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2022 aerospace and defence industry outlook

Focussing on digital innovation to thrive

As the aerospace and defence (A&D) industry recovers, companies are expected to focus on innovation to develop new technologies and solutions, create new markets and expand growth opportunities. Our 2022 industry outlook explores key trends and opportunities for A&D companies in the coming year.

Innovation to drive new opportunities

As the world heads into 2022, trends in commercial air travel and customer order activity are in much better shape than earlier post-COVID expectations, which is a positive sign for the industry. Global distribution of COVID vaccines is helping to clear a path toward normalisation of air travel, though the current surge in Delta-variant infections in certain regions will likely keep demand for travel subdued into early 2022.

But current macroeconomic trends suggest that demand for small- and medium-sized aircraft will continue to recover to reach pre-COVID levels in 2022, with aircraft manufacturers focused on narrow-body aircraft being well positioned to benefit from this buoyant demand. Furthermore, with air travel volumes now well off the lows seen in 2020, aftermarket revenues could recover strongly in 2022 as air traffic rebounds.

New technologies, evolving business models, and increasing M&A activity will likely further accelerate the shift toward digital and operational efficiencies. In particular, digital thread and smart factory present a host of efficiency- and productivity-enhancing technologies that can accelerate time to market and reduce cycle times. A&D firms that focus on innovation will likely be better prepared for 2022.

Seven aerospace and defence industry trends to watch

To learn more about these trends, download the full report.

Innovative deployment of digital thread and smart factory to drive efficiencies

In 2022, A&D companies are expected to embrace digital thread and smart factory more broadly to gain critical material and component supply visibility to ensure efficient production and faster design to delivery.

Enabling the digital thread can be crucial for an A&D business to stay agile in today’s shifting business environment. The digital thread connects across an A&D product’s end-to-end life cycle, from the initial design to the final product—collecting live feedback along the way. Insights and actions enabled by the digital thread should help A&D companies speed up product time to market, reduce overall service costs and stay flexible in meeting customers’ ever-changing demands. Industry players will likely leverage the digital thread to streamline, design, adapt and maintain products at every stage of the journey.

Recovery in air travel to drive focus on digital innovation for growing aftermarket revenues

The pandemic resulted in a substantial drop in aftermarket revenues and profits, so companies are looking for ways to capture more value from aftermarket as commercial aerospace recovery accelerates. Reducing costs and time to resolution, as well as managing risks, are generally the key priorities for aerospace customers.

To improve the customer experience, aerospace companies could invest in digital platforms in 2022 to enhance customers’ visibility to production and material systems, integrate applications across platforms and improve linkage to engineering data. Moreover, many companies will likely leverage digital technologies to offer proactive and predictive maintenance capabilities as these digital service offerings could help them gain a competitive edge and provide an enhanced customer experience.

Defence contractors to leverage innovation for building advanced military capabilities

The defence industry has been considerably more insulated from the global impact of COVID-19 than the commercial aerospace industry, and the ongoing US government support for the National Defense Strategy is likely to keep defence spending stable in 2022.

With the US military gradually shifting its focus away from the Middle East to emerging threats in the Far East, defence companies should emphasise building improved capabilities in fighter aircraft, space resilience, shipbuilding and cybersecurity to drive growth. This renewed focus could bode well for the major defence contractors sitting on record backlogs, which should support revenue growth in 2022 and beyond.

Innovation to continue accelerating growth in the space market

In 2022, developments along three key areas—the launch industry, satellite trends and new technology—could drive growth in space-based services to offer tangible value for businesses, society and consumers.

Ongoing innovation has laid the foundation for broad-based next-gen satellite telecommunications. In 2022, the explosion of small-sat constellations could shake up how broadband internet is distributed across the world and bring connectivity to communities and locations where previously not possible. Furthermore, in the field of Earth observation, satellites can increasingly capture terabytes of granular images from all corners of the Earth on a daily basis. This data can gradually be used by sophisticated software to generate insights that inform organisational decision-making.

AAM firms to start adopting new innovative business models

AAM is gaining increased momentum and gradually becoming mainstream, especially as companies developing electric vertical takeoff and landing (eVTOL) aircraft continue to receive substantial investment from sources ranging from traditional aerospace companies to private equity investors. Numerous organisations have already passed the research and development (R&D) stage and are currently performing testing and piloting. Certification, testing and evaluation, and prototype deployments are expected to gain further traction in 2022.

As the market for AAM in the United States alone is estimated to reach $115 billion annually by 2035, competition is likely to be intense, and therefore companies in this ecosystem should gain an edge by being first movers. AAM companies should formulate a solid business strategy for successful commercial operations now, while the industry is still evolving. They should evaluate and identify the operating business models and consumer segments where the most significant opportunities lie—aligned with their strategic vision, core expertise and organisational capabilities.

Innovative technologies and solutions to drive decarbonisation

2020 and 2021 saw increased public pressure on the A&D industry, especially in commercial aerospace, to implement environmentally sustainable manufacturing practices and promote a significant shift toward lowering carbon emissions. 2022 could be the year all companies make decarbonisation commitments—not only in their operations but also for their products.

While the industry has been at the forefront of adopting new and advanced manufacturing technologies to increase fuel efficiencies, now is the time for A&D companies to leverage advanced technologies more than ever to drive innovation to help address the sustainability challenge. The industry should focus on technological and operational improvements and develop new systems and alternatives to jet fuel to significantly reduce emissions.

Companies with strong financial discipline expected to use M&A to drive growth in emerging technologies

The industry experienced solid values and volumes of M&A activity during the first half of 2021. With $61 billion worth of deals through August 31, 2021, compared to a deal value of $22 billion in 2020, M&A activity remained strong in 2021. In 2022, deal activity should remain strong—innovation, technology transformation and geopolitical and regulatory shifts will likely drive a robust deal environment across all industry segments.

As industry players reevaluate their portfolios and focus on divestments of non-core assets, well-prepared companies with strong balance sheets should make smart M&A decisions that create increased shareholder value. While post-pandemic recovery will likely remain a key driver for M&A in commercial aerospace, geopolitical tensions could continue to support deal-making in defence.

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