Annual Emerging Trends Report in Aerospace and Defense

Key Chapter Title List

1. Geopolitics: Risks and Opportunities in the New World Order
2. Supply Chain Resilience: Agility in the Face of Disruption
3. Sustainability: Collaboration is Key to Success
4. Competition: Scaling the Next Generation
5. R&D: Accelerating Innovation
6. Digitalization: Meeting the Demand for Speed
7. M&A: Focusing on Value Creation
8. Workforce: Reshaping Strategy
9. Defense: Integrating Warfighting Domains
10. Space: Commercializing the Next Frontier

Document Introduction

The global Aerospace & Defense (A&D) sector is navigating a complex period marked by both rapid growth and profound transformation. On one hand, Airbus and Boeing forecast the manufacture of over 40,000 new commercial jets in the next 20 years, while global defense spending grew by nearly 10% in 2024 at its fastest pace in nearly a decade. On the other hand, the industry is being impacted by multiple factors including dramatic shifts in the geopolitical landscape, rapid technological evolution, and pressures for supply chain sovereignty, demanding a more holistic strategic perspective from leaders and defense departments to navigate the current environment. This report aims to provide actionable insights for industry executives, defense department leaders, suppliers, and investors to grasp this rapidly evolving process.

Based on in-depth interviews with industry executives and government leaders, insights from KPMG's global A&D leadership, and proprietary research, this report systematically identifies and elaborates on ten key emerging trends that will influence A&D decision-making for years to come. These trends span a broad spectrum from macro geopolitical risks to specific operational challenges. The report not only reveals the "tectonic shifts" posed to A&D companies by the transfer of geopolitical power, shifting economic centers, and technological competition (e.g., semiconductors, artificial intelligence, quantum computing) under the new world order, but also delves into how geopolitical tensions are driving an urgent need for sovereign capabilities and resilient supply chains, while analyzing the profound impact of persistent conflict environments on defense technology innovation and procurement models.

On specific industry dimensions, the report provides a detailed analysis of how A&D supply chains are transforming from a "just-in-time" model towards greater resilience, agility, and transparency, emphasizing the importance of applying enabling technologies like predictive analytics and digital twins, as well as undertaking "greenfield" planning. While sustainability faces varying priorities across regions and sectors, significant opportunities remain in aligning net-zero goals with sovereign resilience, with collaboration seen as key to success. Furthermore, the report notes that public and private capital is pouring into a new generation of A&D startups, making scalable delivery a core challenge. This compels traditional defense departments to fundamentally rethink their collaboration and procurement models with tech startups, accelerating the process from R&D to deployment.

Digital transformation is positioned as crucial for gaining a decision-speed advantage in a rapidly changing geopolitical environment. The report reveals the leading position of industrial manufacturing enterprises in digital application and emphasizes that A&D organizations must move beyond simple process digitization, committing to cross-functional integration and rapid decision-making through tools like Model-Based Systems Engineering (MBSE), artificial intelligence, and automation. Simultaneously, the report predicts a significant increase in M&A activity starting in 2025, with the deal focus shifting from transaction volume to value creation. Strategic and financial investors will focus on synergy integration and operational efficiency improvements, respectively. Finally, the report examines the inevitable trend in defense towards multi-domain integration (land, sea, air, cyber, space) and the fusion of commercial capabilities, as well as the profound shift in the space domain from government-led initiatives to a vibrant commercialized "infinite frontier," presenting industry participants with a new strategic landscape and growth opportunities.