Air shows are typically about a rousing new product being shown off for the first time. This year, however, Farnborough brought us the unique situation where the industry showed up without a new product to greet them. Orders – a main headline from any air show – were also muted, often in favor of less binding LOIs and MOUs.
We saw an industry focused on overcoming immediate supply-side constraints to meet historic demand as OEM order books remain full and defense budgets climb to new heights. Challenges such as ramp-up difficulties, supply chain issues, potential geopolitical escalation, a limited talent pool, and high capital costs continue to weigh on leaders' minds.
Stepping back, Farnborough reminds observers of how important aerospace and defense players are to supporting economic health and helping maintain global security. The industry's future depends on advancements like the ability to implement highly automated assembly lines, equipping the workforce with best-in-class tools, performing predictive maintenance, and tracking inventory movements in real time. All these inputs serve the broader goals of enhanced program management and identifying new approaches to value creation, which were key topics at Farnborough.
Here are some major themes we identified at the airshow this year:
Ramp-up
The commercial aerospace industry isn't suffering from a demand problem. Instead, it's struggling with a delivery problem, triggered by several interconnected issues. Production hiccups and strained MRO capacity continue to result in parked jets, fueling headlines. Leaders tasked to meet ambitious ramp-up targets cited scarcity of labor, diverse shortages from forgings to airline seats, a renewed focus on quality concerns, and regulatory hurdles.
Ramp-up slowdowns on next-generation programs drive airlines to look twice at retiring older, less fuel-efficient aircraft and rethink their capacity strategies as passenger numbers have sustained above 2019 levels for more than a year.
Supply chain
The supply chain could provide a silver lining to the ramp-up story. Lower production volumes have plenty of negative consequences but could allow suppliers across all tiers an opportunity to catch their breath and strategize for the road ahead. Concern continues to swirl around supply-base resilience, especially in defense, where company leaders spoke of the role government must play to nurture smaller supplier participation in the supply chain.
The long-term success of the supply chain undoubtedly rests on the appetite of OEMs to play a key role in stabilizing suppliers at a time when it's fair to question whether suppliers trust production plans. This is not only a commercial phenomenon. As the Air Force takes a public 'pause' on the development of the Next Generation Air Dominance (NGAD), major strategic question marks are presented to suppliers to the defense base.
Defense
The defense industry is also experiencing a sharp uptick in demand, leading to its own ramping challenges. In prior years, European defense budgets were not key drivers of major OEM investment; however, entrenched conflicts in Ukraine and Israel, as well as the potential specter of a conflict over Taiwan, have caused Western defense budgets to surge.
These increased budgets, as well continuing shifts in the Western defense environment raise important questions about what OEMs and suppliers should be focused on in the coming years. The process for buying exquisite systems is well established, but the real winners of the past few years have been companies that have accelerated production of lower-cost attributable systems, as well as those that have rapidly scaled up munitions production.
MRO
Many see the MRO sector as the biggest beneficiary of the reticence to retire older aircraft, as well as of broader growing fleet utilization. This golden age, however, may not last.
The labor and supply chain issues that other A&D categories suffer from can be equally problematic for MRO players and will be an increasing headwind in the future if not accounted for today. While older planes require more routine maintenance, the lack of fresh aircraft means fewer new planes will require their initial one-year service checkpoint.
Space
At Farnborough, a key focus for those interested in the space value chain revolved around two pressing questions: how to secure a share of the next trillion-dollar industry and how to appropriately size that investment. There is substantial business to pursue today, with tens of billions of dollars now available that weren't accessible just five years ago.
Among the gems to consider are development initiatives in the defense space, such as the Proliferated Warfighter Space Architecture. However, these pursuits are not risk-free; they come with the commitment to cultivate stronger engineering and program management bona fides or risk possible future cancellation.
M&A
The M&A scene has emerged from a bit of a lull, and many are optimistic about the uptick. OEMs are continuing to review portfolios to identify misaligned assets, with some announcing interest in tuck-in acquisitions. Private equity firms are equally interested in dealmaking, especially in mainstay target sectors, such as MRO.
Talent
A generational labor shift has taken place, and the industry must work hard to attract and retain a new era of engineers, designers, assemblers, while not alienating the labor force that holds the bulk of the industry's institutional knowledge. Industry must be positioned as high-tech, rewarding, and engaging. Success will benefit a wide range of functions, from innovation to quality to manufacturing.
Leaders also need to continue to review implementation of digital tools – including AI and automation – to fill some of the efficiency gaps created by the labor shortage.
The way forward
Effectively addressing today's challenges will enable A&D players to fully seize the promise that tomorrow offers. While growth appears inevitable, the list of winners and losers is yet to fully shake out.
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