Deloitte: technological developments and innovation continually shape the A&D industry

Published: 18 March 2020

Today, Deloitte publishes the 2020 Global Aerospace and Defense Industry Outlook report (the report). It predicts trends for the aerospace and defense (A&D) industry in 2020 and anticipates the direction of technology innovation and reform, as well as business model transformation, by analyzing the current industry situation and regional characteristics of the global A&D industry, providing industry players with reference and inspiration.

The ongoing uncertainty and sustained complexity of the international security environment worldwide is likely to boost global defense spending over the next five years. US foreign military sales also remain steady as global security challenges persist, and this is likely to boost the already robust performance of the defense sector. Global defense spending is expected to grow at a CAGR of about 3 percent over 2019–2023 to reach USD2.1 trillion. In contrast, growth in the commercial aerospace sector has slowed amid production challenges for some aircraft models. Due to order cancellations and a drop in new orders, the order backlog for commercial aircraft had decreased from 2018's peak level of about 14,700 units to slightly more than 14,000 at the end of August 2019. However, commercial aerospace sector growth is likely to recuperate from 2020 onwards as long-term demand for commercial aircraft remains robust, with nearly 40,000 units expected to be produced over the next two decades.

Deloitte China Aerospace and Defense Industry Managing Partner Kevin Guo says: "2020 looks set to be a year of firsts, with significant milestones in the growth of the space ecosystem, as innovation in space technologies will pick up pace, laying the foundations for more substantial changes in the early part of the next decade. The development, evaluation and verification of new and existing space technologies and services require long-term and huge capital support from governments and venture capital. At the same time, M&A activity is expected to pick up and industry consolidation will be enhanced through growth drivers in areas such as Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance (C5ISR), commercial aerospace maintenance repair and overhaul (MRO), unmanned and autonomous vehicles, hypersonics, as well as the need to achieve scale."

Addressing regional characteristics, the report shows that the United States remains the primary growth driver for the A&D industry. However, increasing passenger growth worldwide and a complex international security environment could result in several other regions and countries contributing to industry performance. Asia and the Middle East are driving growth in the commercial aerospace and defense sectors, whereas Japan is expected to be a key market primarily for the defense sector. In Europe, NATO members, such as France, are reportedly targeting increased defense spending as the United States constantly encourages NATO countries to increase military spending to 2 percent of GDP.

The report predicts that technological developments and innovation will continually shape the A&D industry, with three significant drivers (electric propulsion aircraft, urban air mobility and automated flight decks) in the medium-to-long-term. Moreover, technology investments are essential for major shifts in the A&D industry. With higher production requirements for commercial aircraft and defense equipment, and higher expectations among A&D customers for delivery schedules and customization, industry players are expected to increasingly need advanced new manufacturing technologies, highly agile production and predictive quality controls.

"By investing in digital technologies, the industry could be at the forefront of manufacturing, enhancing productivity and efficiency. As we have seen, increasing global defense spending should continue to create opportunities for defense contractors and their supply chains. To meet increased demand, defense companies should leverage highly agile production, including digital technologies, which adapts to changes in demand," Guo adds.