These are exciting times for the aerospace and defence sector as unexpected and aspiring global players enter the market.  

Consider Switzerland’s fixed-wing, solar-powered aircraft Solar Impulse 2 that is circling the globe, and the test flight by the California-based NASA-Air Force Research Laboratory-FlexSys team of a Gulfstream Three jet with a ‘morphing wing’. India too is launching an ambitious space programme with visions of missions to Mars. China is close to launching its C919 commercial single-aisle aircraft, and Japan is flight-testing its X-2 stealth fighter concept.  

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“There are tantalising glimpses of aviation’s future,” says the US's Aerospace Industries Association president and CEO, David F Melcher.

Recently, Boeing’s eco-Demonstrator 757 tested more than 15 new technologies, including a US-made ‘green diesel fuel’, solar- and thermal-powered electronic windows and a number of 3D-printed parts. 

R&D efforts such as these have resulted in significant economic benefits to the US both in terms of export and balance of trade, as well as high-paying jobs in engineering and manufacturing. GE Aviation, for example, is building a $125m, 16,000-square-metre facility in Asheville, North Carolina, that will be the first in the world to mass produce engine components made of advanced ceramic matrix composite materials.

Staying airborne

KPMG’s Global Manufacturing Outlook survey found that 89% of aerospace and defence executives believe that lowering costs was a major driver in moving to new locations, followed by being closer to customers and accessing new markets. The survey also revealed that more than 60% of aerospace and defence executives rate as important entering new markets to collaborate with regional business partners through joint ventures and other partnership formats.

Commercial aerospace remains a buoyant sector given the tremendous backlog of orders, according to KPMG. Over the next 20 years, Boeing forecasts a need for 38,050 airplanes, worth a total of more than $5600bn. 

“However, we see some inconsistencies in the near term with economic slowdown in China and other areas impacting projected air travel volume,” says Doug Gates, KPMG global head of aerospace and defence. “In addition, airlines appear to be considering some postponement of near-term orders of more cost-efficient new models with very low fuel prices, making the switch less of a business imperative." 

The report also indicated that projected global defence budgets, with a few exceptions, are expected to continue to decline. “Tensions in Asia have resulted in some pronounced shifts in US focus and a corresponding increase in defence budget focus in China, India and Japan,” says Mr Gates.  

Spending spree

The rise of non-traditional defence expenditures in areas such as unmanned aerial vehicles (UAVs) and technology are expected to continue, according to the KPMG report. “Barriers to entry in these areas are low, and we see additional disruption expected as aerospace and defence original equipment manufacturers [OEMs] are challenged by new entrants bringing aggressive business models and adopting commercial hi-tech components, similar to what is occurring in automotive,” says Mr Gates.

According to KPMG, a surge in R&D spending is expected: 46% of executives project an increase of more than 6% over next two years. 'Make in…' initiatives in China, India and Japan are increasing the focus on developing indigenous commercial aerospace and defence product capabilities. “In the long term, this will result in increased competition to large Western OEMs and current supply chains,” says Mr Gates. 

There has also been an increase in non-traditional A&D companies entering the market. “Companies such as SpaceX and others have wrested the low earth orbit space launch business from the traditional large aerospace and defence OEMs,” says Mr Gates. “The same could be said of a number of entrants in the commercial and defence UAV market who were not present in the aerospace and defence industry at the turn of the millennium.”  

Ships of the desert 

With the signing of the US Commercial Space Launch Competitiveness Act in 2015, companies such as Virgin Galactic and SpaceX benefit from the extension of the federal government’s liability indemnification for commercial space launch companies to 2025. Both of these companies are housed at the world's first purpose-built commercial spaceport, Spaceport America, a 73-square-kilometre facility located in New Mexico’s Jornada del Muerto desert basin. 

Similarly, Romania-based ARCA Space Corp recently unveiled an electronic flying vehicle that can hover over any terrain, including water. The R&D company established its North American headquarters in 2015 in Las Cruces, New Mexico, to partner with the New Mexico State University (NMSU) Unmanned Aircraft Systems (UAS) Flight Test Center and produce its AirStrato unmanned aerial vehicle.

A new agreement between the NMSU and the Federal Aviation Administration has allowed the university’s test centre to ramp up testing and operate commercially. The centre is one of only six test sites approved under the new agreement, and has already conducted more UAS test and evaluation flights than all the other centres combined. Researchers at the US Army’s White Sands Missile Range in New Mexico also are developing weather forecasting software to help UAVs fly in a variety of conditions. 

Europe’s civil aerospace manufacturing industry remains strong, reporting R&D investments of about €7bn each year. Gdansk-based Lufthansa Systems Poland delivers IT services for transport and logistics and is one of the largest companies in the country. Poland’s strengths include good air, road and rail connections, workers with a strong knowledge of foreign languages and access to ambitious specialists with the required education and skills.