Highs and lows in aerospace and defence | KPMG | AU

Highs and lows in the aerospace and defence sectors

Highs and lows in aerospace and defence

Change, uncertainty and disruption are rife across the aerospace and defence (A&D) sectors in Australia and around the world. A massive and fundamental transformation is underway and – when the dust starts to settle in the next 5-10 years – it seems clear that the A&D sectors will be significantly different than they are today.


Global Chair of Industrial Manufacturing and Global Head of Aerospace & Defense

KPMG in the U.S.


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aeroplane against a blue sky

In its inaugural year, KPMG in the U.S. and KPMG International are launching “Growth and Uncertainty: Highs and lows in the Aerospace and Defence sectors.” This whitepaper is a research report that analyses the current state of the global aerospace and defence industry, highlighting the economic trends and landscape, while providing KPMG insights, observations and points of view on these findings.

Key takeaways for aerospace

  1. The rise of new markets and competitors: As many manufacturers and suppliers shift towards the East – and new opportunities and new competitors emerge – executives will need to start thinking beyond the next 5 to 10 years to understand how changing market dynamics will influence their business model.
  2. Oil prices create volatility and flexibility: Low oil prices may allow some airlines to defer the replacement of current aircraft with more fuel efficient equipment, but those airline executives able to view low oil prices as an opportunity to reinvest their higher-than-expected profits into improving their infrastructure and asset portfolio should find themselves in a stronger position once oil prices rise.
  3. Growth potential influenced by infrastructure: While there is clearly demand for increased air traffic across emerging market countries like China and India, the sector may be hampered in the medium term by a lack of sufficient infrastructure (or available airspace). Governments will need to play a strong role in addressing these issues in order to allow the airline and aerospace industries to realise the full potential for air traffic growth between now and 2030.
  4. MRO continues to evolve: With most major commercial airlines having now disposed of their ‘in-house’ MRO capabilities, the market has largely consolidated into geographic centres such as Singapore. However, with China and India rapidly making inroads into the MRO market, OEMs and others involved in the MRO space will need to carefully monitor (and, likely, invest into) these lower-cost centres in order to remain relevant in not only the commercial, but also the general aviation sector.

Key takeaways for defence

  1. The decline of ‘traditional’ defence: Government defence spending in many major markets is shifting away from ammunition and large platforms to instead prioritise newer and more sophisticated areas such as cyber capabilities, unmanned vehicles, and increasingly smart weapons. Defence players and their suppliers will need to sharply increase their development and acquisition of new products and services in order to remain relevant.
  2. New competitors and new opportunities are emerging: New upstarts and technology players are changing the dynamics of the market with leaner development cycles, lower costs, and faster speed-to-market. In this environment, traditional defence players will need to pay close attention – and possibly partner with – new entrants with credentials in aligned industries (consider how Elon Musk has used his advances in automotive to build capabilities in space and ground transportation concepts like SpaceX and the Hyperloop).
  3. Convergence is rising: From adapting products to adjacent markets and building new partnerships with non-traditional players such as technology providers, the defence sector is undergoing an era of convergence. Executives will need to recognise that in this environment, very little is sacred in a company’s portfolio; many will uncover rich new opportunities as a result.
  4. Capabilities shifting East: Not only are traditional defence players seeking to enter into new growth markets in Asia, new players in Asia are also looking to create their own capabilities to meet local and regional market demand. Executives should expect a surge in capabilities in the emerging markets that will challenge the Western supply chain’s market dominance over the next decade.

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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