Morale affects a unit’s purchase value, and the initial morale value is based on the faction attribute for the selected year and month, the unit formation attribute, and scenario launch parameters. Some randomization is added in the beginning of a battle.
Morale is reduced by suppression, casualties, damage, immobilization, flamethrower attacks, and lightning strikes. When the unit sees friendly units killed, retreating, or becoming routed, then the unit takes a morale hit. The player character unit has a constant morale value.
Units with high morale are less likely to retreat and recover faster from suppression. Vehicles with high morale button-up (close the hatches) less quickly when taking fire and un-button faster. The higher the base morale, the faster the unit can recover from morale hits. Aircraft with high morale tend to stay longer in the battle area before leaving due to damage.