Chief engineers in aerospace and defense (A&D) face mounting market pressures. The common denominator is speed—namely, whether to bring products to market more quickly, or to slash the costs of existing products, or to meet sustainability requirements by 2050 (if not earlier). And companies are racing to address these issues all while struggling to fill an expanding talent gap.

On top of this, chief engineers are navigating one of the largest transformations in decades as engineering and R&D (ER&D) expands from traditional disciplines such as mechanical and electrical to include digital ones such as software and cybersecurity.

There is also a shift in how executives view ER&D, a core function for many large companies, itself. Traditionally, the focus has been to make products better and cheaper. Today, many leaders also see ER&D as a strategic capability that will determine their future success and shape new business models.

As a result, the current tumult also opens opportunity for companies that are nimble enough to react quickly. Aerospace and defense leaders who are pulling ahead are responding to these seismic shifts by investing in new areas of ER&D and rethinking their approach to innovation and codevelopment. Finally, they realize that the large-scale layoffs in the tech sector present a rare opportunity to fill existing vacancies and hire the talent they need for the future.

The demand for shorter development cycles and the race to zero emissions

Both commercial airline customers and the government want more for their money and faster. The demand for speed still, however, outstrips the reality of how quickly new platforms and systems can be made. In fact, many commercial and traditional defense programs launched within the past decade have not met their ambitious timelines.

In the defense sector, evolving global threats such as the conflict in Ukraine have increased pressure to hasten defense acquisitions. In 2015, the US Department of Defense (DoD) created a division called the Defense Innovation Unit (DIU) that uses advances in commercial technology to help the military deploy cutting-edge defense systems faster without the red tape of the traditional procurement system.

For instance, in 2022, the DIU turned 17 commercial prototypes into fully fielded military capabilities, up more than 50% from the prior year. One of the prototypes awaiting their launch is GigEagle, a platform that uses machine learning to find experts in the US National Guard and Army Reserve for specific missions. The algorithm scours for hidden skills that are not necessarily part of someone’s military specialty but that are highly relevant to evolving military needs. This could be an infantryman who might also be a freelance developer for a tech giant, for instance, or a medic who is a champion-level esports player and could thus more easily learn to pilot drones.

On the sustainability side, pressure is increasing to make aircraft and air travel more sustainable. Airbus, Boeing, and the aviation industry groups have agreed to zero net emissions by 2050—a hugely ambitious goal. In the defense industry, the DoD has followed the lead of the private sector and introduced its own sustainability plan.

Increasing investment in ER&D

To compete in this new world, A&D companies are looking to shift spending and to accelerate ER&D investment. In fact, 59% of engineering executives in the sector expect budgets to grow slightly to significantly over the next three years as they ramp up production (see Figure 1). In January 2023, Boeing, for example, announced hiring an additional 10,000 workers, and Airbus said it expects to add more than 13,000 workers in 2023 to increase production. Leading companies like these are investing in digital initiatives, modularity, and sustainability along the entire value chain.

Figure 1

The Covid-19 pandemic accelerated most companies’ digital transformation. Now, many are pursuing full digitalization of the engineering process from initial product concept to production. Many companies are developing digital twins—that is, virtual copies of real-world components—to bring products to market more quickly and save millions of dollars.

Digital twins can reduce aircraft downtime and streamline the transition from engineering new parts to manufacturing new parts. Digital twins allow engineers to perform virtual maintenance and model more potential scenarios than a typical physical engine would ever encounter. One such scenario is how an engine will perform in extreme weather.

Digital twins and augmented reality enable people who are located in different geographic locations to collaborate virtually. The digital twin functions as a single source of data about a given piece of machinery or equipment. Anyone wearing either an augmented reality or virtual reality headset can access information about the assets at all times. The technology allows engineers to interact with the equipment and with colleagues in order to adjust the design or conduct maintenance. Many of these digital tools allow companies to develop products faster and more efficiently, and they reduce recurring costs.

Sustainability is another area in which A&D companies are ramping up investments. ER&D executives are exploring sustainable aviation fuels, hybrid and electric airplanes, as well as new types of engines that can reduce emissions. GE and Safran, for instance, are developing a new type of engine through their Revolutionary Innovation for Sustainable Engines, or RISE, program that aims to reduce emissions by more than 20%. And circular design using modular components that can be replaced and upgraded easily can increase the life span of aircraft.

In the defense industry, leaders approach sustainability differently. Defense capabilities remain the top priority in product design, but executives are addressing sustainability in operations, energy use, and other areas. Northrop Grumman, for instance, set a goal of net-zero emissions for its operations by 2035 and plans to source 50% of its electricity from renewable sources by 2030.

Investments alone, however, will not be enough to pull ahead of competitors. A&D companies also need to change how they approach ER&D. We have identified four success factors that leading A&D companies have on their radar—they include building products that can evolve, reimagining the business model, seeking smart alliances, and finding the right talent.

Build products that can evolve. Leaders are moving from the historical development approach of “build to last” to a new approach of “build to evolve.” Consider, for instance, intelligence, surveillance, and reconnaissance satellites. Historically, these satellites cost hundreds of millions of dollars and took years to develop. Once launched, they typically lasted for a decade or longer. Now, new companies are creating smaller, lighter satellites at a fraction of the cost with software that can be updated over the air. These satellites are made out of commercially available technology, and parts can be created and replaced much more quickly than in traditional satellites. They gather images that are in growing demand by companies and governments for applications in fields ranging from agriculture to finance to insurance.

For the defense industry, global threats are evolving rapidly, prompting companies to develop and deploy new weapons at a faster pace. The Ukraine conflict highlights the need to create immediate, on-the-spot defense solutions. As a result, leaders are evolving their models to keep pace with commercial off-the-shelf systems. Starlink and WhatsApp, for instance, have proved remarkably resilient and resistant to attack, and they provide near–real-time visibility across the battlespace in Ukraine.

Reimagine the business model. Just as the electric car has ushered in a new era in the automotive industry, the A&D industry is entering a period of transformation. Zero-emissions aircraft will require different value chains and new systems—from engineering to operations and distribution. The adoption of hydrogen, electricity, and sustainable aviation fuels (SAFs) will further alter the value chain.

Airlines won’t be able to finance the transformation alone. New companies will help build services in the airport to deliver hydrogen, electricity, and SAFs. Airbus, for example, has partnered with Linde, a global industrial gases and engineering company, to create hydrogen infrastructure in airports worldwide.

A&D companies are no longer solely focused on selling planes and platforms. Just as the auto industry has shifted from making cars to developing mobility services, A&D companies are developing an increasing number of ecosystems with both products and services. Many companies are creating modular-type programs in which the focus is on mission system capabilities rather than an individual product. The DoD, for example, recently awarded a contract to Anduril, a company that offers an anti-drone system powered by artificial intelligence (AI).

Seek smart alliances. Cooperate with innovative commercial companies to bundle resources and investments. With partnerships, there is the potential to benefit from increased data points while protecting intellectual property and getting access to new capabilities. In defense, companies have been teaming up with one another for decades, but current partnerships see traditional companies collaborating with start-ups to leverage software, AI, blockchain, and other technologies for a variety of purposes (e.g., improving the management of unmanned aircraft systems).

Figure 2

Find the right talent. Talent has arguably never been trickier to secure. Aircraft manufacturers such as Boeing and Airbus expect a sharp increase in production while A&D employment still has not yet recovered to 2019 levels (see Figure 2). To meet this growing demand, leaders ensure that employees are tackling the appropriate scope of work and that they are allocating work to the appropriate resources. Above all, they are implementing new productivity tools and finding ways to attract the right talent for the future.