On Monday, Aon Corporation, a leading global provider of risk management services, released its 2009 Defense Industry Benchmarking Report.
This annual report addresses the key issues and concerns of defense industry clients and is designed to allow these organizations to benchmark their risk management and risk financing practices against those of their peers and competitors, while identifying practices or approaches that may improve the effectiveness of existing risk management strategies.
“The global business environment is simultaneously full of risk and opportunity as the credit crisis and recession continue to evolve,” says Charlie Skinner, managing director of Aon’s Defense Industry Alliance. “Organizational sustainability and profitability demands the proactive understanding and management of risk.”
The 20-page report is divided into five categories:
- Retentions –Workers’compensation and retention analysis
- Limits – Umbrella/excess liability (excluding aviation) and limit analysis
- Premiums –Defense Base Act and Premium Rates Comparison
- Risk management department size
- Captive usage
Supplier risk in the defense sector was highlighted in the Telegraph last month. The article explained how the defense giant BAE relies on thousands of smaller manufacturers, many of which are now at risk from the lending freeze. BAE warned about these zombie suppliers in its recent half-year results:
“Some of the group’s suppliers or subcontractors may be impacted by the current economic environment and constraints on available financing, which could impair their ability to meet their obligations to the group,” BAE said, according to the article.
“For aerospace and defense companies that took on pretty big amounts of leverage in 2007 and early 2008, the fall off in demand is going to be pretty catastrophic. Private equity-financed businesses are more vulnerable, and private equity companies are having to think hard about whether they want to re-leverage or sell,” explained Jason Steen, who runs Steen Associates, an aerospace and defense M&A advisory firm.