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 the Battlespace
10. Space: Commercializing the Next Frontier

Document Introduction

The global Aerospace & Defense (A&D) sector is experiencing a complex period characterized by both rapid growth and profound transformation. On one hand, Airbus and Boeing forecast the production 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 that leaders and defense departments adopt a more holistic strategic perspective to navigate the current environment. This report aims to provide actionable insights for industry executives, defense department heads, suppliers, and investors to grasp this rapidly changing 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 cover a broad spectrum from macro geopolitical risks to specific operational challenges. The report not only reveals the structural transformations posed to A&D companies by the shifting geopolitical power dynamics, changing economic centers, and technological competition (e.g., in semiconductors, artificial intelligence, quantum computing) under the new world order, but also delves into how geopolitical tensions are driving an urgent demand for sovereign capabilities and resilient supply chains. It simultaneously analyzes the profound impact of the persistent conflict environment on defense technology innovation and procurement models.

At the specific industry dimension, the report provides a detailed analysis of how A&D supply chains are transforming from a just-in-time model towards a more resilient, agile, and transparent direction. It emphasizes the importance of applying enabling technologies such as predictive analytics and digital twins, as well as conducting greenfield planning. While sustainability issues face varying priorities across regions and sectors, significant opportunities remain in aligning net-zero goals with sovereign resilience, with collaboration being viewed as key to success. Furthermore, the report points out that substantial public and private capital is flowing into the next generation of A&D startups, making the core challenge how to achieve scaled delivery. This compels traditional defense departments to rethink their collaboration and procurement models with technology startups, accelerating the process from R&D to deployment.

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