The COVID-19 pandemic, workforce shortages, and, most recently, the Russian invasion of Ukraine have exacerbated supply chain complexity for the aerospace and defense industry. Given these challenges, the coming year will likely see an acceleration of the shift from global to regional sourcing, including the exchange of raw materials, parts, and finished A&D goods globally. Most A&D companies are expected to also focus on creating visibility deep into their supply chains to improve supply control and coordination and to better manage third-party risk.

Digital technologies and capabilities are expected to increasingly be a source of competitive advantage and, in some cases, a requirement to compete for specific government programs. With new entrants disrupting the market, even on legacy platform programs, aerospace and defense companies will likely increasingly leverage digital thread and smart factory to streamline the design and development of products and achieve improved efficiencies.

Though most jobs lost in 2020 were added back,¹ the workforce turnover rate is still high, and an aging workforce contributes to the workforce shortage. Automation and the use of advanced digital technologies are bringing a change in the industry’s workforce composition, driving the need for a workforce with more advanced aerospace engineering, math, data science, and digital skills than before. To capture growth opportunities, A&D companies should have a long-term strategy to meet existing and future workforce demands. To develop a future-ready workforce, companies should focus on encouraging a culture of innovation and building digital skills.

As one of the most challenging industries to decarbonize, the aerospace and defense industry has been at the forefront of adopting new and advanced manufacturing technologies, which can help address the sustainability challenge. The industry is likely to move toward using sustainable aviation fuels (SAFs)2 at scale and new propulsion technologies such as electric, hydrogen, and hybrid. In its efforts to advance decarbonization, the industry will likely establish multiple partnerships comprising technology investors, energy companies, airlines, and government agencies. Moreover, 2023 could also see commercial aerospace companies expanding renewable electricity use to reduce emissions at manufacturing facilities.

Emerging markets such as space, supersonics/hypersonics, and AAM are poised to change the industry landscape and capabilities in the coming years. 2023 will likely be an important year for these emerging markets in terms of investments, technology evolution, and regulation. According to our outlook survey, organizations are most likely to invest in space-related technologies and AAM in 2023.