The Covid-19 pandemic has adversely affected several industries. One of the severely hit sectors is aerospace and defence. With the pandemic causing a global economic crisis, its impact could be worse than any calamity that the industry has seen since the Great Depression. Aerospace and Defence industry in India, without factoring in the effect of pandemic, is slated to become worth $70 billion by 2030. Currently, the defence industry of India constitutes 1.6 percent of its GDP and the country has the fifth position globally in terms of defence budget. Aerospace is the major contributor to the defence sector and churns out close to 50 percent of the production in the sector.
With the pandemic spreading its wings, production in commercial aviation has come to a grinding halt. The dampening demand has caused flight operators to refrain from buying new aircrafts. Consequently, the need for spare parts has dwindled with lesser demand for maintenance. Intrinsically being capital intensive, aircraft manufacturers are struggling with cash flow issues to keep their operations running. The pandemic has compelled governments across the global to rein in their expenditures. In line with the same strategy, India has deferred 15-20 percent funds set aside for the Defence Ministry in the first quarter of financial year. In the beginning of the year 2020, Rs 4.7 trillion was earmarked for defence by the Finance Minister, citing national security as a primary concern.
According to Defence Analyst Ajay Shukla, it is likely that the defence ministry will have to let go Rs 800 billion by the year end. With the assurance from the government pertaining to exemption of salary and pension bills, the cut is bound to affect the purchase of weapons and military modernization. Jitender Bhargava, a former airline executive director, an aviation industry expert and consultant said to The Hindu, “Indian industry is in a unique position. Most of the airlines that came up 10-15 years ago have only seen the good times. Otherwise, we have always seen that in the aviation industry, it is a cyclical thing. You have a boom period followed by a trough period. So, they have placed orders for a large number of planes. They have not built cash reserves, barring Indigo. Once you are chasing market share at the cost of profitability, how are they, airlines, going to sustain it? It is basically a very scary scenario.”
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