Global Aerospace & Defence sector to undergo a shift in priorities

01 August 2018 Authored by Consultancy-me.com

The ‘Aerospace & Defence’ (A&D) industry across the globe continues to grow on the one hand, but must adapt to evolving market needs on the other, according to a new report from US-based strategy and management consultancy AlixPartners. One major trend in the sector is an increasing emphasis on services over products.

The global A&D sector has seen no shortage of revenues recently, posting regular profits on the back of spikes in equipment sales. An undertones of political economic polarisation across the globe has put a number of countries on their guard, which has consequently prompted a bolstering of defence capabilities.

On the other hand, polarisation also represents disruptions of trade relations – examples of which have already emerged between the US and the EU – which poses a challenge to the heavily trade-dependent A&D segment. Spikes in oil prices and shifts in production priorities also serve to disrupt the sector’s otherwise steady performance in the contemporary scenario.

Accordingly, strategy and management consulting firm AlixPartners has carved out three trends that are likely to emerge in the global A&D sector in the near future as it works to navigate these challenges, with the consulting firm stating; “The global A&D industry cannot afford to be complacent in the face of an increasingly dynamic business environment.” 

The first and most prominent of these trends, according to the firm, is a gravitation towards services to drive the major share of revenues rather than products. The four biggest aircraft OEMs – Airbus, Boeing, Bombardier and Embraer – have already devised strategies to more than triple their revenues from services over the next decade, from the current level of $20 billion annually to as much as $60 billion.Global Aerospace & Defence sector to undergo a shift in prioritiesAs services take centre stage, firms in the sector will look to improve customer-supplier relationships in various service domains, such as manufacturing, repair, operations, product development, training and data management. This in turn prompts the search for strategic partners, which brings us to AlixPartners’ second trend – a spike in the sector’s M&A levels.

This trend is already well on its way, given that last year was a record one for the number of M&A deals in the sector, the top ten of which were cumulatively valued at $63 billion – nearly triple the $24 billion generated in 2016. The firm expects this activity to continue into the future, particularly as the private equity sector is demonstrating rising levels of interest.

The third trend – digital transformation – is one that is affecting other equally crucial sectors, from the petroleum and petrochemicals industry to the transport and logistics sector. According to AlixPartners, digital advancement represents significant opportunities for the sector, given that it could produce efficiency gains of as much as 20% over the next three years.

Currently, general neglect of digital enhancements has generated a situation where companies miss out on savings of between 1% and 3%, which could be turned around with absolutely minimal investment in data analytical technology. A number of firms in the sector will now be looking to rectify these inefficiencies.

Commenting on the overall scenario, Global Lead for A&D at AlixPartners Eric Bernardini said, “A new era is coming to this industry, one centred on new business models, an industrial step change on services, on partnerships and on digital transformation. Players in the industry are already moving at maximum velocity, but they can’t afford to be left behind in any of these areas. First mover advantage will be critical to success.”

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