While the aerospace sector is primed for another strong year, the market will be sensitive to potential global political and trade disruptions. This is the conclusion reached by Deloitte in a recent outlook paper.
The commercial aircraft sector will be buoyed by an aircraft order backlog that remains at an all-time high of more than 14,000 planes.
This growth won’t occur without hiccups. While manufacturers are increasing production to meet growing demand, they may face shortages from suppliers unable to keep up. Boeing has already had problems delivering its 737s because of a shortage of engines. Airbus ran into the same problem last year.
Deloitte’s advice: “Manufacturing should consider deepening their focus on strengthening the supply chain, effective program management and the use of advanced technologies to enhance productivity and efficiency.”
The demand for next-generation, fuel-efficient aircraft is expected to grow, which may have a potential impact on the order backlog problem. This demand is partially driven by the steady increase in the oil process. Airlines are starting to delay upgrades to their existing fleet as they wait for new aircraft models to hit the market. In particular, this could weaken the demand for wide-body aircraft.
As for the defense sector, global instability is big business. Geopolitical tensions continue to intensify, resulting in rising defense spending. The U.S. continues to lead the way, with the current administration’s continued focus on military spending. NATO countries also seem to be spending more on defense to counter potential threats from Russia and the Middle East.
Traditional threats continue to emerge, but cyber warfare is a fast-growing new arena of conflict. Companies and countries alike are expected to increase focus—and spending—on cybersecurity programs, as well as on integrating digital technologies into existing arsenals.
Space, too, is rapidly becoming an important part of the defense industry. Satellites are being relied on more heavily, but they are increasingly vulnerable to threats.
Casting a shadow over the promise of growth is the potential of trade wars. The aerospace industry is particularly reliant on free and open trade. Aerospace companies often rely on global supply chains and market their products around the world. In short, duties and tariffs on steel and aluminum make it more expensive to build and sell planes.
Deloitte recommends that companies strengthen their long-term stable partnerships across the industry and their global supply relationships.
Lastly, the report foresees more mergers and acquisitions in the near future as producers and suppliers alike try to reduce costs and increase production rates. This means more deals like the Airbus-Bombardier and Boeing-Embraer agreements that recently rocked the industry.
While strong growth is expected, it will by no means be a smooth year for the sector. Get ready for a bumpy ride.