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2021 GLOBAL OUTLOOK ON AEROSPACE,

DEFENCE, AND AVIATION

A Frost & Sullivan Insight Prepared

Exclusively for Dubai Airshow.

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DEFENCE

Defence spending in 2020 hit a high of USD 1,981

billion (a 2.6% increase over 2019), despite the

economic impact of COVID-19. Defence spending

will continue to remain buoyant in next 3-4 years

due to the increased geopolitical concerns post

COVID. Business has largely remained unaffected

other than the early supply chain disruptions due

lockdowns.

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KEY TRENDS

BUSINESS AND COMPETITIVE LANDSCAPE

The business and competitive landscape has changed, with most countries insisting on

local capability development and the transfer of technology as a prerequisite for defence

acquisition. The push and incentives for local capability are also giving rise to

powerhouses in Japan, South Korea, Australia, and Turkey, among other countries.

Recognise the increasing competition and regulatory requirements

for maintaining competitive advantage. Establish partnerships with

local companies to increase the probability of a win.

BATTLEFIELD DIGITALISATION

Advanced computing, artificial intelligence (AI), the internet of battlefield things, and

augmented/virtual reality are the new weapons in the combat zone. Military commanders

are focusing on integrated sensors, data collection, and fire control solutions to improve

situational awareness, make faster decisions, and reduce the sensor-to-shooter loop.

Understand the shift from platform-centric to network-centric

operations; offer an operational solution instead of a platform.

EVERYTHING UNMANNED

AI, machine learning, and advances in design and energy capacity have enabled rapid

improvement in the operational role and reach of unmanned vehicles. Armed drones,

manned/unmanned teaming, and swarm unmanned aerial vehicles (UAVs) are gaining

prominence.

Diversify your product portfolio mix to capture the growth in the

unmanned segment.

UPGRADES AND MODERNISATION

Advanced weapons, state-of-the-art sensors and platform upgrades provide a force

multiplier and deterrence effect at a lower overall cost. Military customers want to

maintain an operational edge, and improvements in sensors and weapons allow them to

exploit current platforms with upgrades. Examples range from a focus on the

development of hypersonic weapons to the F-15 EX upgrade program.

Understand the customer’s threats, needs and budget to offer fit-

for-purpose solutions.

DISRUPTIVE TECHNOLOGY

Technology clusters that will have the maximum impact on defence markets in the next

decade: information and communication technologies, energy and resources, material

science and technology, and life sciences. These clusters encompass a multitude of

mature and upcoming technologies that are in various stages of adoption. Some key

capabilities are cloud computing, edge computing, high-density energy sources (and

going green), electrification, robotics, and smart factories.

Adopt emerging technologies to provide best-in-class products.

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Aviation remains the worst-hit industry, along with

tourism, due to the impact of COVID-19. The

International Air Transport Association (IATA)

expects revenue of USD 458 billion in 2021. This is

an uptick of 23% over 2020; however, it is still only

55% of the USD 838 billion in revenues seen in

2019. The current consensus is that a recovery of

air traffic to 2019 levels is likely to occur in 2023-

2024. However, the COVID-19 impact is far from

over, and evolving developments may lead to a

revision of global and regional recovery. The

emergence of virus variants, re-imposition of

lockdowns, and the speed and efficacy of the

global vaccine roll-out are major factors affecting

recovery.

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AIRLINES

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KEY TRENDS

SECTOR CONSOLIDATION The sector is headed for an inevitable consolidation, and the surviving/stronger

players stand to gain significant market share. This is especially true in

countries where bailouts have been limited.

Position yourself to capture business.

DIGITALISATION

The uptake of digitalisation in planning, operations, sales, disruption

management, and technical operations in aviation is far less than in comparable

industries. Operational and cost-efficiency will dictate survival in a landscape

that has probably been changed forever.

Invest in digitalisation now, even though there may be competing

priorities.

BUSINESS MODEL

Evaluate your business’s product portfolio (wide body vs. narrow body and new

engine options), leasing vs. purchase of aircraft, in-house vs. outsourced

services, including maintenance etc.

Take proactive decisions; keep the balance sheet lean.

LEISURE VS. BUSINESS

Pent-up demand will be the major factor driving the recovery of leisure travel.

However, business travel is unlikely to recover, even by 2024, due to corporate

cost-cutting measures.

Reconfigure the cabin layout; economy and premium economy would see

the most demand.

DOMESTIC VS. INTERNATIONAL ROUTES

Regions with higher domestic traffic will see a faster recovery as domestic travel

is rebounding in the absence of government-imposed lockdowns and control.

For example, in the China and US markets, domestic travel and ticket prices

have recovered significantly due to the management of the COVID cases.

Reassess your routes mix.

CARGO REVENUES:

Cargo revenues and traffic are at an all-time high. This trend could be due to a

drastic reduction in commercial flights in which 70% of the cargo was carried

instead. Incorporate a flexible model with due caution, which allows

switching between commercial and cargo roles.

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COMMERCIAL AEROSPACE

The commercial aerospace manufacturing industry

took a similar hit as aviation, and recovery is

pegged to the uptick in aviation. Airbus delivered

566 jets in 2020, down from 866 in 2019, while

winning 268 net orders compared to 768 in the

previous year. Boeing, already struck by the 737

Max crises in 2019, delivered only 157 aircraft in

2020 compared to 380 in 2019 and 806 in 2018.

This year, Airbus and Boeing are expected to

deliver 595 and 314 aircraft, respectively. The

combined sales of the next three manufactures—

Embraer, Gulfstream, and Bombardier—are

expected at 211 platforms.

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KEY TRENDS

DISRUPTIVE TECHNOLOGIES

The emergence of new technologies will set the pace for recovery. New

alternatives that make more efficient use of fuel and power are being developed

to be incorporated into aircraft in the medium term, positively affecting sales of

smaller aircraft. Frost & Sullivan identified a number of key technologies in high-

tech batteries, blockchain, big data and predictive analytics, additive

manufacturing, hangars and smart factories, digital twin, etc., which are likely to

have a high impact on the industry.

Invest in the future.

FLEET RECONVERSION

Following the impact of the COVID-19 pandemic, airlines have accelerated

plans to retire older aircraft, reducing their fleets and favoring new, more

efficient airplanes. The case is most evident for wide-body aircraft, with large

airlines accelerating plans to retire 747s, A380s, and similar aircraft.

Expect the adoption of narrow-body new engine options.

SUPPLY CHAIN ROBUSTNESS

The industry supply chain has been immersed in a process to improve its

efficiency through the incorporation of new technologies or by vertical

integration. Significant capital expenditure levels have left the supply chain in a

challenging position to cope with the drop in production caused by the

pandemic.

Support the supply chain to prevent future disruption.

VERTICAL INTEGRATION

Original equipment manufacturers (OEMs) are expected to significantly

transform their effort and value proposition in vertical-adjacent markets to

compensate for the downturn through organic and inorganic growth.

Diversification and consolidation of vertical business activities such as the

supply chain, aftermarket services, financial services, and consulting are likely.

Rethink your services portfolio offering and value proposition.

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Air navigation service providers (ANSPs) have

struggled due to fixed costs and the necessity of

maintaining services, irrespective of the traffic load.

This has led to a higher focus on financial viability

and the need for economic models that ensure

disruption management. While business is also

slow for air traffic management (ATM) equipment

providers, the effect has been more muted. ATM

OEMs are seeing a resurgence in certain sections

of their business as ANSPs look for solutions to

reduce manpower costs and overall costs. Another

factor for increasing equipment business is the

requirement to conform to the Global Aerial

Navigation Plan (GANP), issued by the

International Civil Aviation Organization (ICAO) for

the modernisation and safety of ATM processes.

STATE OF INDUSTRY

AIR TRAFFIC MANAGEMENT AND

AIR NAVIGATION SERVICES

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KEY TRENDS

AIR DATA SERVICES MARKET

Interoperability and data transfer are key to cost-efficient operations, scalable

capacity and de-congestion. Europe plans to create a separate air data services

market in which ANSPs will become the user rather than the provider. First date

service provider will be certified in 2025, and the market is estimated at EUR 2.2

billion.

Assess the emerging new market for business expansion.

JOINT VENTURES

The competitive landscape is seeing a dramatic change with increasing joint

ventures between ANSPs (government and private), ATM OEMs, and data

service providers.

Undertake beneficial partnerships to improve sales reach and

secure opportunities in global modernisation programs.

DEREGULATION

Regulation has historically been expensive and inefficient for the ANSPs. For

example, deregulation in Spain has led to cost reductions of 30%. Financial

viability of service provision has emerged as the key concern for regulators and

ANSPs. Expect deregulation to be hastened; the effort is being led by Europe

and likely to be adopted in more regions.

Track the deregulation initiatives for business expansion.

DIGITAL TOWERS AND OTHER TECHNOLOGY SEGMENTS

Remote and digital towers are seeing a resurgence due to maturing technology

and cost-effectiveness. London City Airport became the first major airport to

institute a digital tower; Norway has a major digital tower program. This will be

the highest growing segment in the next five years.

Assess global markets for new opportunities in digital towers and

other upcoming technology segments, such as wide multilateration,

assured positioning and collaborative decision-making.

UNMANNED TRAFFIC MANAGEMENT

The expected adoption of small unmanned systems, large cargo and

passenger-carrying urban air mobility (UAM) platforms requires significant steps

for traffic management. The market is nascent and set to grow in the future.

Participate in setting the future standards, and understand the

opportunities in service supply and supplementary data service

provision.

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MAINTENANCE, REPAIR, AND

OPERATIONS (MRO)

The MRO industry was estimated to be at USD 44

billion in 2020, a drop of 50% from USD 88 billion

in 2019. MRO as an industry has high entry

barriers and a small margin. It has been adaptive to

the current situation and constantly innovates to

survive and thrive under current circumstances.

OEMs, parts suppliers and supporting supply

chains have also adapted to the changes in their

business processes and have adopted best-in-

class digital technologies to keep them agile.

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KEY TRENDS SERVICES PORTFOLIO

Services portfolios need to be redesigned. Modifications and passenger to

freight (PTF) conversion should be prioritized in line with the current customer

requirements for improving cash flow. Additionally, the incorporation of

Automatic Dependent Surveillance – Broadcast ADS-B and reconfiguring

maintenance events should be addressed.

Adapt to the current situation.

MILITARY MRO

Budget availability for modernisation in the face of increased threats and an economic downturn is accelerating the requirement to reduce maintenance expenditure. Militaries worldwide are looking at cost-effective, integrated solutions that also reduce asset downtime. Significant opportunities are opening up in the performance-based logistic and contractor logistic support models.

Increase the defence mix in your business.

LOSS OF QUALIFIED LABOUR

The downturn has led to the loss of qualified labour with niche skills. The current

situation is likely to reflect on business resumption in the future as some labour

may be lost permanently.

Plan your human resources.

NEWER MODELS

The uptake of newer models will require new training and skills. It will also lead

to lower maintenance spend, as the new models will be less maintenance-

intensive. The effect will be exacerbated by airlines replacing older aircraft

rather than spending on major inspections and cannibalising retired aircraft.

Rethink your positioning

DIGITALISATION

Big data, blockchain, predictive maintenance, industrial internet of things (IIOT),

and robotics enable safer, efficient and leaner practices, which also help keep

the bottom line healthy.

Invest in digital transformation to maintain resilience.

CONSOLIDATION

OEMs that have tried to increase penetration in aftermarket services would

likely use their financial, technological, and data superiority to improve their

market share on the back of market consolidation.

Assess the opportunities and threats.

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About Dubai Airshow 2021

Returning for its 17th edition, Dubai Airshow will be held from 14-18 November 2021 at Dubai World

Central (DWC), Dubai Airshow Site. Dubai Airshow is one of the largest and most successful air

shows in the world, connecting aerospace and defence industries to facilitate successful global trade.

The event will be held with the support of the Dubai Civil Aviation Authority, Dubai Airports, the UAE

Ministry of Defence and Dubai Aviation Engineering Projects and organised by Tarsus F & E LLC.

Contact us for more information about the Airshow on hello@dubaiairshow.aero