Industry Focus: Aerospace

New standards, supply chain 4.0 and pandemic effects are leading to changes in A&D industry.

By Sandy Smith

The world of aerospace and defense (A&D) is rapidly changing, propelled by new innovations and challenged by the pandemic. It creates both economic difficulties and opportunities—and comes at a time when the push to Supply Chain 4.0 is driving dramatic regulatory changes.

“Regulatory requirements are coming down and they’re coming down hard,” said Sri Yellepeddi, senior director of supply chain for Exostar. He also is the moderator and organizer of the A&D Supply Chain Working Group of industry leaders. “What’s really compelling for material handlers is that anybody that is part of the Department of Defense supply chain, no matter what their role is, no matter how big or small, they will all have to get accreditation at one of the five levels that the new standard contains.”

More on those regulations in just a minute. But first, let’s dive into the health of the sector.

Economic outlook

The overall aerospace and defense industry has been mixed, particularly in 2020 and 2021. While air travel took a huge hit with the COVID-19 pandemic, global military investments did not slow during the economic upheaval, according to Deloitte’s “2021 Aerospace and Defense Industry Outlook.”

“Most major defense spending nations have remained committed to strengthening their military presence, despite the pandemic’s economic impact on fiscal deficits,” according to the Deloitte outlook. It cites China’s announcement of a 6.6% year-over-year increase in military spending in 2020. India also had announced plans to add to its military, while Japan expanded its air and sea capabilities. France and Russia also were expected to increase spending.

In the U.S., military spending was expected to be flat. But the U.S. Air Force is in the midst of a move to fifth-generation fighters, which offer greater maneuverability against surface-to-air missiles, and are coated with materials that make them harder to detect.

Global Data, which follows the A&D industry, noted that fourth-generation fighters will continue to be in demand, even as fifth- and sixth-generation aircraft are developed. That will lead to a “clear demarcation in operational roles,” the analysts said.

The aerospace segment was much more clear—and much less rosy. The pandemic slowed air travel dramatically, and travel demand is not expected to fully recover until 2024. By April 2021, however, some smaller airports already had seen a return to typical passenger loads, according to The New York Times. Airports that largely serve as international hubs were only at about half of their pre-COVID passenger levels, though.

Deloitte predicted that these lower travel rates would lead airlines to delay or cancel orders of new aircraft and slow down the aftermarket parts sector since demand had lowered.

The end result of all this uncertainty, Deloitte reported, is hitting the supply chain. “Lower aircraft demand and restrictions on the movement of people and goods due to the pandemic led to a breakdown of many essential A&D supply chains. This has resulted in an impact on smaller suppliers, especially those with heavy exposure to commercial aerospace and the aftermarket business. As most A&D suppliers are highly specialized with unique expertise and complex equipment, they could continue to struggle to make quick changes to production in response to varying demand.”

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