Major weapons acquisition programs have continued their trend of cost growth and schedule delays, according to Deloitte’s report, “Program management in Aerospace & Defense: Sector programs are still over budget and late.”
The study looks at the progress that has been made in the aerospace and defense (A&D) sector, explores the root causes associated with the continued trends of cost and schedule growth, and provides recommendations for a sustainable and long-term improvement.
The combined cost overrun for Major Defense Acquisition Program (MDAP) portfolio programs in 2015 was $468 billion, up from $295 billion in 2008.
The total cost of the U.S. Department of Defense’s 2015 MDAP portfolio grew at 48.3 percent with an average schedule delay of 29.5 months.
“Our research indicates that over the past seven years, the problem has persisted, albeit at a decreasing rate of growth,” said Robin Lineberger, principal, Deloitte Consulting LLP, U.S. Aerospace and Defense.
“When looking at defense programs with the largest growth or largest declines, we find that those with the largest growth result from quantity increases, but also process inefficiencies, design and technical modifications, and major restructuring such as combining programs and changing the mix of items in a manner that delayed schedules or created cost overruns.”
Improving program management processes that minimize schedule delays and costly overruns entails identifying requirements early on.
Maintaining stable, baseline requirements from the start of a project keeps costs down and offers a more realistic estimate of how long a project may take to complete.
Organizations should provide proper incentives and empower program managers, while also hold them accountable to solve problems and reduce risks by effectively addressing issues early, according to the study.
Sector returned to growth, with US defense subsector revenue bottoming out
Key highlights:
- Global aerospace and defense revenues in constant currencies returned to growth, outpacing inflation, however, the sector experienced a decline when measured on a non-constant US dollar (US$) basis
- Defense subsector is rebounding likely due to increased military spending by governments that are recapitalizing their defense infrastructure
- Commercial aerospace deliveries and order backlog reached record-highs with strong revenue growth in 2015, with future years of sector industrial stability expected
- European aerospace and defense sector is eclipsing the US sector in revenue growth, likely due to increased market competitiveness, increased defense spending and continued growth in commercial aircraft production
- Productivity remains high, after experiencing improvement likely due to increased replacement of labor with process automation, efficiency initiatives, and lower overhead costs brought about through increased mergers and acquisitions activity
- Propulsion, avionics, and complex systems suppliers continue to experience higher operating margins and profitability, compared to aerostructures and services companies
- US aerospace and defense (A&D) sector operating margins continue to remain higher than European A&D sector, with a 3.1 percent gap, however profitability of European A&D companies is increasing
- Companies are taking on more debt to finance stock buybacks, acquisitions, and product development—especially in the US—taking advantage of historically low interest rates
- Many financial performance metrics were driven by increased revenue at commercial aircraft original equipment manufacturers and their suppliers, as well as increased profits from European defense companies
Figures cited in the press release are based on Deloitte’s analysis of “Defense Acquisitions: Assessments of Selected Weapon Programs,” Government Accountability Office (GAO) Report to Congressional Committees, March 2016 and GAO‘s “Assessments of Selected Weapon Programs” and “Selected Acquisition Reports.”
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Deloitte A&D practitioners have deep industry experience and are actively involved in various segments of the industry, including: M&A, advanced technology programs, airplane program launches, and acquisition reform and economic assistance packages.
