The future of aerospace in Southern California

April 28, 2016

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Preparing an ecosystem in Southern California for competition in an evolving aerospace industry

By Bill Lay, Partner; Mike Quindazzi, Director; and Mike Goulet, Manager

The aerospace industry is currently undergoing a technological transformation. This is especially evident in Southern California, where demand for new, emerging technologies – like autonomy, artificial intelligence (AI), cloud computing, cybersecurity, robotics, advanced communications and analytics – is causing the boundaries between traditional aerospace and defense (A&D) and commercial technology companies to blur. In the following report and in collaboration with the Los Angeles County Economic Development Corporation and the San Diego Regional Economic Development Corporation, we took a look at the challenges facing the industry and what it can do to succeed in the future.

Given the A&D industry’s history as a technological pioneer, demand for new technologies may seem like good news, but the industry is facing several major challenges. First, the market is bifurcating between the complex, exquisite systems of past developments and the information-based technologies of the future. This is impacting the competitive landscape and altering who customers call first for help.  Second, investment in and development of these technologies is increasingly taking place outside of the A&D industry. For example, less than twenty years ago, defense departments were the only funders of unmanned and autonomous systems. Today, however, commercial investment far outweighs defense, and leading autonomous technology is coming from auto companies, tech giants and startups racing to develop driverless cars. Finally, many of these technologies are “exponential” in nature, meaning their capabilities and value grow at exponential rates.  For example, all information-based products and technologies fall into this category since growth is only constrained by information flows and computing power – both of which are exponential (Moore’s Law.)  By comparison, linear technologies are associated with physical infrastructure and assets, so growth is constrained by the physical limits of materials and people.

LAEDCHow is this relevant to the A&D industry? Emerging and exponential technologies are central to the future of A&D. This creates a challenge since change and technology development in A&D has historically occurred in a linear fashion (think aircraft development and manufacturing). Additionally, competing in this new environment will not only require updating one’s technology strategy, but will also require companies to make organizational changes, from talent to investment to processes to structure.

Incumbents have a few options. First, they can maintain their current market position as builders of platforms and hope that the cyclical nature of the A&D industry or a resurgent international market will drive growth. Second, they can look to adjacent markets involving digital technologies that can become part of a new growth strategy. Or third, they can move fully into the information value chain and try to shape and control it.

With this background in mind, we believe that aerospace companies operating in Southern California enjoy several advantages, including:

  • Ecosystem: a robust network of established companies, startups, government agencies and universities that create a fertile environment for innovation
  • Culture: a heritage of innovation across nearly every aspect of A&D, from aircraft manufacturing to jet propulsion to space exploration
  • Talent and skills: Southern California is home to many people with the requisite engineering and computer science skills necessary for growth and innovation

A&D companies can’t afford to be complacent and need to accelerate their efforts to compete in this evolving landscape. Emerging technology markets develop rapidly and although they have high levels of uncertainty, industry leaders will likely be those that demonstrate an ability to innovate rapidly despite the uncertainty. The challenge for A&D firms will be to adapt and adopt the exponential technologies that are critical to their future success.

 

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