2020 Aerospace and Defense Industry Outlook: A midyear update has been saved
2020 Aerospace and Defense Industry Outlook: A midyear update
Exploring aerospace and defense industry trends and the impact of COVID-19
In our original 2020 outlook, we forecasted that long-term demand for commercial aircraft and innovative technologies are likely to help the aerospace and defense industry rebound from the previous year. Since then, the COVID-19 pandemic has caused major disruptions throughout the industry. How can organizations address these new challenges to recover and thrive? Our midyear 2020 aerospace and defense industry outlook provides insights to help leaders navigate increased uncertainty to remain resilient in the wake of COVID-19.
Midyear outlook: Understanding new aerospace and defense industry trends
Aerospace and defense (A&D) is one of the industries most affected by the COVID-19 pandemic, particularly the commercial aerospace sector. With significantly reduced domestic and international passenger traffic, the US commercial aerospace sector is preparing for a weak second half of the year. Will the US defense sector suffer alongside commercial aerospace? How can organizations recover and remain competitive amid COVID-19’s impact on the aerospace and defense industry?
Explore our midyear outlook—focused on four aerospace and defense industry trends—to address new challenges and facilitate recovery in the remaining months of 2020.
Podcast: Midyear 2020 Aerospace and Defense Industry Outlook
2020 Global Aerospace and Defense Industry Outlook
(published December 2019)
While defense continues to soar, commercial aerospace is experiencing a short descent
After a strong year in 2018, the global aerospace and defense (A&D) industry has experienced descent in 2019. While the defense sector has continued to soar, growth in the commercial aerospace sector has slowed. In 2020, the A&D industry is expected to get back to its growth trajectory with the commercial aerospace sector recovering from its decline in 2019.
The defense sector has sustained its growth in 2019 as security threats have intensified, requiring governments worldwide to continue increasing their defense budgets. Defense expenditure is expected to grow between 3 and 4 percent in 2020 to reach an estimated US$1.9 trillion,1 as governments worldwide continue to modernize and recapitalize their militaries. Most of the growth will likely be driven by increased defense spending in the United States, as well as in other regions, such as China and India.
The commercial aerospace sector has experienced a decline in deliveries in 2019 due to production-related issues in certain aircraft models. Order backlog of commercial aircraft has also decreased from the 2018 peak levels of about 14,700 aircraft to slightly more than 14,000 at the end of August 2019.2 This was a result of order cancellations and a drop in new orders. However, commercial aerospace sector growth is likely to recuperate from 2020 onward as the long-term demand for commercial aircraft continues to remain robust, with nearly 40,000 units expected to be produced over the next two decades.3
2020 global aerospace and defense industry trends
The United States continues to be 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 both 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 to increase defense spending as the United States constantly encourages NATO countries to increase military spending to 2.0 percent of GDP.17
What’s on the horizon beyond 2020?
Technological developments and innovation continually shape the A&D industry. Some of the significant developments that are likely to have implications in the medium-to-long-term include:
- Electric propulsion aircraft: While aerospace manufacturers have built more fuel-efficient aircraft over the last few decades, rapid growth in air travel demand has continued to result in an increase in carbon emissions by the aviation industry. With technology evolving rapidly, there are several companies globally that are developing electric propulsion systems, which would reduce carbon emissions, make flights quieter, and decrease costs. Electric propulsion systems could also support the emerging urban air mobility (UAM) ecosystem, consisting of passenger drones, most of which are likely to be either electric or hybrid-electric. Apart from large aerospace propulsion companies, such as Rolls-Royce and Safran, there are various technology startups also involved in the development of electric propulsion engines.
- Urban air mobility: The development of UAM vehicles is expected to accelerate over the next decade. However, there are significant challenges that would need to be ironed out.46 Most importantly, there would need to be the formulation of regulations for pilotless vehicles, airworthiness certifications, and the use of airspace. Implementing efficient energy management systems, onboard sensors, collision detection systems, and other advanced technologies would also need to address the technological challenges.47 In addition, the industry should build takeoff and landing zones, parking lots, charging stations, and vertiports to support the infrastructure needs of UAM.48 Apart from this, creating a robust air traffic management system integrated with other modes of transport would be needed to enable smooth operations of UAM vehicles.49 Lastly, the industry would require a flawless operational and mechanical safety record to overcome psychological challenges associated with the idea of flying in an unmanned aircraft.50 To address these challenges, vehicle manufacturers have begun testing vehicles, ecosystem participants are collaborating on developing a robust regulatory framework, and technology is advancing swiftly.
- Automated flight deck: Although commercial aircraft manufacturers are increasingly relying on automated flight controls, including automated cockpits, the commercial aerospace sector is aiming to transition to fully automated flight decks. Such a transition will likely reduce the number of crew members in the cockpit, resulting in lower costs for airlines. Moreover, automated flight decks would also address the growing pilot shortage issue currently faced by the aviation industry, which will likely be accentuated in the future as the commercial aircraft fleet continues to grow.
Technology investments required to make major shifts in the A&D industry
With higher production requirements for both commercial aircraft and defense equipment, it is important for A&D companies to adopt new and advanced manufacturing technologies. As A&D customers become more demanding in terms of delivery schedules and customization, industry players are expected to increasingly need 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.
Energy and industrials trends in 2020
How will the trends we watched in 2019 play out in 2020? What emerging trends are on the horizon? Our industry outlook collection, covering Oil, Gas & Chemicals; Power & Utilities; and Industrial Products & Construction, evaluates sector landscapes to help executives better plan for success and unforeseen challenges.
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