Opinion: New Aerospace And Defense Entrants Spark Change

Since the early days of aerospace and aviation, innovation has emerged from unexpected quarters—from bicycle shops to lumber manufacturing. Still at the forefront of analysts’ questions to aerospace and defense executives: “How are you competing with new entrants to your market?” These new entrants are offering more digitally intensive products and services more quickly and at a lower cost than many legacy aerospace and defense companies. Their rise presents the overall industry with both threats and opportunities. 

New entrants are described as “digital natives,” built from the start with digital and platform business models that make them nimble and adaptable to changing customer needs. Yet even digital natives must establish certifiable production, maintain stable and repeatable processes, and manufacture at scale. Many are also located in expensive locations; trading higher overall resource costs for accessibility to digital talent and speed of innovation enables them to move faster than legacy companies.

On the other hand, it is true that iron sharpens iron. Too many legacy companies are constrained by enterprisewide technical debt and sclerotic innovation processes that hinder innovation and even affect the product. Many of today’s successful aerospace and defense platforms were designed decades ago and rely on aging technology backbones that lag the performance and security of modern solutions. To compete with digitally native new entrants, legacy companies will need to weigh their corporate and product strategies against their digital capabilities and determine where to invest in technology and talent. For instance, Accenture research shows that 53% of aerospace roles are now ripe for either automation or augmentation with AI. But how many companies have a plan to seize this window of opportunity to step down their technical debt, streamline processes and increase both innovation and quality?

Anduril, which recently won (with General Atomics) the Pentagon’s Collaborative Combat Aircraft contract in competition with Lockheed and Boeing, is often noted as an exemplary new entrant because of its autonomous systems and AI-powered solutions for defense and security missions. Indeed, in many ways, it has followed General Atomics’ pathfinding journey of disruption. Anduril’s Lattice architecture is an AI-enabled integration of sensors, data and assets across emerging and legacy platforms that enables large-scale robotic autonomy and shows how aerospace and defense companies can use digital technology to innovate and drive growth.

For years, U.S. Defense Department leaders have talked about making the Pentagon “easier to do business with” and “being more open to off-the-shelf solutions.” Lessons from Ukraine have several defense leaders introducing actions to quicken access to innovative products and platforms. Several members of the U.S. House of Representatives asserted in a recent Defense News opinion piece that the Pentagon must improve the speed of innovation, citing the value of flexible transaction authority and faster procurement. The Pentagon’s Defense Innovation Unit is working on how to address bottlenecks and enhance innovation impact within the department. This creates a great opportunity for the digitally savvy disruptors that are nimble but lack the experience of dealing with the Pentagon’s byzantine processes. Lowering this barrier also opens a threat to established players, which will have to accelerate their innovation engines.

Consider Prandtl, a startup formed by four students who entered an anti-drone technology competition this year and demonstrated a device developed from off-the-shelf components in a backyard. This device went head-to-head with ones from Boeing, Leonardo and Teledyne, among others. Prandtl’s device, which uses sound waves to knock out drones, took second place. Easier access to Defense Department procurement for a needed technology-driven product could help companies like Prandtl grow and scale.

Vertical integration is also a hallmark of many new entrants. SpaceX and General Atomics are prime examples that have a vertical integration strategy and have matured into companies working at scale. Legacy players need deeper investment in their multitier supplier networks, forging closer data exchange and leveraging technology and AI to increase resilience.

Both new and legacy aerospace companies should consider how to convert their technology ecosystem from a passive list of suppliers to a competitive weapon that provides advantages in speed, predictability and profitability. Defense budgets may be expanding, but the Pentagon and commercial aerospace customers will still seek value. A smarter ecosystem and partnership network can be pivotal.

The aerospace and defense industrial base is in for changes. Nearly 15,000 aerospace startups around the world are digitally native, fast, vertically integrated and working from a clean sheet—and they intend to do business. Legacy aerospace companies are on notice, but are they ready?

John Schmidt leads Accenture’s Global Aerospace and Defense practice. He is based in Chicago.