As global COVID-19 management enters a particularly challenging race between deepening health crises and the efficacy of vaccination, all sectors of the global economy remain negatively impacted, though not all equally. Significant variances exist both geographically and by sector. China has proven especially resilient registering positive economic growth of 6 per cent in 2020 and an anticipated 8 per cent in 2021. Exports, “Made in China” and high-tech being the key drivers. The rest of the world registered an overall economic contraction of around 7 percent, with GDP declines dominated by Europe and the USA. Economists project it may be several years before global output returns to 2019 levels.
In terms of individual sectors, those aspects of business involving close human contact have suffered the greatest contraction. Thus travel, tourism, hospitality, sports, entertainment and trade shows have all shown sharp revenue declines—despite several government attempts to balance the commercial needs of the sector against less stringent social distancing management—for example, the ease of restrictions to sustain some level of tourism. In the end such strategies failed. Global manufacturing has been rather less badly hit, chiefly because most of it takes place in Asia. In the West, social distancing has been fairly effective in containing the pandemic within most working environments. Notwithstanding, global supply chains have been severely hit by logistical issues, resulting in very significant delays.
As in biological evolution, the overall commercial impact of the pandemic has been to drive up innovation and speed up change; allowing the strongest not only to survive, but to quickly attain hitherto unanticipated levels of adaptability. As a phrase “lean and agile” has never been so incisive in defining pragmatic success. As a practice, it has several epicenters; Australia, China, the EU, UK and USA with many elements in common but also important distinctions. What the successes have in common are elements of supply chain security, improved logistics and a fiercely competitive pursuit of advanced technologies.
Nowhere is the bifurcation between hardest hit and successful survival more in evidence than in aerospace and defense. Indeed, joining the two words seems increasingly dated and inaccurate. With aircraft production not expected to recover until mid-decade and the space sector on the dawn of a new genesis and the defense ecosystem increasingly defined by convergence with new advanced technology sectors “A&D” as a summary term may soon be redundant.
Looking at the top ten defense budgets for 2021, the USA and France have resisted budgetary pressures and maintained 2020 levels, Russia plans a 5 per cent cut in military expenditure, while China, India, Japan and the UK all propose fairly substantial long-term increases. The latter help push global defense spending to over US$ 2 trillion for the first time. As noted in a previous article, the bottom-line figures must be interpreted within the context of significant intra-budget sectoral shifts away from legacy in favor of a raft of new advanced and hyper-advanced technologies.
Such shifts must be interpreted as part of very significant wider business practice and commercial changes from more efficient, smarter internal processes (development, manufacturing and management systems) to creating more resilient supply chains and delivery logistics. This goes as much for “aero” and “space” as much as it does for defense.
In terms of the advanced technologies driving growth in these sectors, we note the following as both typical and definitive of these emerging trends:
- Green Propulsion. With the need to obviate climate change as probably the most unifying of global movements, the continued development of electric and hydrogen alternatives to fossil fuels will only grow in paramountcy. This is both underscored by the United States anticipated re-entry into the Paris Accord, China’s new Five Year Plan and pan-European initiatives to end the sale of carbon emitting vehicles by 2030. The dire straits of the aircraft industry notwithstanding, the development of hybrid, electric and hydrogen powered aviation continues to receive significant amounts of capital investment. One of the world’s leading aircraft manufactures, Airbus, has announced its intention to bring into service hydrogen zero emission inter-continental aircraft by 2035, with shorter range electric craft already due to enter service by mid-decade. Already Rolls Royce will be undertaking experimental flights with its hybrid gas turbine during the course of 2021.
- Urban Air Logistics and Mobility. With current and future development ranging from drones delivering across the gamut of commercial logistics, to home delivery, to air-pods acting from ambulance to taxi new transport methods, all are anticipated to to bring a complete shift in perception about the way we move goods and people over the next decade. As many readers will already have gathered, these technologies are inextricably linked to autonomous flight capabilities, zero-carbon propulsion, detect and avoid systems (sensors, communications and advanced algorithms), flight infrastructures and connectivity (5G/6G).
The advantages of these technologies in security and defense settings are numerous and range from close-to-ground detection avoidance, to effectively replacing expensive hardware, to saving human life. To cite one example, one of the world’s newest and largest aircraft carriers will equally be equipped with swarms of drones as fighter aircraft. Indeed, the next generation of these jet-fighters will be capable of pilotless flight.
- Hypersonics. Hypersonic weapons are capable of flying faster than supersonic flight—that is, at Mach 5 and greater—and can maneuver between varying altitudes and azimuths, making them much harder to detect. In addition to extraordinary agility and “invisible” flight, these weapons will significantly enhance end-to-end strike force effectiveness, bringing longer range, shorter time of flight and higher survivability. Conversely, hypersonic defensive capabilities will require a multi-faceted approach across all phases of flight detection, tracking and interception. Integration, interoperability and advanced algorithms (AI) are vital elements in connecting each layer of all the underlying hypersonic technologies.
For 2021 and beyond analysts anticipate increased investment in the development of a new generation of ultrafast and maneuverable long-range missiles, together with the infrastructures necessary to launch them from mobile platforms.
- Artificial Intelligence. The pursuit of “true” or “strong” artificial Intelligence has been dubbed “Manhattan 2”. Previous to that break-through point we are currently pursuing the path of developing of more and more sophisticated algorithms. In the aerospace and defense sectors the latter are driven by the computational needs that allow the plethora of differing, but interconnected, sensor technologies: in order to intelligibly communicate with the wider ecosystem as well as sifting through the wider determinants (including predicting human behavior and ethics) before taking action. Clearly, speed-of-process is critical to effectiveness, and in security/battlefield scenarios, this together with accurate predictions may be the factor that determines terrorist defeat over success or military personnel survival over loss.
This far from exhaustive list of emerging trends is nonetheless entirely indicative of the types of technological development driving the future of aerospace and defense into mid-decade and beyond. While future US defense budgets will almost certainly soften over the next four years (in the wake of shifts of investment into social and domestic programs) the types of technology we have cited will benefit from increased investment at the cost of military reductions elsewhere. Equally, American contractors will have domestic softening balanced by increased overseas opportunities. The defense “growers” cited earlier will add over US$ 85 billion (constant terms) to defense spending over the next four years.
Not yet mentioned, but critical to the future of aerospace and defense ecosystem trends in 2021, is the increase in competitive pressures facing traditional defense companies (and their suppliers) especially as disruptive solutions and technologies find their way into the defense marketplace from non-traditional suppliers.
Alluded to, but not expanded upon in our consideration, is the Space ecosystem. With an additional projected investment of US$ 12.1 billion in 2021 and an anticipated CAGR in excess of 15 percent over the next four years, this sector will represent significant opportunities for A&D vendors. As such, it will be considered in our next blog.
With its roots in the Hughes Aircraft Corporation, the Palomar Group’s Innovation Center has successfully negotiated many technological and defense trends over the past five decades. In doing so, it has built an invaluable bank of experience and knowledge through using Palomar equipment that can help customers more swiftly sift through proposed innovations, as equally identify effective and trustworthy packaging solutions within a shorter space of time.
Dr. Anthony O'Sullivan
Strategic Market Research Specialist