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Aerospace and Defense

Squeezed by budget constraints and rising price pressures, aerospace and defense (A&D) companies are seeing their traditional tools for driving margin, improving working capital, and reducing operational costs lose effectiveness. In response, many have emphasized digital technologies and analytics to bring new capabilities to customers.

BCG’s A&D experts are authorities in the digital and supply chain spaces. They collaborate with many players in the A&D industry to develop a proven approach for minimizing risk and addressing scale in these efforts.

While the entire A&D industry has endured periods of change, the relative profitability of airplane OEMs, suppliers, and engine makers has remained steady for more than a decade. During that time, a strong aftermarket business has enabled airplane systems and component suppliers to achieve profit margins that far exceed those of airplane manufacturers.

But the industry is in the midst of a major transformation, marked by rapidly climbing production rates. The explosive growth of digital approaches and the growing importance of supply chain capabilities are challenging many players to keep pace.

One of the key questions facing the A&D sector now is: Will the present relationship among airplane OEMs, suppliers, and engine makers remain the same?

The current landscape points to two potential futures: status quo or a shift over the long-term.

  • Status Quo. In this scenario, suppliers maintain their current advantage. They continue to innovate on business models, and airplane OEMs have limited ability to insource further. Margins continue to rise and fall, but the relative relationship remains steady.
  • Long-Term Shift. In the more disruptive scenario, airplane OEMs regain control through vertical integration and insourcing. OEMs move into profitable aftermarkets, and traditional procurement practices have a stronger impact. Airplane OEM margins gradually close in on supplier margins.

In either scenario, BCG’s global team of dedicated A&D experts can help your organization seize new opportunities and take advantage of the dynamics of the industry.

BCG partners with A&D companies to help navigate the challenging landscape of the industry. We have acquired extensive experience working with leading players in A&D, including OEMs and suppliers of commercial and military aircraft, helicopters, space systems, electronics, engines, cabin interiors, and components.

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