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A series of Business and Talent trends in the Aerospace Industry
Part 3 – Defense Aerospace
Revenues in the Defense Aerospace subsector have been declining over the fast four years essentially because of the cessation of armed conflict in Iraq and Afghanistan, as well as the US Department of Defense (DoD) budget cuts. However, international demand for defense and military products is increasing as uncertainties brought on by regional tensions in the Middle East, Eastern Europe, North Korea, and the East and South China Seas may lead to increases in defense budgets. The United Arab Emirates (UAE), Saudi Arabia, India, South Korea, Japan, India, China, Russia, and other affected governments are already starting to increase purchases of next generation military equipment. This article examines the top 4 trends of the Defense Aerospace Industry.
1. Rise in Foreign Demand
Many defense firms are seeking to grow via foreign military sales and through acquisitions. For example, in the US, foreign military sales increased from US$21.36 billion in FY2010 to a record US$46.6 billion in FY2015, a 118.2 percent. It is likely that this trend will continue for not only US-based defense firms, but also European and Asian firms. Another avenue for revenue growth is forecasted to be acquisitions. There have been mergers and acquisitions in the space subsector, as the industry becomes more fluid with the introduction of new, privately financed companies that create a dynamic competitive landscape.
Connected devices are going to play a big role even in the Defense Aerospace subsector. An example of this is the F-35 jet, which has sensors that send real-time data to a ground-based logistics support solution. Hours can be saved in the maintenance bay by making sure engineers are prepared for the task at hand and are ready with the right part as soon as the aircraft lands.
Another advantage that is industry will witness is the ability to produce parts through 3D printing technology. The use of 3D printing to produce parts when they are needed, so that organizations can keep control of their support chains by controlling distribution and quality of parts, has potential advantages for military ecosystems.
Many Aerospace & Defense firms are building growth plans around product lines adjacent to their primary markets involving digital technologies with the aim to survive in a rapidly changing market landscape. A&D firms can be selective about the commercial technologies with which they choose to upgrade their products or that they feature in new equipment, while avoiding head-to-head clashes with the pure-play technology companies. To illustrate a possible approach to this strategy, Airbus Group SE, Europe’s largest aerospace outfit, hopes to tap into technological advances through a side operation in Silicon Valley to provide venture capital for, in the company’s words, “promising, disruptive, and innovative business opportunities.”
After all A&D companies maintain a special relationship with global defense departments. A&D firms can enjoy this significant advantage over less experienced technology enterprises, which
may excel at expanding the boundaries of technical capabilities, but which are more inclined to sell over-the-shelf commercial products to
the Defense Departments than to tolerate the lead times, delays, intellectual property rules, and elbow rubbing that are typical of a long-term defense contract.
4. Talent is Key to Transformation
A&D companies need to significantly alter their organizations, personnel, and business models to survive a period of exponential change. Consider IBM’s reinvention as a service company after the mainframe market collapsed in the 1990s. Operating in a relatively orderly industry — at least, until recently — A&D companies have limited experience with this kind of sweeping internal or cultural change.
Many companies confront the dilemma of having to downsize while also needing to add fresh talent. This quandary is heightened by the competition for the most desirable workers from sectors that have come to seem more attractive than defense, including high tech. In addition, the type of talent that defense contractors will need to hire in the future, in some cases, may be far different from those that they typically have recruited — for example, experts in cybersecurity and computer networking. The defense industry must diligently develop a long-term human capital strategy that specifically addresses these labor issue.
ABOUT THE AUTHOR
Kent Yar is the Deputy Managing Director for Morgan Philips Executive Search, specializing in Aviation, Aerospace and Defense executive search across Asia Pacific. He is a leader in his field where he maintains strong relationships with the C level executives and the Board of Directors of some of the world’s largest Aviation and Aerospace companies. Due to his strong business and market acumen across the region, Kent has provided insightful opinions and advises to the leaders in the industry. He has been quoted by Singapore’s mainstream media ‘Straits Times’ and from the Aerospace Association of Singapore Industries regarding his views on the talents within the Aviation and Aerospace industry across Asia Pacific. He is currently based in Singapore but travels extensively for his assignments. Feel free to connect with him to have an open discussion regarding the industry or follow him on LinkedIn.