A Roadmap to Digital Maturity for The Aerospace & Defense Industry

The aerospace and defense industry spans some of the largest global manufacturing enterprises. Complex and long-term product lifecycles demand agility and resilience to withstand the ever-shifting landscape of the electronics value chain. A recent industry survey from Supplyframe measured the digital maturity of Aerospace & Defense industry leaders. 

According to our new report, on our 5-level maturity model, the average A&D enterprise has a score of 2.1, which is higher than other industries but leaves significant room for higher levels of digital maturity. Join us as we explore the state of the industry and how leaders can chart a path forward to digital excellence.

The State of Aerospace & Defense: Spending is on the Rise 

Twenty-six countries comprise the market leaders responsible for producing the most technologically advanced military platforms and equipment across the four theaters of war: air, land, sea, and space. 

The worldwide military and aerospace (M&A) industry’s total revenue was $855.62 billion in 2023. The US is ranked first in the number of companies on the list—46 of the 100—including the top five. The US also accounts for 34% of the revenue of the top 100 companies.

According to the Stockholm International Peace Research Institute (SIPRI), the US spends more on defense than the next ten countries combined. China is in second place, with seven companies in the top 100. Six of China’s seven companies are in the top 15. See Figure 1 below.

Third place goes to Russia, fourth to Saudi Arabia, and fifth to the United Kingdom, with six companies in the top 100. Russia and Ukraine are among the nine countries on the list, with just one company on the Top 100 list. 

In March 2023, China announced a 7.2% increase in its defense budget for the year, slightly up from a 7.1% growth rate in 2022. This marked the eighth consecutive year of growth.

Although the United States spends more on defense than any other country, the Congressional Budget Office projects that US defense spending as a share of gross domestic product (GDP) will decline over the next ten years, from 3.1% of GDP in 2023 to 2.8%in 2033.

What’s Ahead for The Global Aerospace and Defense Sector?

The world has become a more dangerous place in the last few years. Russia’s war on Ukraine is in its second year, and China’s rapid ascent to become the second-largest M&A powerhouse is challenging today’s global superpower dynamics. 

Still, at $400 billion a year, the US maintains the largest annual defense budget in the world, dwarfing the next five competitors by a significant margin. (See Figure)

Perhaps the most critical shift for the world’s leading defense and military companies in the coming years will be the deployment of next-generation systems, specifically space-based defense satellites, weapons, unmanned aerial vehicles (UAVs), and other weapons that operate autonomously and carry lethal payloads.

Other critical focus areas include artificial intelligence (AI) and machine learning (ML). For example, the US DoD’s fiscal 2024 budget request included $1.8 billion for AI and ML and $1.4 billion for Joint All-Domain Command and Control initiatives (JADC2) that connect military sensors, shooters, and networks. 

The mission of the US Army Futures Command to establish multinational and joint interoperability. Dubbed Project Convergence Capstone 4, the Army is experimenting with deploying joint and multinational layered air and missile defense systems.

These systems include Project Convergence for the US Army, Project Overmatch for the US Navy and Marine Corps, and the Advanced Battle Management System (ABMS) for the US Air Force and Space Force.

According to the Pentagon, the funding will support efforts to deliver and adopt responsible AI/ML-enabled capabilities on secure platforms. This requires including AI and ML in workforce development, DoD-wide data management, and modernization efforts.

One significant global unknown is whether China will repatriate Taiwan in the coming years. If China succeeds in taking control, the West’s access to advanced semiconductors could be in serious jeopardy. Access to sophisticated, cutting-edge military chips depends on cutting-edge technology in all theaters of war.

Over the next few years, these and other three other emerging trends will continue to shape the global A&D industry:

• Current projections show that A&D revenues will return to and surpass 2019 levels by almost 11%, but challenges continue to persist. As a result, leaders are embracing a tech-enabled supply chain, focused on digital twin, generative AI, preemptive risk management.
• Manufacturing and quality continues to be a major focus, with the industry as a whole shifting away from short-term fixes to enhanced resiliency through the application of new technology and real-time intelligence.
• Recent surveys also reveal that talent acquisition and retention remain a key concern. 97% of A&D executives consider this to be very important in 2024 and beyond. This points to a growing need to focus on people, processes, and technology as part of a broad digital maturity strategy.

The US Ranks #1 in Spending, But China Plans to Close the Gap

Chinese military strategists are exploring new ways to employ advanced weapons systems. Learning from the US experience of deploying drones for air strike missions without sufficient gunships for cover, the People’s Liberation Army (PLA) assigned UAVs at the military company level of ground forces to provide close air support. In addition, the PLA has experience with unmanned systems in anti-submarine warfare and amphibious landing missions. 

At the same time, other nations, including India, Russia, Saudi Arabia, and the UK, are also integrating UAVs into their military arsenals. 

The Chinese military has experience with the “swarming” concept, which enables the collaborative operation of many unmanned systems in a complex electromagnetic environment. Besides emulating advanced militaries, the PLA is interested in pursuing anti-UAV countermeasures to offset other countries’ first-move advantages. 

The PLA has already incorporated AI in existing combat platforms – specifically, obsolete weapons – to create an “army of none” by removing the humans from the battle. For example, thousands of China’s retired second and third-generation fighter jets, like the J-7 and J-8, are being modified to build an unmanned air fleet by installing AI-enabled self-navigation technology and autonomous combat systems that pursue, distinguish, and destroy enemy targets. 

Given the original platforms’ air combat capacity, employing such unmanned intelligent systems will not only take advantage of the low cost and overwhelming scale of swarm systems. Still, it will also be superior to swarms of standard drones. This approach gives the Chinese military a huge asymmetric advantage, with which the PLA can eliminate strategic targets without incurring high human losses.

Over the past two decades, China has transformed its military from a sizable boots-on-the-ground army into a capable modern military. Today, China has the second largest air force in the world after the US, with 3,260 military aircraft, compared to 13,233 aircraft in the US military.

According to a draft budget presented at its annual parliamentary session in March 2024, China will boost defense spending by 7.2% to $224 billion annually. This increase is on top of last year’s 7.1% increase, which marks the eighth consecutive year of a single-digit percentage point increase. As a result, China now has the world’s second-largest military budget behind the US (See figure below.) The steady annual growth has been the objective of the Chinese government’s plan to become a military power. 

China’s M&A sector is set on becoming the dominant global military power in 2049, just 26 years away. Its strategy includes pursuing large-scale military modernization and force-size expansion, investing in science and technology, and advancing in new weapon areas such as hypersonics. 

However, China faces significant challenges on the road to becoming the top-ranked M&A country. One reason is its lack of refueling flying tankers. The US Air Force has 625 tanker aircraft compared to China’s three tankers. Likewise, the US fleet has over 5,400 helicopters compared to China’s 902.

Challenges Facing The A&D Industry in 2024 

The industry has experienced a revival in the last few years. With commercial aviation finally shaking off the pandemic’s drag and surpassing pre-COVID travel volumes and defense sectors gearing up amid shifting global politics, there’s a strong push for newer, faster, and more efficient aircraft and technologies. The demand for A&D products and services will likely continue throughout 2024, putting immense pressure on strained aerospace supply chains.

Aerospace and Defense companies are riding a wave of increased demand, with commercial airlines and defense contractors placing orders faster than manufacturers can fulfill them. This boom has led to a massive backlog of new aircraft orders, which could take over 13 years to clear at current production rates. While a positive indicator of the industry’s recovery, the surge in demand poses its own complex challenges, particularly in supply chain management.

Global supply chain disruptions, including climate events and geopolitical instability, compound these challenges. The aerospace industry, which often relies on a delicate balance of timely part deliveries and precise manufacturing schedules, has been hit hard. Key components, including semiconductors, electronics, and raw materials such as aluminum and titanium, are in short supply, causing delays that ripple through production lines. 

The situation is exacerbated by the competing demands of original equipment manufacturers (OEMs) needing parts for new builds and maintenance providers seeking the same components for repairs and overhauls. The competition for resources has forced many in the industry to navigate tough production trade-offs as best they can.

Adding to the complexity, the sector faces shortages of skilled labor, further straining companies’ ability to meet production demands. The workforce challenge, material scarcities, and price inflation have created operational and financial performance volatility. As companies push forward, ongoing global supply chain fragility will test the resilience and adaptability of aerospace supply chain management strategies and drive the need for innovative solutions.

How the A&D Industry Can Reach Higher Levels of Digital Maturity 

According to our recent industry survey, the global aerospace and defense industry is at the forefront, with a score of 2.1 out of 5 on Supplyframe’s DSI Maturity Model. Many enterprises are seeking new ways to increase agility across the organization, which requires a combination of new processes, collaboration, and technology. 

New forms of intelligence can provide visibility and fuel cross-functional collaboration within today’s leading A&D organizations. To learn more, download the full report today and take our self-assessment survey to discover where your organization lands on the full maturity model!