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TRANSCRIPT
Aerospace & Defense
Random Industry Thoughts
(Not a forecast or a formal perspective)
KPMG Aerospace and Defense
#KPMGAerospace
October 18, 2019
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Jim Adams
Partner at KPMG, National Leader for Aerospace and Defense
Been consulting in Aerospace & Defense for ~15 years
Spent 10 years at Hughes / Boeing as an Engineer, Program Manager
Some would call me over-educated – UC Berkeley, UCLA, and UCLA
On a personal note… live in California, attempting to raise my two
boys to be aerospace geeks, coach little league baseball
Hopefully you will enjoy today’s presentation and find it informative,
interesting, and not too much of a random walk
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Disruption within A&D
Industry 4.0
Softening industry lines
Tech companies and DoD
Macro level trends
Battle for Value
Geo-Political Environment
Disruption
Vertical integration
Lifecycle value
Supply base consolidation
Control customer value
Pursuing scale
Uncertainty
Tariffs and trade wars
Tax Policy / Incentives
China
Localizing foreign markets
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
900
0
400
500
700
600
800
300
100
200
9753 93 210555 0779
$M
57 59 61 63 65 67 69 71 73 77 8175 85 87 8983 95 99 01 03 0991 13 15 17 231911
Vietnam War Gulf War OEF / OIF
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($B)
Note(s): (a) Base and OCO values from FY2019 President’s Budget Request. Values are adjusted to current FY2019 dollars
Source(s): (1) 2019 DoD Comptroller Data (Green Book)
DoD Historical Budget FY20 Budget Request Aggregate
Historic U.S. defense acquisition budget
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
700
500
200
0
600
100
900
300
400
800
$M
0753 55 8157 7359 1961 63 918365 67 69 0971 75 8777 79 8985 0393 95 2197 99 05 11 13 15 231701
Vietnam War Gulf War OEF / OIF
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($B)
Note(s): (a) Base and OCO values from FY2019 President’s Budget Request. Values are adjusted to current FY2019 dollars
Source(s): (1) 2019 DoD Comptroller Data (Green Book)
History through lens of party in the White House
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
400
700
200
600
500
800
900
0
100
300
53 69 9555 231793 0777
$M
57 59 61 837365 67 71 75 79 81 85 89 91 97 99 01 211305 11 15 1963 0987 03
+43% -31% +53% -33%
+91%
-24%
+13%
Vietnam War Gulf War OEF / OIF
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($B)
Note(s): (a) Base and OCO values from FY2019 President’s Budget Request. Values are adjusted to current FY2019 dollars
Source(s): (1) 2019 DoD Comptroller Data (Green Book)
DoD Historical Budget FY20 Budget Request Aggregate
Acquisition is a highly cyclical low growth market
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Vietnam War Gulf War OEF / OIF
DoD (051) Budget Authority; RDT&E and Procurement (Constant FY19 Dollars), 1953-2023 ($B)
Note(s): (a) Base and OCO values from FY2019 President’s Budget Request. Values are adjusted to current FY2019 dollars
Source(s): (1) 2019 DoD Comptroller Data (Green Book)
‘Investment’ accounts matter for contractors
700
0
400
800
900
600
100
200
500
300
1975 096353 59 65 8367 69 73 77 0771 8781 85 8961 91 97 99 05 1157 15 17 21 23037955 0195
$M
93 13
ProcurementRDT&E Forecasted Aggregate
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Vietnam War Gulf War OEF / OIF
DoD (051) Budget Authority; RDT&E and Procurement (Constant FY19 Dollars), 1953-2023 ($B)
Note(s): (a) Base and OCO values from FY2020 President’s Budget Request. Values are adjusted to current FY2019 dollars
Source(s): (1) 2020 DoD Comptroller Data (Green Book)
‘Investment’ accounts tend to get hit harder
800
0
600
700
300
200
500
900
100
400
059559 79 01
$M
53 55 136957 61 63 65 67 8171 9373 75 77 1983 8785 1191 97 99 0389 09 15 17 21 2307
RDT&E Procurement Forecasted Aggregate
144%136%
148%45% 50%
38%33%
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
79 07636159 71 0565 1367 1569 8373 0975 0377 81 85 2387 89 9591 93 97 99 1901 11 17 21
Forecasted Deliveries Other BoeingAirbus
Last ~60 years of commercial aircraft deliveries
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
Global Commercial Aircraft Deliveries, 1958-2024
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
79 07636159 71 0565 1367 1569 8373 0975 0377 81 85 2387 89 9591 93 97 99 1901 11 17 21
Forecasted Deliveries Other BoeingAirbus
Last ~60 years of commercial aircraft deliveries
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
Global Commercial Aircraft Deliveries, 1958-2024
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
63 8759 61 7365 67 69 71 75 9777 79 170581 8983 85 2191 1193 0195 99 03 07 09 13 15 19 23
Forecasted Deliveries Other BoeingAirbus
Historically, fairly consistent peak-trough cycles
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
Global Commercial Aircraft Deliveries, 1958-2024
-19%-25%
-48%
-19%
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15 years6 years 5 years 8 years 5 years
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
59 61 63 7165 73 0367 75 77 79 998981 83 8569 9787 91 1793 95 1101 05 07 09 13 15 19 2321
Forecasted Deliveries BoeingAirbusOther
Current growth period at ~15 years
Global Commercial Aircraft Deliveries, 1958-2023
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
400
200
1,000
800
600
2173 1179 178159
$M
95938961 63 1565 0967 9169 71 75 77 83 85 87 0597 1999 01 03 07 13 23
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($b)
Few periods of aligned trajectory
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
67 97
#
1959 61 6963 65 7571 0177 79 178173 85 87 1589 91 93 95 99 03 05 07 09 11 13 21 2383
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
DoD Historical Budget FY20 Budget Request Aggregate
Other Airbus BoeingForecasted Deliveries
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
A&D market overview – four segments
Commercial Aerospace
▪ Commercial Transport
▪ Regionals
▪ Business & General Aviation
▪ Civil Helicopters
▪ MRO
Government Services
▪ Cyber
▪ IT Operations & Sustainment
▪ Training
▪ MRO
Defense
▪ Military Aircraft and UAVs
▪ Surface and Underwater
▪ Ground Vehicles
▪ Missiles
▪ C4ISR / Defense Electronics
Space
▪ Launch Vehicles
▪ Satellites
▪ Satellite Services
US A&DMarket
$865B
Projected Growth4%+
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Commercial aerospace market outlook
Commercial Transport
▪ Future of the duopoly
▪ Growth in single aisle… and the
challenges
▪ MRO growth, but remains competitive
▪ Cyclicality – Have we moved beyond?
▪ Can the supply chain keep up?
Growth
56%
Replacement
44%
Retained fleet
2027 20372017
Middle East
Europe
Asia Pacific
13%
40%
21%
5%
20%
N. America
ROW
Commercial Aircraft Deliveries
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Commercial aerospace market outlook
Commercial Transport
▪ Duopoly secured (for now)
▪ Growth in single aisle
▪ MRO growth, but remains competitive
▪ Cyclicality – Have we moved beyond?
▪ Can the supply chain keep up?
Business and General Aviation
▪ Signs of life in business / GA, no clear
uplift yet, used inventories stabilizing
▪ Business Aircraft sales ($24.7B, 2019)
expected to reach $36.4B in 2030
▪ Slow growth in civil rotorcraft
0
200
400
600
800
1,000
1,200
20152000 2005 2010 2020
Business Jet Deliveries
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Government services market outlook
▪ IDIQs
▪ Differing strategies
▪ Affordability matters
▪ Heightened pace of M&A
U.S. Government IT Services M&A Annual
Transactions by Volume 2016-2018
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Defense market outlook
▪ US defense budget up ($165B in FY18
and FY19)
▪ Focus on readiness and modernization
▪ Globally defense spending is up
▪ International competition
▪ Localization pressure
▪ Election year uncertainty
0
300
100
200
500
400
600
700
800
900
2019
$B
2005 2010 2015 2023
DoD Historical Budget
FY20 Budget Request Aggregate
DoD (051) Budget Authority
(Constant FY19 Dollars), ($B)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Space market outlook
▪ Contested space
▪ Government space up after a few years
of drought
▪ Small satellites here to stay
▪ Commercial EO capability and analytics
▪ World-wide capacity growth
▪ Launch remains dynamic
▪ Additive manufacturing is an enabler
▪ Space Force
2010 2012 20182014 2016 20222020
Satellite Services
Satellite Manufacturing
Launch Industry Forecast
Ground Equipment
Global Space Industry Revenues
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The satellite industry is being reshaped
Tailored Earth Observation• Rapidly evolving and adaptive ecosystems of
spacecraft and analytics• On-demand models with capabilities based on
specific customer segments (e.g., mining)
Recapitalization• Recapitalize existing fleet using new tech• New tech enables pursuit of new segments
Application Layer• Variety of apps to capitalize on or manage data
derived from the space segment• Includes optimization applications to employ
space assets more effectively
Mega-Constellations• New entrants planning to launch large
numbers of small sats• Universal, low-cost point-to-point coverage
Satellite Market Trends
Mobile Device Adoption• Mobile traffic• Primary growth driver in developing economies• 2014 mobile data > 30x all 2007 internet traffic
Internet of Things• Device connectivity• Growth in autonomous vehicle technologies
will create a boom of demand• Satellites needed for non-urban coverage
Shift in Video Viewing Habits• Viewing moving from broadcast to IPTV
• Ultra-HD increases capacity requirements
Adaptable Satellites• Software definition enables flexibility• Modular hardware may enable additional
adaptability• Result is fewer spacecraft needed
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
400
200
1,000
800
600
2173 1179 178159
$M
95938961 63 1565 0967 9169 71 75 77 83 85 87 0597 1999 01 03 07 13 23
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($b)
Few periods of aligned trajectory…
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
67 97
#
1959 61 6963 65 7571 0177 79 178173 85 87 1589 91 93 95 99 03 05 07 09 11 13 21 2383
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
DoD Historical Budget FY20 Budget Request Aggregate
Other Airbus BoeingForecasted Deliveries
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
400
200
1,000
800
600
2173 1179 178159
$M
95938961 63 1565 0967 9169 71 75 77 83 85 87 0597 1999 01 03 07 13 23
DoD (051) Budget Authority (Constant FY19 Dollars), 1953-2023 ($b)
… inflection points drive the industry to evolve
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
67 97
#
1959 61 6963 65 7571 0177 79 178173 85 87 1589 91 93 95 99 03 05 07 09 11 13 21 2383
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
DoD Historical Budget FY20 Budget Request Aggregate
Other Airbus BoeingForecasted Deliveries
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
~40 year history of the FYDP Projections
300
350
400
450
500
550
600
650
700
750
800
850
0781 1982 85 108483 88 1186 908987 120191 1692 93 0294 95 96 97 98 99 00 0603 211304 1505 08 09 14 17 18 20
DoD Budget History vs. FYDP ProjectionsDoD 051 Budget Authority Topline / Long-Range Forecast in Constant $FY17 Billion
Bush TrumpReagan Clinton Bush Obama
Current Budget
Request Period
FYDP Actual DoD budget
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
One thing that remains certain, is uncertainty
300
350
400
450
500
550
600
650
700
750
800
850
82 0488 9881 1683 8784 85 86 89 90 09029691 0392 93 94 95 97 99 1500 0801 1105 06 1307 10 12 14 2117 2018 19
DoD Budget History vs. FYDP ProjectionsDoD 051 Budget Authority Topline / Long-Range Forecast in Constant $FY17 Billion
Bush TrumpReagan Clinton Bush Obama
Current Budget
Request Period
FYDP Actual DoD budget
FYDP is especially inaccurate
during inflection periods
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Quiz…
What do all of these late-1980s carrier aircraft have in common?
A-7E Corsair II
Vought Aircraft
F-14A Tomcat
Grumman
A-6E Intruder
Grumman
T-2C Buckeye
North American Aviation
C-2A Greyhound
Grumman
EA-6B Prowler
Grumman
E-2C Hawkeye *
Grumman
S-3A Viking
Lockheed
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During the 1986-97 budget downturn, contractors
removed significant production capacity
The factory that built them no longer exists* Production moved to St.
Augustine, Florida
A-7E Corsair II
Vought Aircraft
F-14A Tomcat
Grumman
A-6E Intruder
Grumman
T-2C Buckeye
North American Aviation
C-2A Greyhound
Grumman
EA-6B Prowler
Grumman
E-2C Hawkeye *
Grumman
S-3A Viking
Lockheed
Grand Prairie, Texas Calverton, New YorkCalverton, New YorkColumbus, Ohio
Calverton, New York Calverton, New York Calverton, New York Burbank, California
What do all of these late-1980s carrier aircraft have in common?
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We’ve seen similar actions in the most recent
downturn
▪ […] closed 4 sites, reduced headcount (4,000+), divested services business
▪ […] announced consolidation of 4M+ sqft and executive reductions
▪ At least 4 companies did major re-organizations / consolidated units
▪ Many companies “re-aligned” portfolios with divestitures
▪ […] closed legacy plant and re-opened modern facility
▪ […] shifted work to Eastern Europe, Mexico, and other activities to Malaysia
▪ Total headcount reduction of about 20%
▪ Many stood up HQ’s, operations, design centers, etc. here in Florida
ALL PUBLICALLY RELEASED EXAMPLES
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Inflection points drive industry evolution
Example of Deal Themes
Adding Scale
Diversification / Access to New
Technology
PE Portfolio Activity
Vertical / Horizontal Integration
Consolidation of Capabilities /
Suppliers
A&D Transaction Trends (Number)
94112
144
184 197
254
296 295
347
11156
65
6566
104
102134
114
2011
2013
2017
2012
2014
2015
2016
263
2018
TT
M2Q
’19
205
168
209
461
249
358
398
429
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View varies depending on place in supply chain
▪ (Generally) stable output /
deliveries
▪ Still takes heroics to meet
schedule
▪ Rate changes planned
▪ Manage back-log and skyline
▪ Re-capture value, pursue
affordability
Prime / OEM View
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View varies depending on place in supply chain
▪ Increasing supplier power
▪ Both “A” and “D”, OEM and
aftermarket
▪ Preserving value
▪ Noisier demand
▪ Benefits and challenges of
growth
Major Tier “0.5” / Tier 1
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View varies depending on place in supply chain
▪ Noisy signals
▪ Lacks supply chain visibility
▪ Capital intensity
▪ Many single point failures
Lower Tiers
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0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
7959 017161 65 7367 1769 75 77 81 83 85 0987 89 91 93 95 97 99 03 05 11 13 15 19 21 230763
-25%-19%
-48%
-19%
BoeingOtherForecasted Deliveries Airbus
Natural business cycle?
Global Commercial Aircraft Deliveries, 1958-2023
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
7767 8359 61 63 1165 69 73 0571 75 79 1981 85 9187 89 93 95 97 99 01 171507 0903 21 2313
-25%-19%
-48%
-19%
BoeingOtherForecasted Deliveries Airbus
Black swan event?
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
‘73 Oil
Crisis
Global Commercial Aircraft Deliveries, 1958-2023
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
59 231913036563 0567 978169 71 73 75 77 79 83 87 89 150191 93 95 99 07 09 11 17 2161 85
-25%-19%
-48%
-19%
Other BoeingAirbusForecasted Deliveries
Black swan event?
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
‘73 Oil
Crisis
‘79 Oil
Crisis
Global Commercial Aircraft Deliveries, 1958-2023
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
6359 7365 67 8771 75 77 79 81 1583 85 9589 1991 93 97 99 01 0503 07 11 13 17 21096961 23
-25%-19%
-48%
-19%
AirbusOther BoeingForecasted Deliveries
Black swan event?
Global Commercial Aircraft Deliveries, 1958-2023
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
‘73 Oil
Crisis
‘79 Oil
Crisis
’90 Kuwait
Invasion
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2,700
69 116559 61 63 67 0771 8373 0575 1577 79 81 85 13039987 89 91 95 97 01 09 17 19 21 2393
-25%-19%
-48%
-19%
Other Airbus BoeingForecasted Deliveries
Black swan event?
Global Commercial Aircraft Deliveries, 1958-2023
Note(s): (a) Other includes Embraer, Bombardier, ATR, and limited Russian aircraft; excludes China
Source(s): (1) Boeing, Airbus, Embraer, Bombardier, and ATR corporate websites, Speednews Commercial Delivery data
‘73 Oil
Crisis
‘79 Oil
Crisis
’90 Kuwait
Invasion
’01
GWOT
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Closing thoughts… what to consider?
Black Swans or natural business cycle? industries evolve at inflection points
‒ Strategy adjustments
‒ M&A / consolidation
‒ Technology
Talent pool – is the cliff finally upon us?
‒ Both commercial and defense up markets
‒ More boomers in A&D then most (if not all) major industries
‒ Economics: market (401k), individual stocks in A&D, housing
Competitive environment – affordability still matters
‒ Competition is fierce
‒ Scale and supplier power
Given all this… how to meet market demands in a smart way?
‒ Wise investments vs wringing out capacity / flexible capacity
‒ Leveraging commercial technology, where appropriate
‒ Cost take-out to fund the future
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investment opportunities…
infrastructure, academics, etc.Artificial Intelligence / Big Data & AnalyticsDevelopment of computing systems, adaptive analytics
Connectivity / 5G / RF & ElectronicsConnected platforms, sensors, and other capabilities enabled by
very high bandwidth
Urban Air Mobility & VTOLLightweight, hybrid / electric VTOL systems
Cyber Resiliency & AssuranceIncreasingly challenging environment to secure networks,
information, enterprises, and physical platforms
Autonomy & RoboticsGrowth & penetration of autonomous systems, robotics, and
platforms into ground, sea, air, cyber, and space
Directed Energy & LasersTechnologies including laser, microwave, particle beams for use to
target flying objects, optical devices, communications, & energy
transmission
Quantum ComputingQuantum-mechanical phenomena to perform nearly instantaneous
simultaneous computations
Hypersonic & Advanced PropulsionDevelopment of aerodynamics and propulsion technology
Electrification, Hybrid & Hydrogen PowerShift towards electric vehicles, battery-electric, hybrid-electric, and
hydrogen fuel cell technologies for e-propulsion
Advanced Materials & StructuresVery light / strong, reliable materials (e.g., advanced metal alloys,
nanotechnologies, ceramics, composites) and the underlying
processes for manufacturing, and test
Additive ManufacturingTechnologies to build 3D objects by adding layers of materials to make
parts, integrated components with advanced metallurgies and designs
Industry 4.0 & Digitalization of ManufacturingDigital technologies to create a step change in factory performance /
productivity improvement and supply chain management systems
Human / Machine Interfaces & CollaborationContinued evolution of HMI to provide seamless handoff between
humans and machines to improve collaboration and greatly enhance
strength, endurance, intelligence, dexterity
Augmented RealitySolutions to provide real-time visual, data-driven enhancements, to
improve skills transfer, knowledge retention, and training aides
New Space. LEO, Reusable Launch, In-Orbit ServiceShift in capabilities beyond traditional players and approaches to
leverage new launch, technologies, in-orbit capabilities
Thank youJim Adams
Partner, A&D Strategy
Los Angeles
310-766-3601
Thank you
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UPDATE
Defense & Security Priority Description
Technolo
gy
Cybersecurity• Spans mission segments
• Includes enterprise / critical infrastructure, platform-integrated, and offensive
Autonomy• Capitalizes on machine learning and cognitive computing
• Unmanned systems, robotics, and mission integration (e.g., targeting)
EMS1 dominance• Countering near-peer capability advancements in EW and anti-access radar
• Convergence of comms, EW, SIGINT, radar
Effectiveness Personnel training &
simulation
• Enable readiness of force
• Use of real and virtual solutions and services
Platform sustainment &
modernization
• All solutions and services used to enable platform readiness
• Solutions supporting MRO, logistics, upgrade / conversion
Mis
sio
n-
specific
Air & missile defense• Integrated air-and-missile defense systems
• Includes both kill system (e.g., interceptor, directed energy) and C2 / targeting
Border security /
infrastructure protection
• Sensors and systems to detect, track, and prevent uncontrolled access
• Typically non-defense buyers (e.g., DHS)
Doctr
inal Nuclear modernization
• Upgrade of US nuclear triad (e.g., Columbia, B-21, GBSD)
• Includes weapons systems, delivery vehicles, platforms, and associated C2
Force projection / lethality• Naval and air platforms and systems needed for expeditionary purposes
• Aircraft carriers, F-35, refueling, ISR, advanced munitions
1
2
3
4
5
6
7
8
9
1) Electro-magnetic spectrum
41© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
….
Workforce, talent management, and the STEM pipelineThe A&D workforce is facing a wave of retirements (and has been for years, although
it appears to have started), the industry will need to think through knowledge transfer
to new employees. Additionally, as the traditional pension had disappears, the
industry will have to develop new retention approaches for employees.
Artificial intelligence and maintaining US leadershipAutonomous flight, swarming drones, “loyal autonomous wingman”: Rising
adoption of AI by A&D companies is driven applications including predictive
maintenance, pilot training simulators, autonomous aircrafts, etc.
Social acceptance of autonomyTaking the next step function change in safety as automation flight is introduced.
Public and regulatory hurdles will likely slow adoption of autonomous flight
regulatory ecosystem, including ATM, keeping pace with the innovation ecosystem will
be critical – will likely start with packages with people coming much later
True cost and skill needs of cyber resiliencyCybersecurity / platform resiliency is adding evolving requirements for A&D
companies – our adversaries are continuously looking for vulnerabilities.
Hardening our systems, platforms, and infrastructure will require us to innovate in
a dynamic world
Achieving sustainable environmentally friendly aviationSocietal expectations (both public and regulatory) are placing a burden on the industry
to be more efficient and clean. A&D must also communicate the benefit of flight to
society. These environmental expectations may force platforms into early retirement.
Solving the next generation green aircraft remains an ongoing challenge.
Breaking the development cost curveDevelopment costs and timelines are becoming an economic challenge for A&D
Primes. This issues is compounded with the impact of over-rums and delays.
This is in part from new and innovative technology being introduced into new
platforms. However, to remain economically viable the current development cost
curve must be broken.
Increasing innovation clockspeed in A&DAs industries mature and processes are introduced, this can slow innovation.
Balancing process and business cases with innovation will be critical in A&D. We
need the next generation of leaders to maintain focus on the importance of
innovation
Micro-electronic industrial baseSome critical technologies have slowly migrated
globe, leaving a void in some of the historic producers (e.g., the
for micro-electronics has been practically depleted).
threat is that from the lack of American-made micro
and the potential for cybersecurity breaches.
42© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
A few facts about the 4 states in The Aerospace Alliance
Key Facts
• Aerospace growth in each of the 4 states has brought thousands of jobs up to 200K
• 2019: New Airbus assembly line begun manufacturing the A220 adding 400 jobs in Mobile, Alabama
• 8 Active Space Launch licenses for companies located in Florida through 2023 (more than any other location globally)
• New Raytheon 50K sqft facility broke ground in Forest, MS to produce s-band radars, including the SPY06 Air and Missile Defense Radar program
43© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Space market outlook (cont.)
Satellite Constellations (2013 - )
Space Launch Report YOY*
*Launch Total by Country of First or Core Stage Manufacture
** 3 Constellations actually completed since 2013
Constellations
Launched
over 50% of
Planned**
7
Constellations
Planned > 74
Satellites
24
Total
Constellations
Active/Planned
84
Officially
Cancelled
Constellations
17
0
10
20
30
40
50
60
70
80
90
100
110
120
201820142012 2016
US North Korea
China
Europe
Russia
India
Japan
New Zealand
Ukraine
Israel
Iran
Forecast