Advanced air mobility is reshaping the aerospace supply chain

Transformation is underway in the world of air transportation, driven by advanced air mobility (AAM). This emerging, revolutionary approach—which uses cutting-edge technologies such as electric propulsion systems, autonomous flight capabilities, novel business models such as air taxis, and electric vertical takeoff and landing—also has major implications for the broader aerospace supply chain.

The outlook for AAM

The AAM sector is landing substantial global investments. In 2023, this market was valued at $9.3 billion, with projected growth to $51.6 billion by 2033—a compound annual growth rate of 18.69%, according to Spherical Insights. By comparison, the traditional aircraft production market was nearly $200 billion in 2019, fell to $114 billion in 2020, and is not expected to recover to 2019 levels until 2028, according to AeroDynamic Advisory, an aerospace consulting firm.

Unmanned aircraft systems (known as UAS or drones) play a major role in the advanced air mobility segment, and UAS has experienced robust growth in the United States and globally over the past decade, despite economic disruptions like the COVID-19 pandemic. A UAS comprises a remotely piloted aircraft and its associated elements, including ground control stations and communication links, essential for safe and efficient operation within the national airspace system. The integration of drones into that system has unlocked numerous commercial opportunities, such as package delivery.

Rapid investment in the supply chain from private equity, public companies and the government has restructured the aerospace ecosystem, resulting in fewer Tier 3 and Tier 4 suppliers, according to AeroDynamic Advisory. Estimates suggest that the number of these suppliers—which provide build-to-print parts and mill product, processing, forging and casting—has dropped by approximately 20%−30% following mergers, acquisitions and business closures, per AeroDynamic.

The introduction of AAM brings both opportunities and challenges for aerospace original equipment manufacturers. On the micro level, suppliers face increased costs for advanced components like electric propulsion systems and avionics. On the macro level, the demand for trained pilots and maintenance personnel is rising, tightening budgets and affecting suppliers. The rapid growth of AAM and the escalating demand for parts are set to significantly reshape the production landscape of aerospace components. 

This surge, combined with the anticipated consolidation of suppliers, is expected to create substantial disruptions within the supplier ecosystem.

Looking ahead, the compression of the supplier landscape could result in fewer sourcing options and higher prices for specialized components and raw materials, affecting Tier 1 and Tier 2 suppliers. This may lead to longer lead times and potential supply chain bottlenecks. However, it also presents opportunities for remaining suppliers to expand their market share and strengthen their relationships with higher-tier companies, potentially leading to more stable, long-term contracts.

Currently, government regulations from the Department of Defense (DOD) and the Federal Aviation Administration (FAA) significantly affect new supplier companies in the AAM and UAS sectors. These stringent safety and operational standards drive up compliance costs and extend the time required for new technologies to reach the market, presenting substantial challenges for smaller and emerging suppliers.

Here are some questions and themes aerospace parts suppliers should consider as they navigate the evolving terrain of AAM:  

How can we adapt to the increasing demand for AAM components?

With the AAM market projected to grow significantly, suppliers need to consider how they can scale their production capabilities to meet the rising demand. This includes investing in new technologies and processes to enhance efficiency and output.

What strategies can we implement to navigate the consolidation of Tier 3 and Tier 4 suppliers?

The consolidation of suppliers could lead to fewer sourcing options and higher prices for specialized components. Suppliers should think about diversifying their supply base, forming strategic partnerships, and exploring alternative materials and technologies to mitigate these risks.

How will current and future government regulations affect our operations and compliance costs?

Understanding the regulatory landscape is crucial for suppliers, especially with stringent safety and operational standards imposed by the DOD and FAA. Suppliers need to stay informed about regulatory changes and invest in compliance measures to avoid delays and additional costs.

What opportunities exist for us to expand our market share and strengthen relationships with higher-tier companies?

Despite the challenges, the evolving AAM sector presents opportunities for suppliers to grow their market presence. Suppliers should focus on building strong relationships with Tier 1 and Tier 2 companies, offering innovative solutions, and securing long-term contracts to ensure stability and growth.

Takeaway

As the demand for AAM components increases, the existing aircraft backlog is anticipated to grow, further straining the supply chain. Suppliers will need to innovate and adapt to meet these rising demands, potentially leading to advancements in manufacturing processes and supply chain management. The aerospace sector must navigate these challenges and leverage the opportunities presented by the evolving landscape. With continued investment and innovation, aerospace and AAM hold promise for growth and advancement, driving the industry toward a more efficient and sustainable future.