The aviation industry is looking at its most optimistic economic outlook for some years. For the first time since pandemic restrictions began in 2019, the International Air Transport Association (IATA) forecasts a return to (slim) profits for airlines in 2023.
There are some key developments that will shape aviation success, and I have picked a few top areas of opportunity for the industry, from new manufacturing principles to new methods of travel, both on earth and beyond, not to mention a few maintenance and sustainment challenges en-route.
International Air Transport Association (IATA) figures for 2023 paint a promising picture of aviation tipping back into profitability. Airlines are expected to post a small net profit of US$4.7 billion — a 0.6% net profit margin, the first since 2019. Fitch Ratings corroborates this industry growth across the aviation ecosystem, expecting deliveries of large aircraft to increase 20% versus 2022, with production rates increasing by end of FY 2023. It also expects aftermarket sales and maintenance, repair and overhaul (MRO) servicing to benefit from an expectation of global air traffic returning to near 2019 levels.
Although positive, these profit margins are razor thin, so the slightest of marginal gains across multiple touch points in the aviation value chain are essential to exploit. There are five growth opportunities impacting the aviation sector in 2023 where profits are to be made, on a micro to macro level.
Prediction 1: One-third of aerospace organisations will diversify their supplier base – supply chain nearshoring and Additive Manufacturing will boost value for airline operators
One of the biggest ripples still resonating across the aerospace and aviation sectors is the need to shore up unstable supply chains. In its latest Aerospace & Defence Industry Outlook, Deloitte sees an acceleration in the shift from global to regional sourcing in 2023, including the exchange of raw materials, parts, and finished A&D goods globally. To avoid concentration risk, Deloitte expects aviation organisations to make supply chain diversification a top priority, including local sourcing and nearshoring.
One of the methods that is tailor-made to aid aviation organisations as they look to minimise, manage, and mitigate supply chain risk is additive manufacturing (AM) — and it’s already showing its potential. The use of AM will have implications for time to manufacturing of new assets, including aircraft deliveries and spare parts/inventory management. In fact, figures show that AM or 3D-printed parts deliver 60-90% reductions in cost and lead time compared to other manufacturing processes.
There are already examples of airline operators and MRO providers embracing 3D printing for different uses. Looking to protect grounded or stored aircraft, Scandinavian Airlines (SAS) could not source off-the-shelf engine covers, exhaust plugs and other necessary parts due to ongoing supply issues. It took the decision to partner with a local aviation engineering organisation that had the means to 3D print the extremely large exhaust covers. Meanwhile, in June 2022 a metal component for the IAE-V2500 engine’s anti-icing system, developed at Lufthansa Technik’s Additive Manufacturing (AM) Center, received its official aviation certification from the European Union Aviation Safety Agency (EASA). There are clearly further regulatory hurdles to overcome, but with a focus on local suppliers as part of improving the resiliency of the aviation industry supply chain, additive manufacturing has a role to play.
Prediction 2: The commercial space race is on – increased space travel and satellite infrastructure will drive commercial space market growth of over 30% in 2023
In 2023 we’re looking at a new kind of space race, this time commercially rather than militarily driven. NASA and SpaceX both have lunar visits in their sights. The widely covered NASA Artemis Moon Mission will eventually include a crewed lunar landing. Meanwhile SpaceX is targeting making lunar orbits more accessible with its Starship spacecraft and Super Heavy rocket. Its dearMoon mission is a week-long journey containing a crew of artists, content creators and athletes from all around the world that will travel within 200km of the lunar surface. Other “space tourism” market entrants include Blue Origin and Virgin Galactic, all contributing to the industry exhibiting a huge Compound Annual Growth Rate (CAGR) of 36.4% from 2022-2028.
Beyond space tourism, there are other areas of focus in the increasingly commercialised space sector. As the number of satellites providing critical on-earth infrastructure support increases – for communications connectivity, navigation, weather observation, etc – Space Infrastructure Servicing (SIS) or in-orbit servicing is becoming a growing addressable market. This includes the life extension, phasing, repair and maintenance of critical assets as they orbit the earth. The market is huge. Some research organisations forecast as much $14.3 Billion In-orbit Servicing & Manufacturing revenue through 2030. In 2023 expect to see enabling technology evolve alongside the expanded commercialisation of space.
Prediction 3: Advanced Air Mobility (AAM) takes flight in commercial aviation – nearly 25% of top AAM start-ups will go from prototype to Entry into Service (EIS) by 2024
The commercial aviation Advanced Air Mobility (AAM) industry is still in ‘start-up’ mode. There are some stand-out OEMs manufacturing the next-generation of air transportation, but there is still more progress to be made in terms of aviation authority certification and creating the supporting infrastructure to manage these new methods of travel. Projections from the Advanced Air Mobility Index show that 24% of the top AAM start-ups are expected to move from prototype and testing to Entry into Service (EIS) over 2023 and 2024.
On the regulatory side, there are also encouraging breakthroughs. At the beginning of November 2022, the FAA proposed its criteria for the Joby Aviation Model JAS4-1 eVTOL air taxi aircraft to be certified — providing an example of how eVTOL certification would work in practice. Over the next few years, as the industry matures, many of these manufacturers will become the operators and maintainers of these new air assets.
To get there though, the Advanced Air Vehicle manufacturers will need to shift from prototyping mode to production mode. As start-ups this is new territory for most of the leading AAM companies, and infrastructure that can provide a digital backbone capable of supporting AAM system design, manufacturing, supply chain, and aftermarket services, will be essential to develop the successful commercialisation and sustainment of AAM now and into the future.
Prediction 4: Traditional airframe maintenance software support is past its sell-by date – one in three top airline operators face MRO upgrade and modernisation challenges in 2023
On the flip side, traditional airframe sustainment and support is also coming under the microscope. A large proportion of top airlines are managing their maintenance processes through highly configured ERP implementations, older ‘best of breed’ systems, or legacy software. While some of these implementations are coming to the end of their system lifecycles, getting to the point where existing software used to manage aviation maintenance needs to be replaced, others are being forced to upgrade by their software vendor. These upgrades involve a major technology shift, and particularly with the heavily customised ERP implementations, will even end up requiring the effort of a brand-new implementation. These upgrades are required just to keep maintenance software operational, let alone support new business models, growth plans, or new aircraft introductions.
Investment in modern aviation maintenance software is vital for airlines to grow and thrive in the current marketplace. ‘Evergreen’ maintenance solutions will enable airlines to deploy continuous improvements over time instead of massive upgrade projects at the end of system lifecycles. An evergreen solution will guarantee ongoing system performance characteristics, and scale MRO to meet passenger and business demand now and into the future. This will also enable them to capitalise on new embedded technologies to improve automation and optimisation, while maintaining security standards.
This is underlined by a recent ARC Advisory Group report: “There is a growing trend among carriers with large fleets to seek enterprise level core MRO solutions that are more comprehensive in scope (fleet/line, engine, component, heavy maintenance), and are at enterprise scale. Based on the research of this study, legacy ERP/MES systems are being replaced or seek replacement by core MRO solution sets at enterprise scale. The shift in the market share of MRO software solution providers reflects this growing trend among the top carriers.”
Prediction 5: Sustainability progress will be made – Sustainable Aviation Fuel production will reach 1 billion litres in 2023
More and more aviation organisations are making sustainability pledges, and sustainable progress is being made in both traditional and new forms of aircraft propulsion. Uptake in use of sustainable aviation fuel is growing to power traditional airframes. IATA figures estimates that Sustainable Aviation Fuel (SAF) production will close out 2022 at 300 million litres — a three-fold increase on 2021 production. Current estimates expect SAF to account for 65% of the mitigation needed for industry net-zero CO2 emissions, requiring a production capacity of 450 billion litres annually in 2050. IATA also highlights total commercial flights using SAF have now exceeded 450,000 and over 50 airlines are using SAF in some form.
Deloitte sees Advanced Air Mobility also having a key role to help the aviation sector meet sustainability targets, particularly in light of the certification progress outlined above for brand new methods of transport. In fact, orders are rising as more airline operators start to purchase and invest in the growing commercial AAM industry. Cirium reports investments and orders from leading global airlines including Air Canada, United Airlines, and Japan Airlines.
AAM can address emissions from related ground transportation for regional or urban movement — a recent Deloitte study estimated AAM can reduce travel time by 75%, with zero operating emissions for a 25-mile intracity trip. Similarly, McKinsey estimates that short-haul flights, meaning flights shorter than 600 miles, account for 17% of total airline CO2 emissions, and AAM has potential to help alleviate these problems with electrification and hybrid propulsion of standard airframes for short-haul and regional distances.
Taking the aviation sector to new heights
In an industry that is emerging from a difficult period, these macro and micro-level aviation industry developments can be the difference between profit and loss. Forward-thinking organisations at the forefront of new manufacturing principles, new methods of propulsion and new approaches to air transportation will take centre stage in the new-look aviation industry of 2023.
Rob Mather is vice president, aerospace and defence industries at IFS.