How the future

of commercial
aviation will reshape
value chains
Contents

Executive summary
04
Chapter 1: Addressing two wild cards:
aviation supply chain and labor 06
Chapter 2: Digital and sustainability:
achieving efficiencies and growth 08
Summary
11
Source notes
11
“
Aerospace companies face rising
demand and operational challenges,
making sustainability and digital
transformation more necessary
than ever.
Stephane Lagut
EY Global Aerospace & Defense Leader and EY Global
Advanced Manufacturing & Mobility Assurance Leader
Executive
In mid-2022, the commercial air transportation
sector is buoyed by renewed hopes that the
worst of the pandemic is behind us. Yet amid

Summary
this recovery, original equipment manufacturers
(OEMs) and aviation suppliers are grappling with
demand volatility, supply chain ruptures and
production constraints like never before, with
challenges — and opportunities — rippling across
the entire aerospace and defense (A&D) value
chain globally.

Industry players find themselves in an uncertain

“in-between” state, in which pre-pandemic normal
is fading from memory but the post-pandemic
future remains cloudy. How different will the
aviation industry be by 2030 or even 2050? And
where are the opportunities for new innovation,
value-driven sustainability initiatives and other
avenues for generating profits, and increasing
shareholder value?

We can begin to see the possibilities of tomorrow

within the recovery of today, across areas such
as the power of digital, new technologies, supply
chain transformation and enterprise resilience.

4 | How the future of commercial aviation will reshape value chains

Riding on a path
to recovery
The commercial aerospace sector has shown Within the wide-body space, orders were depressed
incredible resiliency and continues to rebound even before the pandemic, and growth is not
from the pandemic, even among global challenges expected to return to the market until 2024. Air
such as elevated inflation, the spread of COVID-19 freight may pick up the slack from still-depressed
variants and geopolitical unrest. levels of international travel, but most of the near-
term demand is expected to be for replacements,
By the metric of revenue passenger kilometers as nearly 20% of the 2019 fleet is forecast to retire
across the industry, global passenger traffic by 2025.2 This uncertainty could impact production
for air travel in 2021 recovered to 42% of 2019 levels and the timing of new orders. However,
levels, compared with 34% in 2020, boosted by these trends accelerate demand in the narrow-
increasing vaccination rates, the lifting of travel body market, in which the potential for longer-
restrictions and the reopening of economies. For range aircraft has greater traction amid increasing
cargo tonne-kilometers, global air freight was regulation and concerns over carbon dioxide.
strong, with 7% growth compared with 2019 levels,
despite several disruptions, including insufficient
cargo fleet capacity and labor shortages that
gripped the industry throughout the year.1

How the future of commercial aviation will reshape value chains | 5

 01Addressing two wild
cards: aviation supply
chain and labor

Supplier distress and a pool of talent with

new priorities amid the pandemic add to
the uncertainty. Here’s how to navigate the
new normal.

Proactive strategies to
keep operations running
smoothly are crucial as
workforce hurdles and
distressed aviation suppliers
create snarls.
6 | How the future of commercial aviation will reshape value chains
The current state of A&D supply chains

OEMs are facing a heady mix of labor payments and set up “watchtowers” to
shortages, supply chain issues and high detect financial problems. Governments
prices of raw materials, all signaling a have offered billions in grants, loans and
potential threat to component availability. guarantees as well, and Tier 1 suppliers
have chipped in with contract extensions,
Within supply chains, the impact of the inventory purchases and vendor financing
war in Ukraine has been limited. Although programs. Even so, the smaller suppliers
commercial OEMs have relied heavily on facing maximum pressure have been
Russian titanium, they likely have enough consolidating on a large scale.
supply to meet near-term needs, as
they have been stockpiling reserves and Recommended actions: To maintain the
building alternative sourcing strategies long-term viability of their supply chains,
for some years now. A larger disruptive major A&D companies have to continue to
source remains in the market: distressed proactively identify distress and perform
suppliers on uncertain footing since the proactive evaluations. OEMs may need
pandemic began and still confronting to acquire major suppliers and insource
uncertainty in demand. to protect jobs and increase capacity
utilization, as well as invest in strategic
To help distressed suppliers navigate technologies.
near-term cash flow pressures, OEMs
have offered financial aid, accelerated

Workforce challenges

Meanwhile, the pandemic has scrambled Recommended actions: To the extent

the availability of labor and created new possible, invest in enabling technology
priorities among workforces, resulting in a for remote work, which aligns with
drift away from traditional manufacturing flexibility and greater safety, and make
roles. In EY 2021 A&D Workforce Study, accommodations for flexible work
EY teams found that flexibility reigns arrangements (such as the start and finish
supreme today, as it has been shown to be times and compressed workweeks).
both possible and preferable. In the US,
about 26% of the A&D workforce is over Also, explore the top three differentiated
age 55 (higher than the average across benefits, as cited in EY workplace
industries), and voluntary attrition rates survey: recognition, career development
are above average as well. Manufacturers opportunities and tuition reimbursement.
should expect a wave of retirements amid The second perk can be tied to upskilling,
the “great resignation.” Meanwhile, digital into the much-needed areas of engineering,
and analytical talent — core to how the cybersecurity and digital. Specify needed
sector drives innovation and achieves next- skills and partner with universities whose
generation operations — is more necessary curriculums produce qualified candidates
than ever. and augment your talent pipeline through
institutions conducting research in areas
of interest.

How the future of commercial aviation will reshape value chains | 7

 02Digital and sustainability:
achieving efficiencies
and growth

Technologies like AI hold promise for

aerospace companies and ESG should be high
on the agenda. Meanwhile, new opportunities
are on the horizon.

Disruptive technologies
and a greater focus on
sustainability present new
opportunities to upend
business as usual for
forward-thinking companies.
8 | How the future of commercial aviation will reshape value chains
Disruptive technologies on the horizon

Digital presents a new opportunity across about the business case for them. Then,
value streams, enabling A&D players to adopt them more broadly as the capabilities
design, build and service products with grow more mature. Such technologies to
greater speed, efficiency and quality. For explore include:
example, sensors and advanced analytic
techniques capture tons of data that • Additive manufacturing, in which parts
reveal new insights and possibilities into of any shape and size can be 3-D printed,
operations and product performance. and repair of metal parts with cold-spray
Across a number of industries, greater techniques is an intriguing nascent
interaction with customers and consumers application
of mobility solutions and services are • Automated testing using machine
disrupting ecosystems and blurring the learning, which allows multiple tests
lines between sectors. to run simultaneously, eliminating
extra work
However, despite being on the cutting-
edge decades ago in the use of robotics • AI, which can be used to find
and automation, the A&D industry today innovative ways to design lighter
has yet to harness the full potential of and more efficient parts
digital technologies. Manufacturers need • Internet of Things sensors, which can be
to seize the opportunity to broaden their built on aircraft components to monitor
ambitions to be holistic solution providers performance and health while providing
for their customers, not merely to build benefits for predictive maintenance and
products. Digital technologies enable fault tracking
the innovation and agility to identify
and address changing preferences.3 • Digital twin, a virtual lab of sorts that
can accelerate the design process
Recommended actions: At the least, through simulation, or can help teams
consider how to implement technologies test how to optimally build an integrated
at a small scale for now if you’re uncertain aircraft by trying it virtually first

Using sustainability to create a sector that

does more with less

Every industry is facing more pressure It’s worth emphasizing that the
from a wide spectrum of stakeholders — like sustainability journey is not a singular
investors, regulators and consumers — to route. It should build on the long-term
incorporate more sustainability and ESG path toward achieving net-zero emissions
actions into their day-to-day operations. for the entire aerospace industry. This
A&D leaders are being challenged to will require use of several eco-friendly
reframe how their businesses approach tools, technologies and processes that go
sustainability and whether or not to put beyond just propulsion advancements.
it at the center of how value is created, Opportunities exist within aviation-
to further growth and strategic goals. As related ground services, for example, to
a major source of carbon emissions, the reduce carbon footprints with the use of
commercial aerospace sector can make electric tugs, carts and the like. Other
an enormous impact through operational operational improvements include wider
improvements, sustainable aviation fuel use of value engineering early in design
(SAF), new propulsion technologies phases; advanced recycling and reuse
(such as electric and hydrogen) and global practices as a part of an overall circular
market-based measures like carbon offsets. economy approach; and the adoption of

How the future of commercial aviation will reshape value chains | 9

advanced sustainable manufacturing Hydrogen and fuel cell technology could
and maintenance programs, often prove to be the disruptive change required,
incorporating a heightened level of but it will require lots more investment.
digital tools.
Recommended actions: Identify
SAF could represent the most immediate opportunities where sustainability can
solution currently available to reduce the provide a competitive advantage and
climate impact of the aviation industry.4 respond to key risks. Is electrification
The development of the SAF value chain is the ultimate goal, or sustainable fuel, or
a priority, though. Obstacles at each value turbine engine efficiencies — or all of the
chain stage (feedstock, production and above? Digital, value engineering and
infrastructure) need to be tackled to make data analytics all have a role to play. The
SAF a viable option and a new normal entire A&D ecosystem will undergo multiple
post-2030. We also see the steady rise waves of disruption, much like what
of hybrid aircraft, in which hydraulic and we’re seeing transpire in the automotive
pneumatic systems have been slowly industry — impacting current operations,
transitioning to electric-based systems, R&D, supply chains, workforce plans and
making them more efficient and easier M&A strategies. One area particularly
to maintain. But adding more electric worth focusing on in manufacturing is
batteries to aircraft increases weight and the circular economy, which aims for
the risk of chemical and fire hazards. zero waste in value chains.

It’s hard to tell, but new advances suggest

that advanced air mobility and supersonic
flights are further out on the horizon.

Reshaping the long-term future

of commercial aviation

Looking farther out onto the horizon, for the true shape and scope of AAM
you can begin to see flying cars — no, to become clear.
really — in a concept called advanced air
mobility (AAM). Advancements in electric Lastly, there is growing interest in
and autonomous vehicles have sparked supersonic flight — when an aircraft travels
renewed excitement about the integration faster than the speed of sound — being
of battery power in aviation, and billions driven by new commercial aero companies
of dollars have been invested to develop that see the opportunity to open up
highly maneuverable electric vertical the world to travelers while shortening
takeoff and landing aircraft, as well as flight times. This is not necessarily
the ancillary systems needed to support new — Concorde5 supersonic jets were
them. The stepping-stones exist today in commercial operation from 1976 to
in the form of drones integrated with AI. 2003 — but startups and government
Comprehensive regulatory and operational agencies are developing supersonic
frameworks and ground infrastructure technology for commercialization by
planning hold the key to unlocking broad increasingly partnering with major A&D
commercial applications for AAM. With players. Low-boom supersonic flights,
such a variety of aircraft classes and referring to the sound of the sonic boom
business models vying for dominance used to power the flight, could be the
in an emerging market, it will take time future for global rapid passenger travel.6

10 | How the future of commercial aviation will reshape value chains

 Summary
With the future of commercial aerospace
already in motion, it’s imperative for A&D
companies to get ahead of the curve.
They must align strategies, help identify
what they should be investing in and
implement appropriate responses as
they relate to trends, technologies and
implications that are driving change in
the market.

Source notes

1. “ Overview of air transport in 2021 and recent twin-institute-position-paper-(december-2020).pdf,

developments,” IATA, https://www.iata.org/en/iata- accessed on 20 May 2022.
repository/publications/economic-reports/overview-of-air-
transport-in-2021-and-recent-developments/, accessed 4. “Clean Skies for Tomorrow Leaders: 10% Sustainable
on 11 May 2022. Aviation Fuel by 2030,” World Economic Forum,
https://www.weforum.org/press/2021/09/clean-skies-for-
2. “ Aerospace & Defense Electronics: 2022 Outlook: 3 Factors tomorrow-leaders-commit-to-10-sustainable-aviation-fuel-
Make Aero a Winner in ’22, Otherwise on the Sidelines,” by-2030/, accessed on 5 May 2022.
Jefferies, 5 January 2022, accessed via ThomsonOne.
5. Celebrating Concorde, https://www.britishairways.com/en-
3. “ Embracing the digital transformation in aerospace & gb/information/about-ba/history-and-heritage/celebrating-
defense,” SAE, https://www.sae.org/news/2020/07/ concorde, accessed 3 June 2022.
embracing-the-digital-transformation-in-aerospace--
defense, accessed on 20 May 2022; “Digital twin: definition 6. “Supersonic and hypersonic commercial flights firmly in
& value,” AIAA, https://www.aiaa.org/docs/default-source/ view,” DW, https://www.dw.com/en/a-new-supersonic-travel-
uploadedfiles/issues-and-advocacy/policy-papers/digital- age-supersonic-and-hypersonic-commercial-flights-coming-
soon-to-the-skies/a-57129527, accessed on 20 April 2022.

How the future of commercial aviation will reshape value chains | 11

Contacts EY | Building a better working world

EY exists to build a better working world, helping to

create long-term value for clients, people and society
and build trust in the capital markets.
Stephane Lagut Enabled by data and technology, diverse EY teams in
EY Global Aerospace & Defense Leader over 150 countries provide trust through assurance
and EY Global Advanced Manufacturing and help clients grow, transform and operate.
& Mobility Assurance Leader
[email protected]
Working across assurance, consulting, law, strategy,
tax and transactions, EY teams ask better questions
to find new answers for the complex issues facing
our world today.

Raman Ram EY refers to the global organization, and may refer to one or more,
EY Americas Aerospace & Defense Leader of the member firms of Ernst & Young Global Limited, each of which
[email protected] is a separate legal entity. Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to clients. Information
about how EY collects and uses personal data and a description of the
rights individuals have under data protection legislation are available
via ey.com/privacy. EY member firms do not practice law where
prohibited by local laws. For more information about our organization,
please visit ey.com.
Matt Vernon
UK Head of Aerospace & Defense
Ernst & Young LLP About EY’s Global Advanced Manufacturing & Mobility Sector
Urbanization, changing consumer expectations and emerging digital
[email protected]
technologies are reshaping what’s possible, from the production and
distribution of goods to the transportation of people. To succeed in
this new world of mobility and smart manufacturing, incumbents
must transform themselves at unprecedented speed — to think like an
innovative start-up, tap into new talent and engage the customer. With
Joe Sebestyen experience across the value chain and key technology alliances, our teams
show clients how to create efficiencies now while adopting digitization and
EY Global Advanced Manufacturing
& Mobility Analyst optionality for long-term growth. Automotive, transportation, aerospace,
defense, chemicals and industrial products companies can draw on the
[email protected]
strength of our network of cross-industry players and put our diverse
range of approaches to use today to equip their businesses for tomorrow.

© 2022 EYGM Limited.

All Rights Reserved.
Anish Panwar
EY Global Advanced Manufacturing EYG no. 005956-22Gbl
& Mobility Analyst
[email protected] BMC Agency
GA 131451648

ED None

In line with EY’s commitment to minimize its impact on the environment,

this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended
to be relied upon as accounting, tax, legal or other professional advice. Please refer to your
advisors for specific advice.

ey.com