SPECIAL REPORT: Defense Companies Face Post-Pandemic Workforce Shortages

Stock illustrations

This is part 2 of a 5-part special report on the health of the defense industrial base. Click here to download the full Vital Signs 2023 report.

It’s been three years since the initial COVID-19 outbreak upended the global economy, and the defense industry is still struggling to attract and retain key talent on both the production line and in offices, according to a new study.

The 2022 Aerospace & Defense Workforce Study — released in October 2022 by the Aerospace Industries Association and the American Institute of Aeronautics and Astronautics in collaboration with Ernst & Young LLP — revealed that overall turnover in aerospace and defense companies has risen to 7.1 percent, marking more than a 2 percent increase since 2020.

The study noted a specific shortage for workers with skills in engineering and “strong digital capabilities” — such as data, analytics and automation. The push for a defense workforce with these digital skills is a relatively new phenomenon, said Steve Fuller, partner in Ernst & Young’s people advisory services division.

“There’s really an evolution in the types of skills that are needed today as well as in the future, and it’s being exacerbated by multiple factors,” Fuller said.
One factor causing the talent shortage is academia’s inability to keep up with the defense industry’s changing needs, he said.

As part of the 2021 edition of the survey, companies were asked how far in advance they conduct workforce planning. More than half of the respondents said they only plan 18 months into the future, Fuller said.

This timeline for workforce planning can cause shortfalls as it doesn’t always align with contract periods and doesn’t factor in the time universities and trade schools need to update their curriculums, he said.

“There’s a disconnect between what the professionals in the industry are doing and those in the academic space are doing,” Fuller added.

“The entire landscape of manufacturing; both in the makeup of the workforce and in the international supply chain, has vastly changed since the initial days of the COVID-19 pandemic,” Mark Lyall, senior sales manager-defense at Cummins-Meritor, said in an email.

“Our supply chain has [to] continue innovating, finding efficiencies, accelerating process improvements, and investing in the workforce to find new ways to operate under the new normal conditions,” he added.

Another company looking to bridge this gap between academia and the professional industry is Lockheed Martin. The company has established apprenticeship programs — including one in partnership with the College of Central Florida — which are “instrumental in developing a sustainable pipeline of highly skilled talent for our future operations,” a Lockheed Martin spokesperson said in an email.

Creating these pathways for younger candidates will be important as the defense industry has an “aging workforce” that needs to be replenished, Fuller said.

As defense companies look to attract the next generation of key talent, they must also improve compensation practices such as adjusting faster to inflation, he added.

“One of the things we find is that companies typically only benchmark their pay annually at best,” Fuller said. “The reality is with inflation, if you’re doing it annually, you’ve already lost the people that [are] sensitive around pay. So that’s something that I think we would like to see a little bit more.”

According to the study, 78 percent of employers cited workers seeking higher pay as a factor for the high attrition rate. Additionally, 75 percent of employers listed workers seeking better career advancement as a factor.

“What really matters to employees is really what their situation is like at work,” Fuller said. “What kind of experiences are they getting, and do they have opportunities for career growth? And that’s a real opportunity for this industry: to identify how they can create more career paths and also learning opportunities so that people can access those career paths.”

Companies have also faced retention challenges at the executive level, he added, with the fluctuation of the stock market causing many to consider other opportunities if their incentive compensation targets aren’t met.

Another factor is the dual nature of many companies that serve both commercial and defense customers, said Raman Ram, the aerospace and defense leader for Ernst & Young Americas. As the commercial side of these businesses struggled during the pandemic, many of their defense executives left as well, he noted.

The workforce challenge in the defense industry is a structural and long-term issue rather than a temporary one, Ram said.

“I think it’s an inflection point, because now we’re seeing defense companies actually having the inability to meet the revenue, because direct labor translates to revenue for defense companies,” he said. “Program performance [is] slipping, supply chain performance [is] slipping — not only at the primes, but also all the way throughout the chain … it’s a call for action for defense companies to act, even though they’ve been talking about this for 20 years.”

One action companies can take is to better articulate their unique “value proposition” to current and potential employees, Fuller said.

“Why should someone want to work at your organization, whether they’re a candidate or an employee?” he said. “A lot of these organizations actually have some very beneficial things that they just don’t articulate well.”

One example would be offering flexibility on when people work, which the defense industry actually does well compared to other industries, Fuller said. The study noted that 84 percent of respondents said they provide remote working options, with 81 percent responding they provide flexible working hours to employees.

Increased flexibility has been a focus for Lockheed Martin when looking to attract and retain talent, the company spokesperson said.

“During the pandemic, we implemented a hybrid workforce model to continue meeting our customer commitments, while maintaining flexibility to help our employees thrive,” the spokesperson said. “This flexibility extends to when, where and how Lockheed Martin employees work — including the majority of our employees working a flexible four-day workweek.”

Lockheed Martin has also created skill development programs for employees, including micro-degrees, advanced skills development courseware and access to business development content, the spokesperson said. The micro-degree program has resulted in a 400-plus percent return on investment “with employees engaged in building skills for future opportunities,” they added, citing an analysis done in the company’s 2021 business impact report.

One company that achieved strong growth during the pandemic was American Rheinmetall Vehicles, or ARV, a subsidiary of German-based company Rheinmetall AG.
Established to increase the company’s presence in the United States, ARV began with six employees in January 2020 and now has more than 100 employees, said Mike Milner, ARV’s director of business development and strategy.

Unlike larger companies, ARV can offer prospective employees the chance to build something from the ground up, Milner said.

“That’s one of the intangibles that we get … [and] see [in] a lot of the folks that we do recruit,” he said. “It’s that opportunity to be part of that ground floor and establish a company versus, ‘I’m just going to be one cog in the 100,000-person machine.’”

Companies must continue to be adaptable and flexible as working remotely is likely to become “a permanent part of the United States service industry,” Milner said. While manufacturing itself requires in-person labor, digital design capabilities are now allowing more workers “to do a lot of the stuff remotely from our own houses if we have to, [and] that enables us to provide a better work environment for the employees,” he said.

Along with increasing employees’ digital skill sets, many companies are investing more in leadership training at all levels, Fuller said. The study found that 66 percent of respondents had made significant investments in helping workers develop leadership skills.

“This industry really needs to develop the next generation of leaders,” Fuller said. “[There are] significant needs for succession purposes at the top of these organizations.”
Defense companies must develop leaders at the lower levels of their organization as well, he added.

“That’s really going to dictate the culture, it’s going to dictate your employee satisfaction, it’s going to dictate your ability to retain employees,” Fuller said. “I think it’s good that it’s recognized. I think now it’s a matter of how are you going to take action in order to really develop leadership across the industry?”

To attract key talent and foster future leaders, defense companies must clearly articulate to candidates and employees their purpose as an organization, he added.

“That’s really what today’s workforce is really looking at: ‘What’s the bigger reason of why I’m going to work? It’s not just to do my job. It’s not just to earn money. It’s how am I making an impact on the world?’” Fuller said. “And I think there’s a lot of opportunity for this industry to better define the why.”

Part 1: Annual Survey Shows Growing Worry Over Health of Industrial Base
Part 3: How Immigration Reforms Can Help Counter China
Part 4: U.S. Begins Forging Rare Earth Supply Chain
Part 5: Pentagon Makes Moves to Speed Up Tech Transition

Topics: Manufacturing, Defense Contracting, Civilian Workforce