2026 Aerospace and Defense Industry Outlook: Midyear update
How the five trends we identified have evolved as of June 2026
As the aerospace and defense industry moves through 2026, companies are increasingly focused on ensuring reliable delivery, sustaining commercial operations, and strengthening the industrial base while managing quality, cost, supply chain, and workforce pressures.
In commercial aerospace, high demand continues to support the trends observed in our 2026 Aerospace and Defense Industry Outlook. However, limited production and overhaul capacity, fuel-price volatility, and workforce pressures are increasingly influencing how much of that demand can be translated into revenue and cash flow. Meanwhile, defense spending priorities continue to shift toward munitions, drones and counter-unmanned aircraft systems, autonomy, missile defense, space, cyber, and industrial-base expansion.1 While this is creating new avenues for growth across the sector, it is also placing greater emphasis on production readiness and scale.
Against this backdrop, the second half of 2026 may depend less on market appetite and more on the industry’s ability to navigate supply chain, labor, and industrial capacity challenges while converting demand and funding into measurable output. Given these developments, this midyear update revisits the five trends from our 2026 outlook and highlights what has changed, what has intensified, and what leaders should monitor in the second half of this year.
Trend 1: AI and agentic AI are transforming aerospace and defense
What’s changed
- Artificial intelligence has moved rapidly from experimentation toward mission- and enterprise-scale deployment. The focus is shifting from productivity gains to operational advantage. The 2026 US defense AI strategy calls for the “AI-first” force. The main constraint to AI integration is no longer model capability; it is trusted deployment.
- Autonomy has accelerated, as real-world conflicts are changing the demand signal.
- Venture capital, not just defense budget, is contributing to an acceleration of defense AI and autonomy. The value of venture capital deals in defense technology reached a record high of US$19.8 billion in the first quarter of 2026, representing a year-over-year increase of 146%. Specifically, autonomous systems accounted for nearly one-third of the total deal value.2
Trend 2: Aftermarket is reshaping maintenance, repair, and overhaul
What’s changed
- Maintenance, repair, and overhaul (MRO) is becoming more than just a service revenue stream; it is increasingly serving as a capacity and readiness buffer. The production backlog is forcing airlines to keep older aircraft flying, face engine delays, absorb higher fuel costs, and manage parts scarcity.3
- Engine services remain a strong anchor across the aftermarket ecosystem. An analysis of the top four original equipment manufacturers for engines reveals that engine aftermarket revenue grew by 20% to 40% in the first quarter of 2026.4
- Some MRO companies are expanding capacity, but the ramp-up is constrained by insufficient certified labor, test cells, tooling, repair approvals, parts availability, inspection capacity, and engine-module supply.5
- Some operators are increasingly using approved alternative parts, used materials, and advanced repair strategies to manage cost and lead-time pressures as original equipment manufacturers and independent MRO providers work toward scaling up their capacity.6
Trend 3: Building resiliency and efficiency into supply chains amid volatility
What’s changed
- Supply chain resilience has become more strategic and defense-linked, as both commercial production and military readiness are affected by the same constrained inputs.
- Critical minerals and rare earths have become a strategic chokepoint for the industry. These are essential for critical defense products and capabilities such as advanced aircraft, munitions, naval systems, satellites, and secure communications. However, the sector continues to rely on foreign-controlled supply chains, leaving it exposed to geopolitical disruptions.7
- Engines, electronics, castings, forgings, titanium, high-temperature alloy, and energetics are influencing the ability to ramp up aircraft, missiles, munitions, drones, satellites, and naval platforms.8
- Additive manufacturing is becoming a targeted resilience tool for low-volume, long-lead, or hard-to-source mission-critical parts. Contractors are increasingly exploring additive manufacturing and digital production tools to augment constrained casting and forging supply chains, accelerate qualification of replacement parts, and enable more localized production of the selected aerospace and defense (A&D) components.9
- Some operators and manufacturers are recognizing that maritime logistics disruptions and parts shortages are becoming persistent structural challenges. As a result, they are selectively increasing inventories of parts and raw-material buffers to protect continuity, even at the cost of working capital.10
Trend 4: Contracting and procurement to unlock competitive advantage for A&D
What’s changed
- Procurement reforms appear to have moved from signal to implementation, but speed does not remove the hard aspects of defense contracting. A&D contractors still have to manage cyber compliance, classified-environment readiness, quality systems, cost transparency, intellectual property and data rights, sustainment obligations, and production scale.
- Defense budget priorities look to be reinforcing more flexible acquisition models, especially for critical munitions. Recently, the administration invoked the Defense Production Act, which allows contractors to work together to accelerate munitions production.11
- Multiyear framework agreements designed to provide defense contractors with long-term demand visibility are being executed.
- Framework agreements to develop low-cost cruise missiles and hypersonic missiles have been announced, including efforts for scaling lower-cost, higher-volume strike capability.12
Trend 5: AI-driven workforce transformation is shifting from ‘big data’ to multidisciplinary skill sets
What’s changed
- In the workforce, emphasis has shifted from data skills to operational AI readiness. For example, in April 2026, the Department of the Air Force approved an AI talent strategy focused on recruiting, training, and retaining AI professionals. The strategy includes streamlined hiring, incentives, mission matching, a dual-track technical career model, baseline AI literacy, and proof-of-skill requirements.13
- A&D companies may face intensified competition for trained AI talent and may need large-scale internal upskilling to adapt to AI-enabled workflows.
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The authors would like to acknowledge the support of Clayton Wilkerson for orchestrating resources related to the report; Kimberly Prauda and Neelu Rajput, who drove the marketing strategy and related assets to bring the story to life; Mariel Balaban for her leadership in public relations; and Pubali Dey and Aparna Prusty from the Deloitte Insights team, who supported the report’s publication.
Editorial (including production and copyediting): Pubali Dey, Aparna Prusty, and Anu Augustine
Cover image by: Sanaa Saifi
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