Check 6 With Accenture: Europe’s Defense Market Has Arrived
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Welcome to Check 6 with Accenture, a special edition of Aviation Week's Check 6 podcast sponsored by Accenture. I'm Joe Anzamo, Aviation Week's Editorial Director and Editor-in-Chief of Aviation Week and Space Technology Magazine. And today, Accenture's John Schmidt, Joyce Klein, and I continue what has become an annual tradition, looking ahead to key themes heading into this year's major air show, in this case, the Paris Air Show, which opens June 16th.

John is the leader of Accenture's global aerospace and defense practice, and Joyce is the firm's global data and AI leader for aerospace and defense.

John, our podcast before last year's Farm Bro Airshow was 11 months ago, and so much has changed since then. We've got a new US administration that is more skeptical about defense cooperation with Europe and less committed to supporting Ukraine in its war with Russia. We have tariffs and the threat of trade wars. We've got a new leader at Boeing. And of course, there's the ongoing challenges such as the supply chain and workforce and continued opportunities

with the emergence of AI. When you and Joyce put together your key topics for this year, the fence was right up there at the top. Tell us why. Well, Joe, it's good to be with you here again to talk about these themes as we head into Paris. And I think, as you know, every year we get ready for the air show and we take a look at what we're seeing in the market, what we're hearing when our clients are reporting their earnings, what we're hearing from our clients directly and the work we're doing with them and what research shows. And

this year was three things that just jumped off the page. The first one, as you said, was Europe defense,

The second one, which is not so different from last year, although the implications and inflection is different, is supply chain, which continues to be an Achilles heel in this industry on both commercial and the defense side. And finally, what we're seeing in manufacturing, which is a little bit new and exciting in a lot of ways. And so when you talk about defense, one thing we're seeing for sure is that our clients are clearly rotating towards Europe as a major focus in a major market. And it really comes down to growth.

Countries from both Western and Central Europe have all announced major boosts to defense budgets, and perhaps this week we're going to see NATO agreeing on a 3.5% GDP target. I know that there's some who would like that to be higher, but even that is quite a change from eight years ago.

And more funding means more programs of all kinds, from traditional defense programs, munitions, to new high-tech initiatives and products. You know, at the end of the day, and at the same time, procurement is changing too. So our most recent research shows that 86% of aerospace and defense executives see at least moderate changes in defense procurement in Europe. And we expect actually to be a big shift in this area.

And it won't be business as usual anymore. And defense companies, whether they're established giants or new entrants, are going to have to adapt fast. And our clients are also telling us that they see collaboration as a key to building up and keeping up in this new, more competitive environment if they want a chunk of that business. I mean, almost half the industry executives said partnership building is essential to get products and technologies they need.

And as an example, European defense firms particularly are expanding international partnerships and exports. I mean, teaming up with local players in the Middle East, Asia, Africa to reach new markets. I mean, one example recently was, you know, to try and land Lithuania's mobile short-range air defense deal. Saab pledged to integrate its missiles on an Oshkosh-built JLTV.

So it's, you know, about partnering and reaching new markets. And it's also about co-developing technology. And if I can wrap up and maybe see if Joyce has anything to add, I'd say, you know, you have other examples like Leonardo and Vicar who are teaming up to combine their unmanned tech and know how to design and build new products they can sell worldwide. Or Safran recently signing an agreement with Barad Electronics.

to co-produce the Hammer Position Guided Aerodactyl Ground System in India. So lots going on in Europe, Joe. I don't know, Joyce, if there's anything you'd have to add. Yeah, I think, John, building on your comment about how these companies are looking at the digital revolution is we're seeing them more adopt AI, autonomous systems, and also advanced materials.

And one of the other interesting things is that since 2022, more than half of the acquisitions made by major defense companies have been focused in three areas.

AI, cyber defense, and machine-to-machine communication. So you just see these organizations kind of making that shift into how we're leveraging technology and digital opportunities. In fact, you remind me now, our research also showed that 90% of the executives reported military needs in the U.S. and Europe are shifting towards software-defined capabilities. But software-defined capabilities comes with all those elements that you just mentioned in terms of other capabilities surrounding it, cyber being one very primary one.

And what Accenture is finding is in lockstep with our analysts at Aviation Week Intelligence Network. Craig Caffrey looked at procurement spending for the last 25 years and for the first time, European procurement spending

in military has caught up to the U.S. For the first time since World War II has caught up. So this really is an inflection point. We're seeing the same dynamic and the growth rates are interesting. I mean, Europe being a smaller base, but the growth rate there is growing quite rapidly compared to what we're seeing in the U.S. One last question before we move on to the next point. When I say European defense procurement, that's a lot of different countries with parochial interests. Is Europe ever going to get its act together and act as a unified force? Well,

It's an interesting question, Joe, and I'll leap into this, even though, you know, I don't like making prognostications on things like this. I think we're seeing and hearing a lot more about, you know, they call it the Airbus approach, right? We're taking the best of what European companies have to offer and bring it together instead of having multiple smaller, in some cases, subscale partners or players playing in the marketplace.

And, you know, I think you're seeing some of that with what's going on with upcast with the French and the Germans or GCAP, but the UK and Italy and Japan coming together, you know, trying to bring the best of capabilities there. I think you've already seen it in some of the companies that exist today for missiles. And so there's a possibility that to really compete and grow European at scale footprint in defense.

it's going to take some type of Airbus type approach where you can take that best of for the NATO countries. Accenture story number two. This one's familiar. Supply chain. So why is supply chain still on the list?

It seems like every discussion I get into, no matter what the client is or who at the client I'm talking to, it comes down to supply chain, right? So it's still an Achilles heel for the industry. And, you know, as demand picks up and as both Airbus and Boeing continue to try and ramp, as we see it ramp in some of the defense products out there, particularly on the munitions side, I mean, we're putting a lot of pressure on the supply chain.

And if you look at one of the examples, Airbus recently warned airlines that delays in deliveries are going to persist for another three years as they work through a backlog of supply chain problems. Now, that might be a little bit of setting the bar low so you can do better than the bar, but it's reflective of some of the challenges and they're not going to be simple fixes. And on the bright side, 76% of the aerospace executives that we survey expect revenue to grow over the next year.

And so, you know, the production is going to be ramping up. We are going to see more aircraft coming down the line. But as you mentioned in your intro, geopolitics are going to make things potentially tough. I mean, trade tensions and tariffs can quickly disrupt the flow of critical parts and drive up costs and destabilize supplier networks. I mean, since January 1st, 1990, companies in aerospace didn't have to concern themselves with tariffs.

Now, they're all running around looking at their supplier and customer contracts to assess the potential impact and what happens when those tariffs come into play and who's going to bear that cost. I think at the end of the day, there's going to be a number of other things that are coming into play. At one point, it was worries about titanium. Then it was certain critical metals which still exist today. You see what's going on in automotive with the concerns around magnets.

This is a continuing challenge. And Joyce, I know you spend a lot of time talking to our clients about supply chain, particularly around how to leverage technology to help. So maybe I'll turn it over to you. Yeah, absolutely. And I think the supply chain resilience topic has been one that we've been highlighting since before the pandemic. And my senses will be talking about it, as you said, for many years to come. If I think about some of our recent research, we've looked at

how important it is for organizations to map their supply networks and to understand that visibility across the extended supply chain. And while executives recognize that importance, less than half, it's actually 48% report that they've completed that assessment. So it means that there's a huge opportunity to really understand that extended supply chain. And then you couple that with another piece of our research,

And that is that more than 55% of the executives indicate that they're still using manual processes to manage their extended supply chain and to monitor risk. So there's an opportunity ahead of us. And while building a resilient supply chain

It's complex and it's multifaceted. We have technologies today that can actually help accelerate the achievement of some of the objectives that our A&D supply chains need. And this is what we're calling autonomous supply chains. And what is an autonomous supply chain? It's one that leverages

agentic AI, digital twins, and also helps from the standpoint of integrating knowledge graphs. So when we are able to achieve this, we're able to fundamentally streamline the supply chain process and achieve some of these benefits of activities being conducted in a more streamlined manner while also being able to achieve visibility and to be able to mitigate and minimize any disruptions that might be occurring.

Now, an autonomous supply chain, just to give you an example of one component of it, we could look at the process of creating purchase orders. And we can think about it from the perspective of, you know, there's a human that would kick it off, but then there's these agents, consider them the digital coworkers that could actually be involved in that process. And these digital coworkers would be in a framework where there's

an orchestrator agent, a super agent, utility agents, all doing different parts of the process, most effectively those manual process steps that take a long time to complete. And so we see this opportunity of really streamlining processes and leveraging these digital co-workers who can work 24 by 7. I get all that, Joyce, sort of when you look at it from the top down. I was just at a show earlier this week, the Space Tech Expo in Long Beach, California. There was a lot of

Tier one, tier two space suppliers, some of them literally mom and pop shops. How do you flow this down to them? And what do those suppliers do to even survive these changes? Well, I think one of the key things for those suppliers is they need the information that's going to help them better understand where they fit in the process so that they can make the parts that are necessary to keep the extended ecosystem moving forward.

So what that means for them is the achievement of more accurate forecasts and getting those forecasts on time so that they're not chasing parts to be able to build for an OEM. But a lot of what I was highlighting in many ways is geared towards the OEMs so that they can fundamentally give better information to those suppliers, build trust.

across that extended supply chain, while at the same time building that internal set of capabilities, removing the manual tasks from their resources to free up time to work with those mom and pops to be able to have them execute more effectively. But the other part of it is those mom and pops have extended supply chains as well. So what's really important is for them to be able to feel that trust and transparency that they can share information with those OEMs so that the OEMs can get that extended supply chain mapped.

So there's a lot of mistrust in these extended supply chains. And I think, you know, some of the pressure that's being placed for nearshoring, onshoring, as well as tariffs are really going to create questions for some of these mom and pops about who are they ultimately supporting? Are they going to stay as an A&D supplier or are they going to look to other industries? So lots to, you know, manage and monitor. But at the same time, I think technology used effectively while

also providing that ability of building trust and transparency is an ultimate win-win situation. Joyce, I might throw one other thing in here because there's a lot about technology, certainly, and a lot of that's going to be deployed at the OEM level and present some of the challenges. There's also kind of old school supplier development work to be done. And Joe, you may or may not know that we actually operate supply chains on behalf of several of our clients in aerospace on both the commercial and defense side, including doing processes like first article inspection.

And what we found is working with companies who are supplying that first article data package, we can actually help them be able to do that more efficiently, effectively, so that we can quickly get those articles into the line where they're needed. And that's the old school supplier development work, just helping them understand the process, the data that's required, how to context the data so that you can get it in and the process runs smoothly. We've been able to take a lot of time out of that first article inspection process simply by doing that. We've also deployed

I mean, we are taking the specs and we're reading them in using natural language processing and optical character recognition and using an AI engine, which then can do the compare for us and help assist humans in making the digital dispositions on each of the characteristics. But that old school development of going and working with suppliers and saying, hey, this is what we need from you and this will make everything go faster helps everybody. Maybe.

Maybe to add on to your point, we're also helping and training those suppliers so that that first article inspection process operates much more efficiently as well so that those suppliers understand where they've had non-conformances and their packages are not passing. So it becomes this two-way of leveraging technology well to free up time to make sure that those extended suppliers understand what they need to do to more effectively get their packages processed and passed first time through.

Should we move on to story number three? I would love to. Manufacturing. How are aerospace and defense manufacturers evolving with all this AI and automation? And what challenges come with these changes on the factory floor? Well, let me just step back and just put it...

The reason this is so exciting to me is that we now have enough pressure points to bring real investment into manufacturing floor. Whether it's coming on the commercial side and trying to satisfy the growing demand as a Boeing and Airbus ramp, or if we're looking on the defense side, particularly around munitions, our clients are making investments and making their factories smarter and more autonomous. They have to. We don't have time to build four new walls and go populate it to try and get more capacity. We need to get more capacity.

out of what we have in front of us. And I think most of our clients have a pretty clear vision of what we might call hyper-automated factory of the future looks like. If you think about things like autonomous operations, smart and connected production cells, robots, crews of people digitally connected with AI, but at the end of the day, getting there continues to be a challenge.

And while 65% of the factory managers we surveyed in our most recent Defense Insights report say they're prioritizing key technologies to make that vision a reality, things like implementing digital twins and IoT and edge computing, at the end of the day, there's still a lot of challenge to bring it all together to get more out faster and have that payback period be something that's fairly reasonable. And if you look at some recent examples, Airbus has automated their production facility in Hamburg.

streamlining workflows for the A321 XLR, and actually something we did in partnership with GE Aerospace and Microsoft. We developed a new tool that has been tentatively called the Genii Assistant, but it's something that airlines and lessorists can use to access critical maintenance records really quickly. So there's things we can be doing to really help drive improvements and get us to that kind of end-all, be-all factor of the future. And John, I think the other thing that A&D can

can leverage is look at sister organizations in the areas of industrial equipment and automotive and see how these organizations and companies have been leveraging this hyper automation within their factories and use that as a benchmark for A&D transformation. Because in many cases, these other industries are a bit ahead in terms of leveraging these technologies.

And that fed right into my next question, Joyce, which was how does A&D stack up against other industries in adapting these technologies? Are we keeping up? Are we behind or are we ahead?

My sense is that, as John said, there's the aspirational side of things and the knowledge of the investment. But when you look at these other industries, they are ahead. Automotive has, for many years, been leveraging hyper automation within their factories and the same thing for industrial equipment, where they're really looking at how can we leverage autonomous robots? How can we bring more capabilities around smart and connected cells? So I think AMD has things to learn, but

It's not a far put, if you will, to see other organizations and to learn from the successes and the journey that they've been on. Yeah, I think one other challenge that we have in aerospace defense is really getting in place the right digital infrastructure. It's absolutely critical. And, you know, frankly, there's a whole lot of companies, even some of the largest, are still playing catch up.

on their digital core. And as they lack that robust digital core, it gets harder to put in the digital twin or to really leverage all the data coming out of the robotics and automation that goes into the factory floor or the assembly floor. So when data is siloed or if it's inconsistent or hard to get to, you don't get the full benefit of these newer technologies, whether it's AI or automation.

And John, maybe just to build on that, what I would say, you know, if we think about what are the components of the digital core, it starts off with the infrastructure, you know, cloud strategies on-prem and also making sure that it's managed securely. And then, as you said, the data, you know, internal data sources, structured, unstructured, third-party data, all coming together, managed effectively, tagged, monitored.

with the appropriate ontology? And then what is that analytics framework that the organization's gonna use to be able to allow them to explore

AI and ML solutions, generative AI. And then most importantly, I think for now, making sure that they're building for an agentic framework so that they can leverage all those capabilities as well. So as we think about that digital core, it's all those components coming together. And I think many of our clients are kind of on a journey, but as John highlighted, the other industries are in many ways slightly ahead in some of their investments and activities.

And not to get too far afield, because we are going to an air show, but it is stunning to me to see what the Chinese have done in harnessing these technologies to create a dominating role in the electric automobile industry. You don't see it in the United States, but you travel to Mexico, you certainly see it in other regions. It's certainly a wake-up call now. Yeah, I fully agree. I mean, you know, look,

We've been saying this for a long time on podcasts and we say with our clients, I mean, at the end of the day, you know, the companies that are investing in the digital core, the companies are investing in partnerships and ecosystem partners to help them accelerate and de-risk what they're trying to accomplish. They're the ones that are going to be at the lead of this thing. How DOD and European governments acquire is changing. We've got new entrants who are much more digitally born.

coming into play. I mean, look what just recently happened in Russia. I mean, the technologies that are being deployed are becoming very vastly different between exquisite and one-to-many, if you will, and think about that, versus a lot less exquisite and one-to-one in how they interact. Companies are going to have to respond quickly, and the digital core and having a robust digital core is the critical element to making all that stuff happen. You can't run around managing your supply chain with paper.

Okay. Well, I think it's that time. We always wrap up this podcast by pulling on our crystal balls or your crystal balls. What are your predictions for the Paris Air Show this month? Who wants to go first? Joyce, I was going to say you go first, but you always have the more interesting predictions. So I think I'm going to just jump the gun here and say my prediction, and this is

I thought a lot about this, Joe, but really I think the prediction here is there has been a tendency in the last few years of people kind of limiting who shows up at these air shows and how many people travel and all those kinds of things. What I'm hearing is that this is going to be the best attended Paris air show ever.

I think we're going to have more people there than we've had in any previous show. I mean, there's so much going on, commercial, defense. It's going to be a very well-attended show. That's my big prediction. I'm going to jump over to, I think, the aspect in the area that I'm most excited about, and that is around data, AI, and generative AI. And my prediction, Joe, is that we're going to hear a lot more about companies leveraging generative AI

technologies than we did last year. And I'm really looking forward to hearing about organizations talking about agents and agentic framework. So I'm going to have a keen ear for those types of stories and those types of capabilities.

Okay. Well, we will look forward to seeing how that all unfolds. For now, that is a wrap for this edition of Check 6 with Accenture. A special thanks to our podcast editor in Georgia, Oli Sylvester. John Joyce and I, along with our teams, will soon be headed to Paris, and we hope to see you there. Thank you for your time, and have a great week.

With four decades of working with leading global organizations in aerospace and defense, Accenture helps companies achieve operational excellence, embrace the ongoing technology revolution, and reinvent their business. To learn more, visit Accenture.com/aerospace-defense.