 "Global aerospace & defence sector upbeat about growth: KPMG")
The future looks promising for the global aerospace & defence (A&D) industry according to KPMG International’s latest survey report ‘Global aerospace and defense outlook: The dawn of a new day’. Close to two-thirds of the senior executives who participated in the survey said they are confident or very confident about their companies’ growth prospects over the next two years. Aircraft OEMs and major defence contractors seem particularly upbeat about their growth strategy with 100 per cent of the respondents from larger organisations (those with global annual revenues of more than $ 10 billion) felt optimistic about their growth prospects.
According to the survey of 76 senior A&D executives from around the world, 41 per cent believe that growth will be an extremely high priority over the next two years. This is up from just 13 per cent last year.
KPMG survey indicated that cost and performance management are still high on the agenda for A&D organisations. This suggests that many organisations are placing growth-oriented bets on new technologies and services while emphasising cost reduction and consolidation in their slower-growth or declining segments.
Doug Gates, KPMG International global chair, industrial manufacturing and global lead, A&D, commented, “A&D organisations will need to think about how they drive profitable growth in new segments while simultaneously managing costs within slower-growth segments. Executives are going to need to stretch their organisations outside of their comfort zone to explore new approaches and team up with new partners that can help to rapidly and cost-effectively exploit these emerging opportunities.”
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With economies remaining sluggish and defence budgets flat in the mature markets, many A&D organisations are now looking to new foreign markets to generate new revenue. In fact, more than nine-in-ten of the A&D respondents said they plan to expand into new geographic markets over the next two years.
Aside from the quest for revenue growth, lower manufacturing costs are a major driver behind the non-domestic investments for half of the respondents. Additionally almost three-in-ten said that their foreign investment strategies are driven primarily by their desire to move closer to customers and to gain access to new markets.
Two-thirds of the non-US based respondents said they will make investments in the US and Canada. Sixty-six per cent of US-based respondents said they will invest in India, while 50 per cent said they will invest in mature ASPAC economies (including Japan, South Korea, Australia and Singapore).
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Amber Dubey, head of aerospace & defence at KPMG in India, added, “Given the pro-reform approach of the Indian government and recent changes in policies related to defence procurement and FDI, India is the place to be. The large orders placed by leading commercial carriers will lead to increased pressure from the Indian government on global OEMs to enhance their manufacturing and sourcing footprint in India, a la China. KPMG’s Global A&D Outlook provides key insights about the risks to watch out for and the likely mitigation tools.”
As A&D organisations prepare to take advantage of new and emerging opportunities, the KPMG survey suggested that executives are exploring a wide variety of strategies and options to drive growth. Accordingly, as per the KPMG survey, organisations expect to significantly ramp up investment into R&D.
Given the shift towards new products and new geographic markets, KPMG survey showed that supply chain failure continued to be viewed as a major risk for A&D organisations with 87 per cent of respondents citing this as a major threat to achieving their growth agenda. However, less than one-in-ten of the respondents reported that they have visibility into their tier 2 suppliers.
“The best way to reduce the risk of supply chain failure is by achieving greater visibility, and managing it cross-functionally deeper into the end-to-end supply chain,” noted Erich Gampenrieder, KPMG’s global head of operations advisory.
The rapid adoption of sensors and Internet of Things (IoT) technology is capturing significant attention and investment from supply chain leaders. “A&D organisations are seeing massive opportunity that can be achieved - and value that can be delivered - by connecting their products and improving their value through IoT, sensors and new business models enabled by data and analytics. The more advanced organisations are thinking about how they combine data from their sensors with external data sources to create even more value for their customers and more sustainable growth opportunities for themselves,” added Doug Gates.
