
Bouchard
Guillaume
Thibault
Bruno
Despujol
Eric
Ciampi
Singapore
Abhi
Bhuchar
Andre
Martins
Doug
Carlucci
Miguel
Smart
32
OUR A&D LEADERSHIP IS COMPLEMENTED BY OUR SENIOR ADVISOR TEAM
Oliver Wyman Senior Advisors in Aerospace & Defense
Tom Owen
Senior Advisor
San Antonio
Mr. Owen is a senior aerospace consultant with over 34 years on active duty in the USAF with extensive leadership, program management, and
sustainment experience. He served as Vice President for over 6 years leading development of long-term sustainment strategy for all Lockheed
Martin Aero lines of business, including all variants of F-35, partnering with all US and International F-35 nations, services, and corporate
teammates.
Ed Dolanski
Senior Advisor
Dallas
Ed is a former senior executive at The Boeing Company, with over 35 years of supply chain and manufacturing experience in aerospace,
industrials and distribution, leading businesses from $300M to $10B in revenue. He was President and CEO of Aviall, President of Boeing
Government Services, and he has held senior positions at Raytheon. Ed is a member of BENS (Business Executives for National Security) and is
a senior advisor with a number of private equity firms in the US and UK.
Pat Walsh
Senior Advisor
Dallas
Pat is a Senior Advisor in Oliver Wyman’s global Aerospace & Defense Services practice and a retired four-star Admiral. As the 59th Vice Chief of
Naval Operations, he served as a member of the Deputy Secretary of Defense-led Joint Requirements Oversight Council (JROC) and has held
leadership positions across a 34-year career to include command of US Pacific Fleet. Pat also led Boeing’s Navy-Marine Corps services business.
Prior to Boeing, Pat was the SVP/GM at iSIGHT Partners, a FireEye Company, and leader in cyber threat intelligence products and services.
Warren Boley
Senior Advisor
Hartford
Warren is a Senior Advisor in Oliver Wyman’s global Aerospace & Defense practice. Previous roles include service as President of Aerojet
Rocketdyne and Pratt & Whitney’s Military Engines Division. Warren is a lifelong aerospace and defense industry participant, is a leading
expert in aeroengines, and is an avid engineer. He led Pratt’s war on cost for the F135 engine and supported the USAF’s fleet of F-16s, F-15s,
and other frontline aircraft during critical wartime operations. Warren currently sits on multiple aviation and aerospace boards and advises
organizations on strategic and operational topics in aerospace and defense.
Zan Vautrinot
Senior Advisor
Colorado Springs
Senior advisor for Marsh & McClennan, and currently on the Boards of Directors for Wells Fargo, Symantec Corporation, ECOLAB Inc., Parsons
Corporation, and Battelle Memorial Institute. A Major General in the U.S. Air Force where she served over three decades in space and cyber
operations and commanded all USAF cyber forces consisting of 14,000 military, civilian and contractor personnel, while conducting worldwide
cyber operations. Zan was also instrumental in establishing the U.S. Cyber Command with responsibility for conducting offensive and defensive
cyber activities for the Department of Defense.
Recently directed and executed physical and cyber security, investigations, and business resiliency change and major uplift efforts for JP
James Cummings Morgan Chase across 240,000 employees, 60 countries and 6,500+ facilities worldwide. For the President of the US and the National Security
Advisor, served as an advisor on US Homeland Defense policy, US Air Force, and DoD cyberspace issues. For the Air Force, he led global
Senior Advisor
computer network offense, defensive, and exploitation operations, and determined the vision and directed the Air Force and Space Command
Dallas
Full Spectrum Cyber Strategy.
© Oliver Wyman
33
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