Posted: 21 Jul. 2020 4 min. read

The way forward for the Italian Aerospace & Defense sector

By Gianluca Di Cicco and Francesco Legrottaglie

This year has definitely been a complex one for Italian companies. The impact of the COVID-19 pandemic on national GDP has been severe, with a more than 8 percent drop predicted.[i] The lockdown, the closing of borders, and the health risks have exposed the vulnerability of global supply chains to external shocks. And there will be heavy consequences on companies’ operational, financial, and logistical levels—especially in the Italian aerospace & defense (A&D) industry.

Aviation in particular is facing a “perfect storm” in Italy: economic factors, restrictions on mobility, and travelers’ fears related to health risks resulted in an almost complete hold on the demand and supply of transport services in the short term. Approximately six Italian airports out of ten closed, air carriers reduced their flights by more than 40% in first four months of the year, and transit travelers in Italy more than halved because of new travel policies, safety concerns, financial pressure, and availability of unified communication and collaboration tools[ii] (UCC). This situation, coupled with low oil prices, also gave airlines the chance to increase the average lifetime of less fuel-efficient airplanes.

All these factors severely affected A&D OEMs’ and suppliers’ performances. Most are still maintaining some level of production in compliance with new legislation. But there has been a massive cancellation and/or deferment of airplanes, deliveries have been postponed due to a shortage of components, and new product launches have been set aside for the moment. In addition, the demand for MRO services and spare parts dropped, severely impacting those Italian suppliers that are most exposed to the commercial aviation sector and characterized by anti-cyclical business.

The Italian defense sector is, relatively speaking, more resilient. It is less subject to market fluctuations and is based on a longer purchasing cycle. Over the short and medium term, demand is expected to be stable as most of the purchases will be directed toward national security initiatives. However, in the long term there might be a slight decline in the demand for such services because of new foreign policies and of budget optimization (following a massive increase in the public debt/GDP ratio to 166.1% by the end of the year).[iii]

But while the impact of the pandemic has been unprecedented in its scale and scope, it also provides a unique opportunity for the A&D industry to rethink its operational models. One of the most innovative and strategic sectors in Italy, A&D now has the chance to question current established paradigms and strategic approaches as it addresses the major challenges the entire ecosystem is facing today. Here are some ways Italian companies are already working to challenge operating models:

  • Optimizing financing processes. Italian companies are doing this to protect their cash flow, avoid any possible liquidity crunches that could negatively affect their survival, and support the whole sectoral ecosystem by avoiding cascade effects throughout the supply chain that may weaken the industrial base.
  • Securing their supply-chains. This will help the sector thrive in the new normal as well as helping it prepare for the possibility of a second wave of the pandemic. In this respect, it is key for companies to orchestrate transparent, local, reliable, and multi-level supply chains that match the company’s product mix and streamline strategies and operations processes. This is being achieved in several ways, from investigating new sources of supply to better management of current suppliers or vertical integration.
  • Accelerating digital transformation. To better deal with the situation brought on by COVID-19, many Italian companies are speeding up their digital strategies. Digital technologies are key for orchestrating a more dispersed workforce (UCC) and supporting on-site employees in incrieasing their productivity (wearables, IoT, etc.). Digital solutions also provide innovative ways to keep operations running while scaling smart manufacturing systems across locations (Industry 4.0), ensuring the full alignment between all departments, making supply-chains easily manageable, and solving any pandemic driven contingency issues (e.g., spare parts and 3D printing).

The pandemic is gradually loosening its grip on Italy. However, there will be significant economic consequences for A&D companies, due to structure of the industry. To thrive in the new normal, Italian companies need to challenge their current strategies in favor of new organizational and business models. These models must value the entire industry ecosystem in order to prevent a loss of competitiveness in the international arena as well as an erosion of market share and the dispersal of unique skills and know-how.

[i] ISTAT, “Le prospettive per l’economia italiana nel 2020-2021”, June 2020

[ii] Assaeroporti, June 2020

[iii] International Monetary Fund, “A crisis like no other, an uncertain recovery”, June 2020

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Key contact

Gianluca Di Cicco

Gianluca Di Cicco

Workforce Transformation Leader

Gianluca Di Cicco is Deloitte's Workforce Transformation Leader in Italy. A graduate of Economics and Business Administration, Gianluca has accumulated extensive experience throughout his career and has collaborated with several players nationally and internationally with a focus on the public, manufacturing and industrial sectors. Among his key skills he has a solid background in corporate strategy and operations: supply chain, sourcing and procurement, organizational design and program management.