Aerospace & Defense’s Digital Transformation Opportunity | Sponsored By Siemens
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Good morning. This is Matt Volko, business editor for Aviation Week in Washington. I'm here on the Siemens-sponsored Check 6 podcast with Todd Tuthill, the vice president of aerospace, defense, and marine industry at Siemens Digital. Good morning, Todd. Hey, good morning, Matt. Pleasure to be with you. Really looking forward to interesting conversations this morning. Going to be fun. As am I. Great to have you here and talking about digital transformation. So shall we get into it then? Let's do.

Okay. So, Todd, I want to discuss the survey results of the project that Siemens did together with Aviation Week Network. And the first question I have is with regards to the survey on the A&D industry about the state of digital transformation, would you give a brief overview of the survey and some of the findings that really stood out from that survey?

Sure. Let's talk about the survey in general first. As you said, we worked together with the Aviation Week Network and surveyed companies throughout the network and asked a bunch of questions about digital transformation. I think there were 14 or 15. Lots of key things. We're going to get into a little bit of that today. There'll be a link at the end that I'll mention at the end of the podcast where you can download the whole survey, but lots of key things. And as we started

We really asked three key things at the beginning of the survey. We wanted to know what do companies expect from the digital transformation?

How far along are they right now? And are they getting what they expect for what they've invested? And three key important answers came out in the beginning of what companies expect and why they're doing digital transformation anyway. The first thing was cost. The second thing was workforce. And the third thing was time to market. And clearly cost was the number one leading thing. Companies are saying...

We're investing this money. This is important to us. This is taking effort. What are we getting back for it? And that's key. And it makes sense, right? We're operating businesses in the defense sector, in the commercial sector. You invest money, you expect to get money back. So cost was clearly important, as was workforce efficiencies.

I think maybe workforce isn't quite the issue it used to be in aerospace, maybe a year or two ago. But still, I think companies are concerned about how do they find all the workers that they need for their projects? And clearly, they're looking to new technologies. They're looking to digital transformation to make that workforce more efficient. And they're saying time to market. If you look in the commercial sector right now, 10 years of backlog in commercial aircraft, how can we get aircraft delivered to market faster?

If you look in the defense sector, all kinds of needs for all the geopolitical tensions in the world to bring new products out faster. So companies look into all three. Clearly, cost was the number one overriding factor. I think companies are looking for how can we save money? And I think both of those things, workforce and time to market, go into cost. So those were the three big things. Then the question was, okay, so that's what you expect. If you think about your journey for digital transformation, where are you? How far along are you?

And I was surprised at the survey. More than half of the companies said, we're done. We're mature. We've been there. We've done it. We got the t-shirt. We're through the journey, which surprised me that that many thought they were there. But an even more surprising number, more than half said they were done. But three quarters said, all those three things we're looking for cost workforce time to market. Three quarters said, we're not seeing that.

We're just not there yet. So a lot of companies are saying, "We're already done with digital transformation." It didn't do what we expected, especially in saving costs. - Does it seem like the company's expectations are high given what they've invested? And this is a journey that's really a multi-year, even multi-decade journey, digital transformation, right? But it sounds like companies are expecting relatively fast and clear results from these investments.

Okay. I'll take my Siemens hat off and I'll put my industry hat on. I was in industry just three years ago and working on some of these kinds of transformations. And certainly, as we said, these companies, most of them are publicly traded. They're working on a quarter to quarter cycle. And these transformations take a lot of resources. They're expensive. They take a lot of investment from their staff. And I

I know there's pressure. There's pressure on me when I was there and there's pressure on all these companies now to show a return.

So I think, yes, there are expectations, but I think I understand where they come from. We're saying we're investing this. Are you seeing the return? Is there light at the end of the tunnel? So I don't think the expectations most companies have are unrealistic. You know, if you're going to do all this investment, you want to see return on cost. And certainly new technology should make your workforce more efficient. So yes, the expectations are high. I don't know that those expectations are all that unrealistic.

It's just, it's a matter of why aren't we realizing it? I think that's really the interesting thing to look into. And perhaps there have been some factors affecting costs in the aerospace defense industry, specifically in 2024, whether that's still fallout from pandemic-induced shocks to the supply chain and the fact that there are a lot of production delays when they look at the big OEMs. And that might also be factoring into cost pressures.

Those issues could be one challenge. Are there others you're seeing in addition to those that are putting pressure on companies' costs? Yeah, I think you nailed it in talking about coming out of the pandemic. If I think about my 30-year career in aerospace, what I saw in 2021, 2022 was unique. If I think about

The aerospace industry over the past 30 years, there's these cycles. And most companies I've been in, you know, where defense spending, defense investment is down, commercial investment and spending outlook is up. And it'll be that way for a few years, it'll kind of switch. And those are kind of the hills and valleys I've been used to in aerospace. And 2021, 2022 into 2023 was

It was really a unique time for me because I look at the four or five-year outlook, and we're projecting way more investment in commercial and way more investment in defense all at the same time. It was just a phenomenal time and still is a phenomenal time to be in aerospace.

But what I saw in 2024 are things beginning to change, especially if I look in defense. And if you think about there was some key events, I think that that really brought it to light for me in 2024. If you look at what the Army did with the FARA contract.

The future attack reconnaissance aircraft in February, Army Chief Staff General George came out and said, hey, we're going to cancel it. $2 billion invested, that manned reconnaissance aircraft is going away. We're not going to invest money in manned aircraft for reconnaissance anymore in future capability for the Army. We're going to do it other ways. They're looking at what's happening in Ukraine. They're saying, you know, unmanned drones, satellites, they're becoming more important. We think, the Army is saying, we think we can do that.

And you say, okay, that was the Army. Certainly aviation is important in the Army. What about the Air Force? Well, what happened a little later in the year? We all know what Secretary Kendall did.

We expected the answer on who's going to be the man fighter winner, the big giant winner for the 6th Gen fighter for the NGAD. What did Secretary Kendall said? He first said, we're going to take a strategic pause, which I think kind of shocked a lot of people. And then later he came out and said, not only are we taking a strategic pause, we're going to rethink the requirements. We really want this new 6th Gen capability to be about the same price as an F-35, which was just...

you know, groundbreaking and just really turned the industry on its head. Really? That's a whole new direction in where the 6th Gen Engad is going. And, you know, a lot of this, it's certainly around capability and need, but a lot of it was around cost.

And if you look at, I look at defense spending that kind of spiked right after the Ukraine war took off, you're seeing that flatten, especially in the US, not as much in Europe and in Asia, but that defense spending is flattening in the US. It's not going away. We're not going to not spend money on defense in the US, but-

There's certainly an enhanced focus on cost. And that's a trend that I certainly see in defense in 2024 that I think is going to continue. It's not that the capabilities aren't going to be needed or used. It's that we're going to find other ways to get to those capabilities from a more efficient cost standpoint.

And so you mentioned this paradigm of unmanned versus manned. It has really come to the fore in the past couple of months with, of course, Elon Musk commenting about it, among other people, and the programs that you just mentioned. Perhaps this is not really a case of A or B because the

It seems to be expected that manned fighters are not going away. It's just that uncrewed vehicles seem to have increasingly large opportunity in all branches of the armed forces here. And as you mentioned, Europe and Asia with higher spending than the U.S., there's a lot of interest and I think capability there as well. So are you foreseeing increasing automation of systems and how will that affect costs going forward? Or

or the defense side? Absolutely. First off, let me say I don't fully agree with Elon. I respect Elon. He's in a strong position in the government. He's a visionary. I don't think the day of the manned fighter is over. I don't think the demise is quite as soon as maybe he sees it. But I think there was a trend that was happening, as I said. We talked about the Army and the Air Force programs.

There was already a trend before he was there. He's following that trend. He's making some good points. But I think certainly we need to think about the focus on cost and gains and efficiency. And certainly, you know, what we see in, you know, Secretary Kendall's talked about it. They're fundamentally changing the requirements for what the six gen and get are.

So, when we talk about saving costs, it starts with a fundamental expectation. You're not going to cut the cost of a program like that down to 25% or 30% of its original cost with the same requirements. You've got to change your expectations and the Air Force is doing that. And certainly, you're going to shift the focus, as you said, from maybe some of the manned assets to some of the uncrewed assets. And that's certainly going to save costs, not just in the development.

but in the operational life. The Air Force spends way more money training pilots than they do actually sending them to combat because they all have to be combat ready. And you don't have to spend nearly as much money on an uncrewed asset. So just operationally, there's savings and there's many, many more we could talk about, but that's one of the shifts. But one of the other ways I think that companies and defense agencies, the Ministry of Defense and commercial companies around the world are looking to save money, it's about efficiencies. Robert Leonard

It's about finding efficiencies and new ways to become more efficient, to save money, to develop products faster, to be able to maintain them in new and better ways. I think that's certainly a trend as well. So I don't want to say it's not all one thing. This is a large problem we're trying to solve here. And there's many paths we've got to take to get to that solution.

So it was interesting to see that there's a number that stood out in the survey, a large number about expected ROI on digital transformation. 72% of respondents are not seeing expected ROI and would like to know why exactly are they not seeing it and what are just maybe three top suggestions for them to better capitalize on the opportunities provided by digital transformation? Good question. And

You know, it's a fair question, right? We've been talking about digital transformation in our industry for a long time. It's not a new topic. You can go back, if you look back at presentations, look back at companies like Siemens, a lot of large OEMs have been involved in digital transformation for a long time. And I looked at that survey and said, "Why are so many companies not seeing it? Is digital transformation not working?"

It's a solid majority. Yeah, right. Oh, absolutely. It's three quarters, right? And when I look at it, I say the problem is not digital transformation. When I look at the survey and there's far more things in the survey than we can get into here on the podcast, but it's not digital transformation to me. To me, it's one more thing. It's the maturity of

of the digital transformation these companies are at. And as I say all the time, digital transformation, it's not a destination, it's a journey. It's a place you've got to get to. And I like to talk about what I call the five steps of digital transformation maturity. And we talk about things that we need to think about

Simple five steps. I'll say them. Maybe you can say them back so we can remember them. We'll play that game. But configure, connect, automate, generate, optimize. It sounds complicated, but if you say it out loud, configure, configure, connect, connect, automate, automate, generate, generate, optimize.

And when I talk to companies, I say, that's a five-step journey. Every single aerospace company on the planet is somewhere on that journey. They all are.

configure is just where you start your journey and you move from paper to digital models. And connect is where you start to connect information across multiple domains. And when I think about automate, automate is where you automate all these mundane things. You think about workforce improvement and there's just, as I led engineering teams for a long time, I would look at my staff and I'd look at all the

the things engineers did all day that just weren't that exciting. And so step three is so important to automate all those mundane things, to take those away so engineers or maintenance staff or technicians can do more innovative things. And then generate is where you start to multiple generate multiple alternatives and optimize is where you can explore all those alternatives and find the best. And those are the five steps. And I like to say,

Every company can look at those five steps and number one, understand where they are today. That's important. But number two, understand where they need to go. Todd, in addition to those steps and cost, which we've looked at some details so far this morning,

Workforce is an issue for aerospace defense that I think during the pandemic, as we mentioned, and all the shocks to the workforce. But post-pandemic, I mean, the situation with Boeing and workers there and negotiations and the knock-on effects for the industry, it really highlights the importance of workforce. And in Las Vegas in May, when we talked, we spent a long time talking about digital transformation in the workforce.

and specifically how artificial intelligence is an enabler for engineers in aerospace and defense workforce, as well as being beneficial from a cost standpoint. But really from that efficiency standpoint, there's some pretty impressive capabilities that it has that engineers can use. Would you be able to talk a little bit about workforce and then maybe a bit about artificial intelligence, that angle for digital transformation?

Sure. When I think about workforce, as you said, I think back, I'm dating myself. This is a podcast. People can't see my gray hair, but I've been in the industry for a while. And when I started in the industry, from a technology standpoint, I think aerospace is where the cool kids went. It was the cool cutting edge technology where engineers, a lot of us coming out of college, yeah, we want to get in aerospace. That's cutting edge. That's cool.

And I think it still is, but there's so many more companies competing with that now and so many more places for engineers to go to develop cool things. So there's a lot more competition, I think, for cutting edge, for technology, for engineers who want to be in things. So that's one of the issues with aerospace. And I think another one is this idea we talked about in terms of the maturity of tools.

And aerospace tends to be a fairly conservative industry, you know, for good reason in terms of adopting new technology. And I think we looked at that survey and we talked about where companies are at. And one of the other things we ask, we ask some questions about where are you at on your journey?

And what we saw was only about 80% of the companies said, "We're not even to the Connect Stage 2 yet." And to me, when I think about that with respect to workforce, I think about all the benefits that come in step three, automating the mundane things. And what I think a lot of new engineers especially are coming out of college now and seeing as they go into the workforce and aerospace is, "Yeah, we're creating rockets that we're going to send to Mars.

and we're creating all these six-gen fighter aircraft and all these really cool technologies, but we're using a lot of the technology we're using to create it has not kept up.

and specifically the adoption of AI. And you talked about AI, and we asked another question in the survey. We said, how many companies are using AI in general and want to use AI? And more than half of aerospace companies said, yeah, we're using AI in some way. Then we asked a more specific question. How many of you are using it for technology? How many are using it for technical work? Just 8% of companies said, we're using AI for technical work. And if you just started at stage three in automation,

There's so many tasks, technical tasks that can be automated with AI that can make lives so much better. Not to mention all the work that can be done with AI relative to the fourth step generate and the fifth step optimize. So many things that can be done. And then we got into why is that? Why aren't aerospace and technology companies adopting AI? And really it comes down to trust. And many companies are saying,

Can I trust the results? And can I trust it with my data? And there are certainly ways to address all of those. We talk about retrieval augmented generation. We can talk about private clouds and ways to capture data. But

But again, to get to a point where aerospace companies can use AI and trust AI. And I don't think we're getting there, but I think we're just beginning the journey. And there's a lot of work to be done. But when we start to really employ large language models to solve aerospace design problems.

we're going to see a whole major jump in capability, in our ability to really apply digital transformation. And we're getting there. As I said, there's work to be done. And it's about training these large language models on the language of engineering and manufacturing. And to date,

not a lot of that has been done for those reasons I talked about. And there are ways, we're developing ways to make that safe. And until we do that, a lot of those large language models can't be used to do a lot of that work. Now, having said that,

AI has been around from an algorithmic standpoint for a couple of decades. And there's a lot of tools deployed today that use AI in non-large language model kind of ways. So that's a lot of things where we could go a lot deeper into AI, but it's an exciting way. And I like to say, if I think about the journey of AI as a 12-hour clock in aerospace, I think we're at five seconds.

There's so much more to do, so many more places to go. And it's really, it's going to fundamentally change how we do work in aerospace over the next few years. There's no question. From an industry standpoint, from respondents to the survey, what do they seem most excited about in terms of AI? How are they seeing it as enhancing their digital transformation capabilities, moving them further along that road we discussed?

Well, I think right now there's aerospace is a regulated industry. And I think you've got different groups of people. There's a lot of excitement. We want to use this. We want to understand this. But we want to be sure we can use it in a way that's going to stand up to regulation. And I think there's some skepticism on the part of some...

of some people, but there's a lot of real excitement on the part of other people. And if you look at it just from where we started, from the aspect of cost and workforce, a lot of people are asking the question, how do we become far more efficient? How do we build commercial aircraft much faster? How do we bring new technologies like blended wing bodies

into this conversation and really create a whole new way to make more sustainable aircraft that can fly with 50% less fuel economy? How do we do that in a cost-efficient way? We talk about the duopoly between Boeing and Airbus. Are there other companies that can challenge that? And do companies have the financial resources to invest billions and billions of dollars to do that

And certainly, there's going to be the capital investment that doesn't go away with digital transformation, but you want to make that capital investment in the most efficient way you can. And we need to employ a lot of these technologies and a lot of this understanding so that we're making all these mistakes and understanding all these things in the digital world, making all the decisions and understand. So that once we make the decision in the physical world, the first time we make that decision, it's right. That to me is where I see a lot of the excitement and interest

how can we really employ this, not just write emails and make cute cat videos, but how can we really use it in an industrial way to make a true difference in how companies develop products? And that's...

That's what the interest is at. That's what companies are interested in. And that's what we believe we're going to see over the next few years across aerospace and in a number of discrete industries, not just aerospace. And it seems that there are sometimes some misconceptions about AI that it, for instance, at a very simplistic level...

You bring in AI in order to do jobs or tasks that people do now. And we've talked about in the past in Las Vegas about how, in fact, it enhances the work of aerospace engineers and has some real strong capabilities. Would you be able to talk about maybe one or two examples of how AI can now enhance the work of aerospace and defense engineers?

Sure. And again, when we talk about AI, you know, there's lots of definitions. And I think when most people hear the term AI, they think that OpenAI invented this whole industry in November of 2022 at ChatGPT. You know, the whole idea of large language models. And certainly, you know, that's where I'd say access to large language models became democratized to the general community was November of 2022 at ChatGPT. But the

But there's so much more. AI has been around for decades. Since the 50s, I think, at MIT, right, in Dartmouth. That's right. Exactly. It's been around for decades. And there's so much more to AI than just large language models. So I want to caveat that because what I'm about to say is not necessarily just large language models, although that can be a part of it.

But we have companies right now using algorithmic types of AI to do all kinds of things. Algorithmic AI can be used to create real industrial engineering artifacts. They can take things like an idea for a design and create all the artifacts it takes to manufacture that design.

or take a wiring design and create all of the support materials. If you think about when an aircraft comes down the assembly line, it's not one design. There's this global design that you create, but as it comes down the assembly line, maybe one company or one customer wants different seats, different entertainment options, different things in the cockpit. Every one of those changes costs

causes the electrical design to change. And we have companies now using our software to do generative work, not in an LLM state, but an algorithmic state to do a lot of the work around that and saving thousands of hours. That's one example. Another example, if you think about PMI and all the geometric tolerancing you put on a model,

That's just mundane stuff that nobody in college ever said. I want tolerance on my drawings my whole life. And we've got all this software now that you can give it a design, give it a set of rules the way your company does tolerancing, and the software will do all that for you. Those are just two simple examples of where we can go. And we've got a bunch of really smart algorithmic routines that

They can look at an airframe design and optimize that very quickly around a set of rules based on the way a company does design.

There's just so many ways to think about from the third step automation, automating mundane, degenerative things algorithmically to optimization and just many companies saving all kinds of time and adopting more and more of these things. It's happening now and it will only accelerate in the future. And it's the tip of the iceberg now. Absolutely. We're five seconds into the 12 hour clock, right? That's where we're at.

So, Todd, looking at the survey here, and this is an issue that I think really it's been prominent for the commercial side of aerospace, you know, since since 2020, it has improved in the defense side as well. Supply chain issues, 37 percent of respondents see expected benefits of digital transformation for reducing supply chain issues. And that, you know, it's more than a third.

Maybe we could talk a little bit about digital transformation can help with challenges, these ongoing challenges that, you know, are some have five years old almost at this point.

Right. Yeah. If you think about supply chain at its heart, what some of those problems are, it's the ability to kind of look to the future and predict where we're going. Because, you know, in a supply chain, the last thing you want to be for a supply chain issue is reactive. You don't want to say, oh, wow, I just realized that there's this really important part I need for my assembly line. I just got a phone call from my supplier.

Yeah, they're going to, they're not going to produce those anymore. I want to predict that it becomes a big data problem. There are trends in the industry and you can, companies need to be able to analyze and look at, you know, what, what is the effect of, you know, maybe the, this particular kind of rubber that's produced in a country and that rubber's

going to be short. Well, what products is that used in? Who's using that? What will that affect? Or this particular element that's used to create a particular kind of integrated circuit. And it becomes this very large, complex connection of data. And companies really need this

this massive amount of industrial data to predict where they're going. And that's one of the things that we're seeing in the industry that the companies that are succeeding are leveraging very, very large amounts of data. And there's an example where we are using large language models today.

to feed it with all this data. Let's look at trends in the past 10 or 15 years. When this thing happened in this country, how did it affect the supply of silicon memory chips that are made in this particular company? Those trends exist and there are human beings who can do some of that work, but they're few and far between. How do you take their knowledge, put them into a large language model, bottle that up, and then continue to move more and more data into it? We're seeing that companies are using that today

to do exactly that. I think that's what companies need. Again, they don't want to be reactive to a problem that happened. They want to be proactive. They want to say, in six months, I'm going to have this problem. And then they want to be able to run scenarios. We talk about digital twins of manufacturing, but I want to be able to run a scenario. Okay, this is going to happen in six months. This particular part is going to be late. How do I rearrange my manufacturing? Where can I find a spare part? Maybe I want to change the way I do my manufacturing. And those are ways...

The companies are using digital technology and artificial intelligence to really make their supply chain issues better.

And in addition to supply chain issues, respondents, slightly fewer, but still significant number at 29%, expect digital transformation to help their company become more sustainable or green, which is increasingly important for the aerospace defense industry. We're seeing a lot more discussion and movement around SAF, for instance, just one example. The

The sustainability side, how is digital transformation able to help companies on that journey? There are many ways. When we think about sustainability in aerospace, we obviously go to, okay, jet engines use fossil fuel, fossil fuel produces carbon. So one of the best ways, I think, one of the first ways is to how can jet engines do more with less fuel? And we talked earlier about blended wing bodies.

There's an example of a new technology where we can move as many people the same distance with half the fuel. So there's that. There's the ability. We talked about SAF and there's good things about SAF and struggles about SAF because it's expensive and hard to manufacture. But there's a lot more than just the end item. How much carbon do I produce when I'm flying an aircraft? Right.

Another really key thing to think about is how much carbon do I produce in the supply chain? How much carbon do I produce in my manufacturing facility? And digital transformation allows companies to think about how can I build and operate my factory more efficiently? How can I maybe rather than having a global supply chain, maybe it's going to make more sense to manufacture some of those things closer to the factory where I'm going to put the

going to put them together. And it really lets you think about how green are all the parts in my product, not just... So in other words, the carbon produced to create a product, the carbon produced to support a product, in addition to the carbon produced to operate a product. And it becomes a very multi-dimensional complex thing that, again, new technologies and new things are allowing us to look at.

And I think that's one of the many ways that we're thinking about sustainability from an aerospace standpoint.

And as companies move along on this digital transformation journey, do you have any closing advice or thoughts for them to get to get to that fifth step? So so a couple of things. First off, it's it's not just about, you know, I'm the guy from Siemens here. And I want you to think, OK, the guy from Siemens came on the podcast and said, buy my software and life is good. Not that simple.

There's far more to it. Certainly, digital transformation is important, but it's a part of a bigger picture. It's people, processes, and tools. It doesn't matter how good the technology is if your staff won't adopt it. So you need to think about including people in the adoption of this and also creating processes that really... New processes. Don't think about...

Okay, I'm going to use a new tool, but I'm going to use my 20-year-old process to implement the new tool. Think about processes that take advantage of all this new technology. And you talk about how to get to step five. A lot of people see the framework and think, I got to get to step five.

And my advice is always don't think about it that way. Think about where you are now and the value in going to the next step. What is the next step for you? Because maybe for your company, you know, automation is really what you need to think about getting to automation. And the key is start now. Don't think about it's going to be something new in two years. I'm going to wait for this AI thing to get sorted out. I'll figure it out then.

Your competitors aren't waiting. Think about starting now. I know we're out of time, but there's so much more to talk about on this issue. And you referred to some of the other things in the survey. Probably people are saying, can I get my hands on that survey? Absolutely. We put it online. If you go to Siemens.com...

forward slash aerospace transformation, Siemens.com forward slash aerospace transformation. You can download the whole survey, a lot more questions we didn't get to and see a bunch of other information about things we talked about today, but it's...

It's been a pleasure being on the podcast with you today, Matt. Really enjoyed it. Thanks for the conversation. Thank you very much. A lot of insights about digital transformation that I think our listeners will have much to think about. So thank you again for being with us today and have a great Friday.