Digitalization and electrification as the main drivers for future aerospace markets
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Sustainable Growth and Tech Trends
Publication | Update: Oct 2022
The development of new technologies and business models, as well as the desire for greater efficiency and productivity, are driving the increasing use of digital tools in the aerospace industry. Digitization and innovation will play an essential role in supporting all aspects of the aerospace industry, from product design to operations, back-office and maintenance. The insights gained from tracking technological advancements at all stages will be critical to improving aerospace companies' products and services. This digital stream can help businesses achieve savings in production and service costs while better meeting their customers’ needs.[1]
Current macroeconomic trends suggest that demand for small and medium aircraft will continue to recover and reach pre-Covid-19 levels in 2022, with narrow body aircraft manufacturers well positioned to benefit from this buoyant demand. Aftermarket sales could rebound strongly in 2022 as air traffic recovers, with volumes now well above the 2020 low. Due to the economic impact followed by the coronavirus outbreak on customer demand and pricing pressures, many aerospace manufacturers are looking for new revenue opportunities in the aftermarket for services. Because the pandemic has significantly eroded aftermarket sales and profits significantly, companies are looking for ways to extract more value from the aftermarket as the commercial aviation bounces back.
New technologies, evolving business models and increased mergers and acquisitions are all likely to accelerate the transition to digital and operational efficiency. Digital yarn and smart factories, in particular, offer a range of efficiency and productivity, enhancing technologies that can reduce time-to-market and cycle times. A&D companies' operating systems have already included digital yarn and smart factories. According to Deloitte and MAPI Smart Factory study, 30 percent of 600 executive members at manufacturing companies are currently implementing digital yarn initiatives. [2]
This continued innovation has paved the way for widespread, next-generation satellite communications. Till now, the explosion of small satellite constellations has upended the global distribution of broadband internet, delivering connectivity to communities and places where it was previously unavailable.
Finally, earth-observing satellites are increasingly capable of capturing terabytes of detailed imagery every day from all parts of the world This information can be gradually leveraged by sophisticated softwares to provide insights that enable decision making.[3]
The expansion of the space market is one of the most eye-catching aspects of the aerospace industry, thanks to SpaceX and Blue Origin. The launch industry and next-generation satellite technology are two key areas where the space market is blooming. This includes a full-scale development of small satellite constellations, which are expected to transform the distribution and accessibility of broadband internet worldwide.
The growth of the high-tech aerospace industry is also closely linked to military applications. However, the enormous advances in this segment have had a significant and far-reaching impact on many aspects of the economy and life, and have changed the face of the world.[4]
Figure 1: Aerospace and Defense Technology Trends 2022. Sokolova, V. (2022, April). (2022). Aerospace and Defense Industry Trends. Epicflow.com. Retrieved from: https://www.epicflow.com/blog/2022-aerospace-and-defense-industry-trends/
[1] Deloitte Touche Tohmatsu Limited. (2022). 2022 Aerospace and Defense Industry Outlook. Retrieved from: https://www2.deloitte.com/us/en/pages/manufacturing/articles/aerospace-and-defense-industry-outlook.html
[2] Sokolova, V. (2022, April). (2022). Aerospace and Defense Industry Trends. Epicflow.com. Retrieved from: https://www.epicflow.com/blog/2022-aerospace-and-defense-industry-trends/
[3] Sorensen, J. (2022, September). Aerospace Market and Growth Strategies Looking Into the Future. Embroker Insurance Services LLC. Retrieved from: https://www.embroker.com/blog/aerospace-market-growth-strategies/
[4] Deloitte Touche Tohmatsu Limited. (2019, September). 2019 Deloitte and MAPI Smart Factory Study: Capturing value along the digital journey. Retrieved from: https://www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/2019-deloitte-and-mapi-smart-factory-study-capturing-value-along-the-digital-journey.html
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Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
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We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.
We draw on available data sources and methods to profile developments. We use computerised data mining methods and analytical techniques, including cluster and regression modelling, to identify patterns from publicly available online information on enterprise web sites.
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The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes,
financing, the labour market and infrastructure.
We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
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Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
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All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Revenues
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from official sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reflect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticities
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the
consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.