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How can sustainability take flight in aerospace and defense?
In the fight against climate change, the sector has a crucial role to play, which will also unlock new revenue streams and business models.
In brief
- Alternative fuels and innovations in aircraft propulsion and design are having an impact within the industry, but other advances can resonate more broadly.
- To capitalize on satellites and drones, air mobility and lightweight materials, organizations should look at partner ecosystems, M&A and talent strategies.
The aerospace and defense (A&D) industry is investing heavily in decarbonization — and in doing so, it can have a positive impact far beyond reducing the sector’s 2% share of carbon emissions globally1.
As climate science and business action has evolved, it’s fair to say that the sector’s engagement has not been without its pressure from governments and other stakeholders to identify action and accelerate progress. Today, for those companies that successfully frame sustainability as a business imperative integrated within the overall business strategy, the seeds are being planted for new revenue streams, new markets and new business models. It’s what we call value-led sustainability: helping business create value for sustainability as well as helping sustainability create value for business.
The recent EY CEO Outlook shows how this is already influencing change in the A&D sector. Sixty-nine percent of advanced manufacturing executives are integrating ESG as a core aspect of all their products and using differentiated technologies to boost customer loyalty. Rather than bolting it on as an afterthought, sustainability leaders are putting environmental considerations at the center of their innovation, product design and life cycle planning, and even commercial models. Organizations are also seeking longer-term benefits as they reimagine production lines or even entire factories to reduce waste and increase energy efficiency.
To some extent, A&D players have answered the call. Although not yet at pre-pandemic levels, demand for air travel has been surging. By improving their operations — including optimized routes, enhanced air traffic management and efficient flight and ground operations — the sector can cut flight emissions by about 11%. But that’s just scratching the surface of innovation:
- Alternative fuels could slash 55% of emissions and fully eliminate net CO2 emissions. Sustainable aviation fuels (SAF) — often made out of plant materials like cooking oil and agricultural waste — can deliver the performance of petroleum-based jet fuel (but at a higher price point currently). Adoption of SAF (via ey.com US) hinges on investments, production capacity and government policy or incentives.
- Aircraft design and propulsion innovation could cut an estimated 21% of flight emissions. Alternatives to the current tube-and-wing design, along with electric and hydrogen propulsion, are being used in short-haul flights, with plans to implement these solutions across long haul by 2040.
A&D’s impact on sustainability can be larger yet, thanks to evolving use cases for satellites, drones, complex applications of analytics that leverage geospatial data, and newer and lightweight composite materials. In doing so, the sector should examine opportunities to update business models and partner ecosystems, as well as revisit recruitment and development of their people.
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Chapter 1
Advanced air mobility
Drones and ridesharing taxis reframe opportunities in many sectors and save energy in the process.
In the future, there is potential for avoiding tailpipe emissions for very short-haul travel through Advanced Air Mobility (AAM) — such as drones and ridesharing taxis — which would reduce urban congestion and improve accessibility while eliminating seven million tons of CO2 globally, assuming they are powered entirely by renewable energy. Today, drones are being used to inspect construction projects and damaged roofs and even to offer greater visibility in search-and-rescue missions, but the potential for broader sustainability implications are vast across industries.
- Energy and utilities: Drones are playing a role in supporting oil, gas and power enterprises’ management of their operations during the energy transition. Currently used to inspect rigs, power lines, solar panels and wind turbines, they could also have a future role in complex data gathering and reporting, providing visual and data monitoring. For example, a US-based robotics startup manufactures drones for the energy industry, featuring cameras and sensors for thermal high-resolution imagery and hotspot identification. These drones operate in high-voltage environments and collect data on hard-to-reach components for energy infrastructure inspection.
- Agriculture and agribusiness: With drones, farmers can now get an instant view of crop problems and focus on the remedy. This ability becomes potentially crucial as we experience more effects from climate change. Large agricultural businesses can also monitor their assets from above so that equipment shutdowns for repairs can be reduced to a minimum. A Swiss-based drone developer provides autonomous drone solutions for crop protection, with a platform to plan and execute treatments quickly and efficiently. Less pesticide and fertilizer can be wasted, and more water can be saved through advanced spraying technology.
- Logistics: In the US, greenhouse gas emissions from transportation account for about 27% of the nation’s total, making it the largest contributor. Sustainable and quick last-mile delivery via drones would reduce the pollution from the growing logistics industry. The healthcare industry is using drones to deliver medications and supplies, samples from patient to processing units, and more. Within distribution centers, drones automate pallet scanning, inventory tracking and material handling for greater efficiencies. An US-based startup uses a fleet of drones with cameras to map a warehouse environment. The drones autonomously scan the environment, collect stock data, measure temperatures and read barcodes.
AAM opens doors for mobility-as-a-service as well as fourth-party logistics and logistics-as-a-service. The newer revenue models help target a wide set of customers and reduce fixed costs by converting them to variable costs, hence facilitating higher flexibility.
Market size and potential
The market, in US dollars, for AAM in 2022
The potential market, in US dollars, for AAM by 2030
Market size and potential: By 2030, an EY analysis shows AAM could total a market opportunity of US$33.5 billion, up from US$5.3 billion in 2022, representing a compound annual growth rate (CAGR) of about 33%. Electric aircraft manufacturers estimate that the global mature market for AAM could eventually exceed US$1 trillion.
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Chapter 2
Earth observation and geospatial analytics
Data from satellites and drones can be put to use toward advancing UN Sustainable Development Goals.
The proliferation of satellites and drones has led to a rise in geospatial data, which typically refers to satellite and aerial imagery, cellphone pings, Internet of Things device data, transponders on ships, and synthetic-aperture radar.
With the help of this data, the A&D industry holds the potential to drive progress across various UN Sustainable Development Goals: for example, in detecting greenhouse gas emissions at manufacturing facilities and supply chains, monitoring for disaster management and helping farmers to maximize crop yield.
A Canada-based satellite company uses its satellites to monitor greenhouse gas emissions from industrial facilities around the world. While space agencies including NASA have been monitoring these gases for years to inform global climate change models, these newer satellites focus on a more granular level to track facilities with much lower emission rates.
Meanwhile, the rise of as-a-service business models can work wonders for players in the field of geospatial analytics, with models ranging from geospatial data-as-a-service to building integrated analysis models and providing recommendations.
Market size and potential
The market, in US dollars, for satellite imaging in 2022
The potential market, in US dollars, for satellite imaging by 2030
Market size and potential: By 2030, the market for satellite imaging could reach US$10.5 billion (from US$3.7 billion in 2022), an EY analysis shows, with a CAGR of 14.6%. The geospatial analytics market is more robust as of now, estimated at almost US$67 billion in 2022, but is poised to reach US$170.8 billion by 2030, reflecting a CAGR of 12.5%.
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Chapter 3
Lightweight composite materials
Such materials have use cases in other industries and present circular-economy opportunities.
Over the course of a year, every pound on a plane — from passengers and luggage to airplane parts — equates to about US$10,000 in fuel costs. Advanced composite materials such as carbon- and glass-fiber-reinforced plastic are crucial both for reducing weight but also resisting intense heat, corrosion and fatigue, thanks to their increased stiffness and high strength-to-weight ratio. Their use in aerospace has doubled every five years since 1987.
Now the construction, transportation and utilities industries, for example, are reaping the rewards of these innovations, putting them into wind turbines, luxury automobiles, windows, door systems, fences and more, and using them to repair and strengthen reinforced concrete structures. A&D suppliers stand to gain by exploring and producing innovative variants to meet requirements for different aircraft parts and other use cases, thus in turn creating newer revenue streams.
Additionally, the circular economy is also contributing to the rise of as-a-service business models. For instance, carbon-fiber reinforced composites in particular can be recycled after being used in aircraft, finding their way into car bodies and laptop cases. Rolls Royce’s Revert Program, now operating at over 100 of its locations, works as a recycling program so that valuable material from waste is returned to aerospace-grade by effectively removing coatings and contaminants and segregating alloys — saving 20,000 megawatt-hours of energy and 9,000 metric tons of CO2 emissions per year.
Market size and potential
The market, in US dollars, for composite materials in 2022
The potential market, in US dollars, for composite materials by 2030
Market size and potential: An EY analysis foresees a composite market CAGR of 11.8%, which accounts for the aerospace market and elsewhere, rising to US$57.8 billion in 2030 from US$23.4 billion in 2022.
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Chapter 4
What to do to capitalize on the opportunities
Actions that A&D companies can pursue to make an impact.
EY teams have identified four actions that A&D companies can take to impact sustainability for the better.
1. Invest and revisit business models: Leaders are dedicating portions of their R&D budgets to developing more sustainable materials and technologies. They are also building innovation hubs and incubators to make sure that there are always internal stakeholders with sustainability-related advances as their top priority. As noted, these sustainability-focused areas raise the potential for as-a-service business models that should be considered.
Business model innovation requires companies to re-examine, and often challenge, their own core competencies. Sometimes a value creation opportunity demands capabilities outside the company’s experience or beyond its sector. In these cases, manufacturing leaders should focus on building or joining an ecosystem.
2. Build a partner ecosystem and pursue transactions. Forward-thinking firms are increasingly focused externally as well as internally, recognizing that some of the most significant advances can be realized via increased collaboration with ecosystem partners. This can even include working with customers to introduce new commercial models — improving financial outcomes for both parties, as well as the environment.
A&D leaders need to determine where partnerships would best support value creation and delivery by extending capabilities, market presence and innovation. Ecosystems generally provide value creation opportunities for all participants, but leaders should look for ways to own them for greater control over how the additional value is spread.
3. Assess the links in your value chains — including a potential expansion of your portfolio — to understand who is creating the most value and how, showing whether greater collaboration (including with startups) is preferable. Startups and scale-ups are contributing significantly in the AAM as well as earth observation space. Many AAM players are in some form of an alliance with established A&D and mobility players, and the proliferation of satellites and drones has resulted in a rapid increase in the number of earth observation and space tech companies, creating headroom for alliances.
The M&A route could be more promising. In the EY CEO Outlook Survey from January 2023, 98% of advanced manufacturing respondents said they expected to actively pursue transactions (such as M&A, divestments and joint ventures) over the next 12 months. Not only does this route provide opportunities for expansion of offerings; it also becomes a convenient path for acquiring talent with superior technical skills and knowledge.
4. Address the need for talent. Regardless of sector, sustainability and digital enablement are high on c-suite agendas, and both areas require strategies enabled by talent. With a greater focus on sustainability, A&D organizations can appeal to recruits’ sense of purpose not only through strengthening national defense but in battling climate change. This talent is needed for pursuing new avenues for growth with new mindsets, as well as core to traditional revenue streams more greatly enabled by emerging technologies.
How EY can help
Supply Chain Reinvention helps clients effect a fundamental change in their performance to support sales growth, become more cost-competitive, minimize risk and improve operational resilience.
Read moreService Leader
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Glenn SteinbergEY Global Supply Chain and Operations Leader
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Prakash HariharanEY Global Supply Chain and Operations (SCO) Managed Services Lead; Partner, UK&I Managed Services, Ernst Young LLP
Summary
Sustainability is a global imperative driving new markets and value creation for business. A&D can have an outsize influence outside its sector based on its existing innovations, taken in new directions. Partner ecosystems, M&A and an increased focus on talent can pay off quickly.
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