@Patrick, on epsilon:
I had assumed that we already had air coverage and convoys to defend our merchants. And, in fact, it seemed to have worked - we have reduced our merchant shipping losses by a third. For their operational patterns I had assumed them to be operating singly, striking at the singletons before retreating in a more-or-less random direction, making large raids impractical.
However, there's one idea I had for defending our ships with planes even outside our range: CAM-Ships. That is, equipping merchant ships with catapult and / or rocket-launched planes to defend them in case of attacks. Sure, we lose those planes almost definitely due to ditching, but that's what we have Seagulls (if they mostly use ships) and/or Ravens (if they mostly use planes) for, isn't it?
Other than that: The recent refit of the Lightnings means we need a new fighter, and we need it fast. We currently are approaching 1.5:1 losses which are, even with the higher cost, unsustainable. The only problem I see is that the new engine, refitted on the Sparrow, does not warrant a completely new fighter.
I'd propose designing a completely new engine this turn, also with good high-altitude performance, but unconstrained by the need to be fit in the Sparrow, and, also in the same turn, designing the fighter platform for it.
Developing a hedgehog system might be useful, too.
Oh, and on the sonar: Depth-finding is one of the most useful of the bunch, because this allows to drop depth charges much more efficiently.
Additionally, I'd construct an advanced electronics factory to get around the shortages, plus a pilot school.
@10ebbor: Does the Sparrow really have 2 crew?
Also, if we get experts, do they do their work already in the turn they're recruited in?
Also, is the SONAR active (ASDIC) or passive (hydrophone)?