This past year offered a fair share of intrigue in aerospace, from first flights to notable mergers and acquisitions and partnership deals. Anyone looking for a slowdown in 2018 is probably going to be disappointed, because our little world of big ideas has a lot going on, and savvy aerospace marketers will stay on top of — and ahead of — it all.
Supply chains consolidating; aftermarket reshaping
The major consolidation trend seems to be rolling forward in all tiers of the supply chain, with the December Boeing-Embraer bombshell providing a jump-start on what was already shaping up to be a major year of deal-making. Airbus and Bombardier are determined to forge ahead with their C Series partnership, while UTC and Rockwell Collins expect to close their deal to create a $23 billion aircraft interiors and systems business unit, Collins Aerospace Systems, within UTC.
What does this mean for smaller players? Supply chains will be consolidating, and in the case of the OEMs teaming up, perhaps undergoing geographical shifts. When Airbus set up shop in Alabama, it tailored its supply chain to suit a U.S.-based operation; expect a similar strategy for Bombardier's C Series line slated for Mobile, which the company says will happen regardless of the outcome of Boeing's price-dumping complaint.
In the commercial aftermarket, all eyes are on Boeing. It launched its dedicated Boeing Global Services (BGS) stand-alone business unit on July 1, and confirmed it as a $14.5 billion annual business in a subsequent earnings call—about half of which is believed to be from the commercial side (BGS serves Boeing's civil, defense, and space customers, but the company does not break out the revenue shares). Boeing is on the record as targeting $50 billion in annual revenue by 2030 or so for BGS; most analysts believe acquisitions are a must to come anywhere near that figure. The coming year could see the first of those deals, with data analytics-related entities and perhaps a large-scale MRO services integrator as good bets.
Data solutions, bespoke offerings will find success
Bigger-picture, data collection and analysis will continue to be a major aftermarket-business driver. As more aircraft with data-pushing capabilities come online, stakeholders, from the OEMs down through suppliers to operators, will need ways to make sense of — and profit from — all the zeros and ones. Opportunities abound for companies with data collection, aggregation, and analysis tools that can be applied to the aviation space.
Independent MRO providers face significant headwinds as OEMs and top-tier suppliers chase more aftermarket dollars, but the trend could create opportunity as well. Specialized offerings, such as repairs or large-scale production of common parts, could be seen as attractive partnership or acquisition targets for larger players.
That said, cost reduction will remain a major focus. From more seats in cabins to smarter ways to project spare parts demand and source material, airlines will drive costs down. That creates both pressure on the supply chain and opportunity for solutions providers. Concepts like using drones for labor-intensive aircraft inspections will take hold in 2018, and operators will be open to any ideas that help them trim costs or boost efficiencies.
Upsides for UAS, defense—bizav less certain
The unmanned aircraft system (UAS) space will continue to expand. U.S. regulators are taking public input on the first-ever publicly released airworthiness standards for a UAS — this is one more step on the road to broader acceptance of drones and a regulatory framework for integrating them into national airspace systems. There's a lot left to navigate, however, both literally and figuratively. Technology such as sense-and-avoid and anti-collision systems continue to be high priorities for all stakeholders that want to see safe and sensible UAS integration.
In the defense arena, bipartisan support for higher spending in the U.S. should provide some tailwinds once a budget is approved — likely by April. Tension in the Middle East and the growing threat of a conflict with North Korea provide motivation to boost near-term capabilities — that bodes well for general readiness, such as training and provisioning of everything from supplies to spare parts, as well as C4ISR.
But the same opportunities could become threats if diplomacy wins out and diffuses the highest-tension situations. Meanwhile, if Democrats manage to capture one or both chambers of Congress in the mid-term elections — not a stretch, based on recent polls — the appetite for a larger defense budget could lessen.
The business aviation market is generally seeing upticks in usage across the board. Despite the positive trends, demand for new aircraft remains tepid, as used-aircraft prices struggle to recover, leaving owners reluctant to pay the difference for new metal. While the global economy is headed in the right direction, much of the corporate profit-increases are backed with cost-cutting and other austerity programs. These types of positive financial returns don’t lead to the type of reinvestment that boosts business aviation spending.
The takeaway: expect stability, but not resurgence, for business aviation.
With used business aircraft staying with owners longer, the retrofit and upgrade market bears watching. Connectivity continues to be a major business-aviation upgrade driver. The pending ADS-B upgrade mandates in the U.S. and Europe have operators scrambling to secure kits and hangar time. One prominent business-aviation aftermarket provider says 40 percent of the U.S. fleet could fail to meet the January 2020 deadline, including 25 percent of the business jet fleet. One upside to such a scenario: residual values of compliant aircraft would rise.
3D printing, virtual reality are good bets
Looking for a few technologies poised to gain traction? Bet on additive manufacturing (AM) and virtual/augmented reality. AM, commonly called 3D printing, is becoming well-established among OEMs, and suppliers are beginning to push the envelope to create cost synergies and strategic advantages (witness Safran's APU business unit's play to boost its business-aviation supplier status).
Virtual/augmented reality is seen as a major enabler in everything from design to MRO. Rockwell Collins uses it to allow its cabin interiors customers to "sit" in mock-ups of a cabin outfitted with their choices; MRO providers are looking at it to both teach technicians and help them perform their jobs.
If you're a business in any of these fast-moving spaces, how can you help ensure you're part of the evolution and not left behind? Start by understanding how what you offer can help potential customers solve problems or leverage opportunities. It's a timeless marketing mantra: understand your features, but sell your benefits. The next part: tell your story. If you're not engaged in an active integrated marketing program — consider one.
Jump-start your 2018 marketing with these BDN-exclusive resources:
If you liked this week’s blog, you may also like to see some of our past predictions: