Regulatory influences and government policy changes. The aerospace & defense industry remains a profitable yet challenging business. Global cuts in government spending, especially in the United States, will put significant financial pressure on companies, forcing them to realign their strategies and diversify their business models. The ongoing decrease of military operations in Iraq and Afghanistan coupled with reduced military budgets globally continue to affect revenues throughout the defense sector. The biggest challenge for defense contractors is growing profitably in a decreasing market. Increasing globalization and emerging new markets. According to a 2012 report from Chicago-based Boeing Co., commercial aviation is experiencing a virtually unprecedented and prolonged up cycle, as demonstrated by recent increases in production by Boeing as well as French aircraft manufacturer Airbus SAS and Brazil’s Embraer SA.
Three dominant forces are driving this up cycle: increased passenger travel, most notably in Asia; an increase in budget airlines; and the demand for more fuel-efficient aircraft. The combination of the three factors has created a perfect storm for commercial aviation, transforming it into the driving force behind the aerospace industry, with between 27,350 and 34,000 commercial aircraft expected to be produced over the next 20 years (“Current Market Outlook”, 2012).
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Technological change and process innovation. The commercial aerospace segment remains profitable, with a strong demand for fuel-efficient next generation products. With fuel prices continuing to rise, the cost of fuel remains a significant financial concern to airlines.
The use of fuel-efficient jet engines on commercial aircraft is the first step in reducing fuel costs for many airlines, a less-expensive alternative to replacing entire fleets. Airlines are choosing to update their current aircraft with newer fuel-efficient engines; although longer-term it seems likely that older planes will be replaced by newer aircraft that feature both fuel-efficient engines and airframes. Cooperation with both customers and suppliers remains a key driver of innovation. Product stewardship, life cycle management and operational eco-efficiency have become key requirements for both commercial and military applications. The call for alternative fuels and propulsion technologies is increasingly becoming a question of not only operating costs, but one of national security and public policy.
Current Market Outlook 2013-2032. (2012).
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