Defense budgets and sales next year will remain “relatively” stable and defense spending worldwide will increase in the low single digits—surpassing $2 trillion—amid rising geopolitical tensions, the auditing and consulting firm Deloitte says in its annual outlook for the aerospace and defense industry.
In the U.S., defense spending is expected to be flat in 2021 and downward pressure may begin to be felt in fiscal year 2022 due to efforts to reduce government deficits and potential shifts toward “social and domestic programs” under a Biden administration, the new report says.
Accelerated progress payments that have helped defense contractors and their defense suppliers with cash will likely continue and foreign military sales will probably “offset some of the impact of flat domestic defense spending,” Deloitte says. The report expects foreign military sales to grow in FY ’21.
Outside of the U.S., the report says most countries with large defense budgets “have remained committed to strengthening their military presence, despite the pandemic’s economic impact on fiscal deficits, citing China, India and Japan as examples whereas as Russia plans to cut defense spending due to COVID’s impact on economic growth.
Impacts to the global supply chain caused by the pandemic could result in “minor cost increases and schedule delays in 2021” for some defense programs, Deloitte says.
The outlook for the space sector is robust.
In 2021, the space launch market is expected to grow more than 15 percent as costs continue to decline and demand increases.
“Space exploration is also expected to continue to evolve and grow in 2021 due to declining launch costs and advances in technology,” the report says. “Over the long term, costs will likely continue to decline, with companies in the space ecosystem focused on reaching critical mass.”
For example, the broadband Starlink satellite network being built and deployed by SpaceX stands at 422 satellites with the long-term goal of 40,000 space craft, Deloitte says.
The report also says that the U.S. Defense Department’s establishment in 2019 of the Space Force “could drive public sector investment in 2021 and beyond” and that U.S. Space Command “will likely support A&D companies in accelerating investment in innovative technologies and capabilities.”