Aerospace & Defense Industry Outlook, 2025
An in-depth analysis of key trends, market dynamics, and growth opportunities shaping the Global Aerospace and Defense industry in 2025.
Author: Swarup Sahu
Introduction to the Aerospace & Defense Industry
The global aerospace & Defense industry lays the strategic foundation for worldwide security, mobility and technically advanced innovation. The industry is valued at $922 billion in the year 2024, maintaining its vital positions amongst other major industries globally. Earlier, the industry had relied on government defense spending and commercial airline operations but now it is undergoing major transformation due to its escalating geopolitical conflicts and rebounding of air travel along with the rapidly expanding commercial space industry.
Primarily the industry is involved in designing, manufacturing, and selling products and services relating to defense and air mobility. But currently, the industry is experiencing three major shifts. First key shift is the rebounding of commercial aviation sector from the pandemic disruption, supported by surging passenger traffic and large aircraft order backlogs. The second vital shift is; defense modernization programs, which advance at a faster pace, owing to the intensifying geopolitical tensions and military rearmament patterns along with changing national security priorities. Moreover, the commercialization and space exploration have emerged as a growing sector, fueled by increasing investments in satellite constellation development and space tourism initiatives, by both government and private organizations.
On the other hand, the civil and defense aviation market has demonstrated rising demand since the past few years while backlogs are extended and supply chain disruptions restrict delivery capabilities. In fact, the industry has not recovered to its 2019 pre-pandemic levels fully.
However, despite current supply chain bottlenecks, rising backlogs and labor shortages, it is anticipated that the industry will set new records and is projected to reach the value of $1.9 trillion by 2035. In which, the commercial aviation is positioned as the integral part of the global infrastructure, resulting in rising demand for the civil aircrafts, outpacing the production capacities. Additionally, the defense industry is expected to expand, due to the rising geopolitical conflicts which will lead to higher defense spending for modernization and innovation initiatives by major economies worldwide.
Aerospace and defense industry growth pattern showing pandemic impact, defense technology innovations, and market recovery trends.
Market Landscape and Economic Importance
The global aerospace and defense industry operates as a vital connection among national economies advanced manufacturing networks, and international trade eco-system. Furthermore, the industry generates millions of skilled job opportunities while advancing technology and ensuring strategic national security for all governments across the globe.
At a regional level, North America is the clear winner of this game, particularly the US, having the largest budget of defense expenditure, hitting around $895 Billion in 2025. And in the next year FY2026, the Trump Administration is proposing record high budget of $ 1 Trillion, that is around 20% up from current year. Moreover, with the homegrown aerospace giants such as Boeing, Lockheed Martin, and Raytheon, the North America region holds a substantial position in this sector all around the globe.
Europe A&D Industry is not far behind in the race. The European market has hold around 25% of the global Aerospace & Defense industry, which is estimated at $230 Billion, establishing as a key sector of the region. Europe has been developing an improved eco-system to achieve an advanced and sustainable A&D industry. The defense companies operating in the European market is highly competitive and capable to deliver wider range of technologically advanced products and services. The investments are now being deployed in various start-up companies providing support directly or indirectly to the defense sector. This shifted focus is aiming at creating a robust and sustainable supply chain eco-system, ensuring the smooth access of required material at every point of time.
Asia Pacific A&D Industry has emerged as a dynamic market in the region, particularly China who is having the second largest defense spending budget after US, valued at $314 Billion in 2024. Having developing economies, demographic pools, escalating geopolitical stiffnesses, along with the shifting global financial environment from Western region to Eastern Horizon, the Asia Pacific A&D industry has secured around 21.5-22.5% of the global defense spendings. However, few economies such as Philippines, South Korea, Palau and other tiny islands in the region are depending upon US military assistance. But, major developing countries India, Japan and Taiwan hold around 25%-26% of regional defense expenditure after China. China is not the only nation advancing its Defense technology capabilities. Japan, Singapore, South Korea, and Taiwan are steadily moving toward greater self-sufficiency, while India continues to expand its indigenous production base to reduce reliance on foreign suppliers, which still account for an estimated 65% to 70% of its military capabilities.
Commercial aviation sector is recovering from post pandemic era, and rapidly growing especially in Asia Pacific region. The brighter example for this is India. Indian economy is growing faster than ever and the demand for air transportation is increasing at par. The major airline companies like Air India, Indigo and Akasa Air operating in the market have ordered more than 1100 planes in recent years.
Countries such as China and India are witnessing rising air travel demand, driven by growing consumer preference for affordable and accessible transportation. Airlines in the region are expanding their fleets and routes to serve this increasing passenger base, supported by government initiatives to enhance aviation infrastructure and streamline operations. With sustained investment and strong population growth, particularly in China and India, the Asia-Pacific region is expected to remain the global leader in commercial aviation growth over the next decade.
The global space industry is projected to reach $1 Trillion economy by 2035, and this Space Exploration domain opened up new doors to the world. Venture financing has been poured to the space economy. The space economy is no more the only interest of boasting super economic powers, but the investors and the private companies are also cultivating the opportunity to crop out maximum yield through space tourism, space component manufacturing and other co-relating ventures.
Major powers including the United States, Russia, China, the European Union, NATO, the United Kingdom, Japan, and India have established dedicated space forces and are actively expanding their space infrastructure. At the same time, a growing number of emerging economies like Argentina, Brazil, Mexico, Turkey, Saudi Arabia, South Africa, and the United Arab Emirates, Australia, Indonesia, Malaysia, and South Korea are positioning themselves to enter the space domain, recognizing its strategic and commercial potential.
Industry Segmentation of Aerospace & Defense
For better understanding of the industry, we have categorized it in Aviation & Aerospace, Defense Systems and A&D technologies.
Aviation & Aerospace
The Aviation & Aerospace sub-segment encompasses all types of air and space-based platforms. Further, the commercial aviation sub-segment consists of passenger and cargo aircraft and business jets and regional jets which focus on worldwide connectivity and operational efficiency and sustainability through major manufacturers Boeing Airbus Embraer and COMAC.
The military aviation sub-segment includes fighter jets, transport aircraft, and aerial refueling tankers. The rotorcraft and drone sub-segment serve dual purposes between civilian and military operations through its use in medical transport and submarine warfare and commercial transport and combat drone applications.
Moreover, the space systems consist of essential components which include communication satellites, navigation satellites, earth observation satellites, launch vehicles, space stations and exploration that are majorly led by Government space agencies (NASA, ESA, ISRO) and private organizations (SpaceX and Blue Origin).
Defense Systems
The Defense Systems segment operate through three major sub-categories which include land-based systems and naval systems and missile-based systems. The modern battlefield depends on tanks and armored personnel carriers and artillery and tactical vehicles which have become more modular and automated to achieve better battlefield flexibility.
The naval domain consists of warships and submarines and aircraft carriers and amphibious ships which benefit from stealth technology and unified combat system integration. The missile defense and strategic weapons domain include ballistic and cruise missiles and hypersonic platforms and THAAD and Iron Dome interceptors and nuclear deterrence assets which continue to protect national security interests.
A&D Technologies
The A&D Technologies enables the development of future-oriented capabilities. The integration of cockpit systems with command-control systems enables flight management and C4ISR operations through avionics technology. The combination of AESA radar with EO/IR and sonar and LIDAR sensors and communication technologies delivers advanced situational awareness and protected network connectivity.
Furthermore, this segment covers the cybersecurity and electronic warfare solutions to achieve spectrum control and defend against unbalanced threats. The industry advances sustainable innovation through its adoption of green propulsion systems and hydrogen engines and hybrid-electric aircraft and sustainable aviation fuels (SAF) while hyper-sonics and directed-energy weapons introduce revolutionary strike capabilities.
Key Growth Drivers
The Aerospace & Defense industry is being driven by rising global defense budgets, increasing demand for advanced aircraft, and rapid technological innovations in avionics and defense systems. Investments in space exploration, unmanned systems, and modernization of military fleets further accelerate growth. These factors collectively fuel innovation and expand market potential across the sector.
Geopolitical Tensions and Defense Modernization
The efforts for next generation defense system have accelerated by the governments (USA, China, Russia, India, NATO member countries) across the globe. They are also recalibrating their security tactics due to the escalating geopolitical uncertainties. Additionally, the global defense budget had reached <strong>$2.1 trillion</strong> in 2023 and is projected to surpass <strong>$2.2 trillion</strong> by 2025. On the other hand, the ongoing Eastern European conflict, Sea border disputes in South China, and intensifying Indo-Pacific rivalries have established long-term requirements for modern defense system.
Moreover, for every major nation the Defense spending focuses on acquiring advanced fighter jets, hypersonic missile protection systems, nuclear submarines, and unmanned aerial vehicles (UAVs). For example, the NATO members are increasingly meeting the <strong>2%</strong> of GDP defense spending goal, while the nations such as Japan, India, and Australia in APAC region are investing heavily in indigenous capabilities to counterbalance regional threats. Furthermore, this modernization cycle provides multi-decade growth opportunities for defense contractors across land, sea, air, and cyber domains in coming years.
Commercial Aviation Recovery
The civil aviation sector shows a strong recovery from pandemic disruptions and is expected to rebound to the pre-pandemic levels by 2025 while passenger traffic is projected to reach double the 2019 levels by 2040, due to the Asian middle-class expansion and new market connections. Airbus and Boeing have a combined aircraft backlog orders total of more than <strong>13,000</strong> units which ensures their production lines will be operating at full scale through the following decade.
Moreover, the airline companies are is now procuring narrow-body aircraft with improved fuel efficiency such as Airbus A321XLR and Boeing 737 MAX models as well as widebodies like Boeing 787 and Airbus A350 aircraft. Furthermore, the regional aircraft manufactures led by Embraer and COMAC has started to gain market share in domestic air travel routes. Additionally, the sustainability mandates and fuel price volatility are compelling airline companies to prioritize lightweight aircraft, advanced aerodynamics, and operational efficiency, creating a ripple effect across the aerospace supply chain.
Space Commercialization and Frontier Expansion
In recent years, the space economy has shifted slowly from government agencies to become an active commercial space exploration era. The global broadband network is undergoing transformation through Starlink and OneWeb satellite constellations as national organizations and private space companies pursue lunar exploration, asteroid mining and space tourism development. Furthermore, the National governments now view space as a vital security resource which drives their defense spending for satellite protection systems, space monitoring capabilities and satellite destruction technology. Additionally, the launch cost reductions from SpaceX, Blue Origin and Rocket Lab have established space access for nations with limited resources and new space companies.
The dual-use nature of space assets, serving both commercial and defense applications, unlocks lucrative investment opportunities by delivering combined strategic and economic benefits.
Sustainability and Green Aviation
The aviation sector generates around 2.5% of global CO₂ emissions which leads to strict environmental regulations and market necessity for decarbonization. Furthermore, the International Civil Aviation Organization (ICAO) along with European and North American regional authorities are directing airline companies and manufacturers to achieve net-zero emissions by 2050.
On the other hand, the aerospace companies are significantly investing in sustainable aviation fuel (SAF) development, which could reduce the CO2 emissions by <strong>80%</strong> throughout their entire life cycle. In addition to that, the development of hydrogen propulsion systems and hybrid-electric aircraft designs are in the progress at Airbus through ZEROe and at Rolls-Royce. Furthermore, GE Aviation and Mitsubishi Power lead the development of hydrogen-fueled engine technologies which represent a strategic transition toward environmentally friendly propulsion systems and sustainable aviation solutions. The use of lightweight composites together with additive manufacturing and advanced alloys in aircraft construction leads to better fuel efficiency. The transition to green aviation creates dual benefits for companies which adopt sustainable practices first because they receive both regulatory benefits and customer loyalty.
Digitalization and Advanced Manufacturing
The aerospace and defense industry undergoes fundamental changes through digital transformation which affects all stages of complex system development, production and operation. Real-time aircraft performance simulation through digital twins shortens development periods and reduce the maintenance expenses. Additionally, the combination of IoT and AI technology enables predictive maintenance systems which boost fleet readiness and minimize the unexpected system outages for commercial airlines and military forces.
The 3D printing technology is revolutionizing the supply chain by producing on-demand lightweight components while AI optimizes both aerodynamic performance and structural strength. Furthermore, the defense sector depends on digital warfare capabilities which include cyber resilience, AI-powered command systems and unmanned platforms to preserve military dominance. The digital technology integration enables better operational performance and generates new business opportunities through performance-based contracts and data service delivery in aerospace.
Restraints & Challenges
The Aerospace & Defense industry, while resilient, faces structural and cyclical challenges that temper growth potential.
Supply Chain Bottlenecks and Workforce Shortages
The global aerospace and defense supply chain operates in a state of vulnerability. The Russia-Ukraine war has interrupted titanium supply for Boeing and Airbus aircraft production as Russia used to supply <strong>30-40%</strong> of aerospace-grade titanium worldwide. Additionally, the <a href='/semiconductors-&-electronics' class='text-[#295596] hover:underline font-semibold'>semiconductor</a> shortage which started from pre-pandemic disruptions and geopolitical conflicts has caused delays in avionics and radar system deliveries which made OEMs force to change their delivery plans.
Moreover, the ongoing talent deficit in advanced aerospace manufacturing operations creates an expanding production deficit. For example, Lockheed Martin and Northrop Grumman face hiring challenges, delaying defense program execution due to the shortage of skilled engineers and systems integration experts.
Budgetary and Capital Pressures
The global defense spending continues to rise, driven primarily by NATO member states, which are projected to collectively exceed <strong>$1.3 trillion</strong> by 2025; however, significant budgetary constraints persist despite this growth.
The German defense modernization program faces delays in procurement, due to the rising inflation costs and complex bureaucratic procedures under its <strong>€100 billion</strong> "Zeitenwende" fund. On the other hand, the U.S. faces ongoing budget disputes which have caused delays in modernization initiatives such as the Columbia-class submarine development. The high capital requirements of future defense systems create substantial initial investment dangers.
Moreover, the U.S. and Chinese hypersonic weapon development programs need multiple billion-dollar research and development expenditures while the KC-46 Pegasus tanker program from Boeing has exceeded its initial <strong>$7 billion</strong> budget through development delays and changing acquisition methods.
Regulatory and Compliance Burdens
The environmental and compliance standards continue to grow more stringent. For example, the European Union's "Fit for 55" package requires aircraft manufacturers to speed up their adoption of sustainable aviation fuels (SAF) and hydrogen-based propulsion systems as its mandates the CO₂ emission reduction targets, resulted in higher R&D expenses and longer certification timelines.
On the other hand, the U.S. defense companies like Raytheon Technologies and BAE Systems encounter export challenges from International Traffic in Arms Regulations, when they export advanced missile systems and avionics to their allied nations which results in delayed procurements and complicated diplomatic negotiations. For example, the F-35 jet delivery schedule to NATO member countries experienced delays due to the software and component approval related issues stemming from ITAR regulations.
Geopolitical Instability and Trade Fragmentation
Geopolitical conflicts are a double-edged sword for the defense industry, that experiences two opposing impacts. For example, the Russia-Ukraine war spurred the market demand for artillery shells, drones and missile defense systems which resulted in the U.S. and European nations to increase their defense manufacturing output. On the other hand, this ongoing conflict has split world trade operations while it leads to inflated prices for essential <a href='/chemicals-&-materials' class='text-[#295596] hover:underline font-semibold'>materials</a> including nickel, aluminum and natural gas.
Another key example is the ongoing U.S.-China tensions, which have transformed aerospace collaboration. The COMAC C919 aircraft development in China continues with limited Western supply chain access while American defense companies encounter export restrictions for vital radar and missile guidance system materials.
Meanwhile, the Israel-Hamas conflict has increased defense demand in the region but governments is now struggling to obtain export approvals as it faces public scrutiny regarding offensive weapon transfers. This fragmentation not only disrupts the supply chains but also limits the international cooperation for major projects like the International Space Station and next-generation fighter development programs.
Opportunities
Despite several restraints & Challenges, the global aerospace & defense industry is positioned for robust growth in the coming years. Key opportunities lie in sustainability-driven propulsion, the rapidly expanding space economy, digital defense ecosystems, and emerging market demand.
Green Aviation, Next-Gen Propulsion, and Dual-Use Sustainability
The aviation sector faces sustainability as its main priority as it produces <strong>2-3%</strong> of global carbon emissions. The aviation sector works toward achieving net-zero emissions by 2050 which enables the development of hydrogen propulsion systems and electric aircraft and sustainable aviation fuels (SAF). For example, Airbus plans to introduce its first hydrogen-powered aircraft during 2035 while United Airlines supports SAF startups through investments in Fulcrum BioEnergy and other companies.
The International Air Transport Association predicts that sustainable aviation fuels (SAF) will create a <strong>$250 billion</strong> market during the next 30 years. The defense sector benefits from these propulsion systems and lightweight materials, as they show promise for drone and tactical vehicle applications through hybrid-electric and hydrogen-powered technology. Moreover, The EU's "Fit for 55" plan and U.S. Inflation Reduction Act provide government incentives which faster the adoption of these technologies for both military and commercial applications.
Expansion of the Space Economy and Dual-Use Space Assets
The global space economy is projected to reach $1 trillion by 2040 due to the growing demand for broadband constellations, lunar exploration, in-orbit servicing and early-stage asteroid resource development. The commercial space industry demonstrates its scale through SpaceX's Starlink satellite network which contains more than 5,500 operational satellites while NASA leads Artemis and India operates Chandrayaan-3 to demonstrate national space exploration goals.
Meanwhile, space-based assets serve defense operations through their role in navigation systems, communication networks, intelligence collection and surveillance functions. Joint efforts of The U.S. Space Force and European Space Agency to develop dual-use technologies which unite commercial and military requirements, results in enabling collaborative business partnerships and attracting private investment capital. Furthermore, the dual functionality of space assets makes them more attractive for investment as they generate economic value while supporting national defense.
Cybersecurity, AI, and Digital Defense Ecosystems
The digital transformation of warfare and aerospace operations has made cybersecurity and artificial intelligence (AI), the most substantial investment landscape for defense organizations. The global defense AI market is projected to surpass <strong>$13 billion</strong> by 2030 while demonstrating a growth rate above <strong>20% CAGR</strong>. Furthermore, the defense industry leaders Lockheed Martin and Northrop Grumman use AI technology to develop predictive maintenance systems, autonomous drone formations and advanced command centers.
On the other hand, the major defense contractors and governments witnessing increasing cyber threats from state and non-state actors which has led them to build more resilient digital infrastructure to protect against attacks like SolarWinds and ongoing ransomware operations. Organizations that unite secure networks with AI analytics and electronic warfare systems will dominate the development of advanced digital defense systems.
Competitive Landscape
The Aerospace and Defense industry operates in a highly concentrated market where a few industry giants dominate as well as control the entire industry. On the other hand, the commercial aerospace market segment operates as a duopoly between Boeing and Airbus while Lockheed Martin, Northrop Grumman, RTX and BAE Systems lead defense platform development. Furthermore, the market leaders Safran, Collins Aerospace and Honeywell secured their positions as major suppliers of engines, avionics and large subsystems while companies like Amphenol is in the race to expand its defense-grade connectivity business.
A&D Merger & Acquisition Outlook
In the year, the A&D industry secured <strong>$25 Billion</strong> worth of deal but this achievement remains unimpressive as it represents the lowest point since last decade.
The key M&A deal include:
The acquisition of Spirit Aerosystems by Boeing for <strong>$8.3 Billion</strong> enterprise value represents a strategic vertical integration move to stabilize supply chains and solve ongoing production issues. Furthermore, this acquisition of Spirit Aerosystems facilities across US and European territories by Airbus enables the company to enhance its A350 and A321 and A220 production capabilities while building new manufacturing facilities.
Boeing sold its four software units to Thoma Bravo through a cash transaction worth <strong>$10.5 Billion</strong>. The company can now optimize its operations and concentrate on core aviation programs while using the funds to decrease its debt burden.
The acquisition of BlueHalo through an all-stock deal by AeroVironment for <strong>$4.1 Billion</strong> brings new autonomous and AI-based defense system capabilities to their portfolio. The acquisition strengthens counter-drone capabilities which represent a vital defense requirement of current times.
Apollo Global Management acquired Barnes Group through a <strong>$3.6 billion</strong> leveraged buyout transaction. The acquisition provides Barnes Group with increased aerospace component and precision engineering capabilities which will boost its long-term manufacturing operations.
Amphenol bought the outdoor wireless and distributed antenna businesses of CommScope through a <strong>$2.1 billion</strong> acquisition. Through this acquisition Amphenol gained better defense-oriented connectivity solutions and entered the market for next-generation communication systems.
Rheinmetall acquired Loc Performance Products which operates as a Michigan-based military vehicle specialist through a <strong>$1 billion</strong> acquisition. The acquisition enables Rheinmetall to grow its US defense operations and improve its chances of winning DoD procurement contracts.
Key Defense Contractors
| Rank | Company | 2024 Revenue (USD Bn) | 2023 Revenue (USD Bn) |
|---|---|---|---|
| 1 | Lockheed Martin | 71.04 | 67.57 |
| 2 | General Dynamics | 47.72 | 42.27 |
| 3 | Northrop Grumman | 41.03 | 39.29 |
| 4 | BAE Systems | 33.6 | 28.7 |
| 5 | Thales | 22.27 | 19.94 |
| 6 | L3Harris | 21.33 | 19.42 |
| 7 | Leonardo | 19.22 | 16.55 |
| 8 | Rheinmetall Defence | 8.98 | 6.15 |
| 9 | Elbit Systems | 6.83 | 5.98 |
| 10 | Dassault Aviation | 6.75 | 5.2 |
Major Aerospace Manufacturers
| Rank | Company | 2024 Revenue (USD Bn) | 2023 Revenue (USD Bn) |
|---|---|---|---|
| 1 | RTX | 80.74 | 68.92 |
| 2 | Airbus | 74.92 | 70.83 |
| 3 | Boeing | 66.52 | 77.79 |
| 4 | GE Aerospace | 36.36 | 32.82 |
| 5 | Safran | 29.56 | 25.11 |
| 6 | Rolls Royce | 24.15 | 20.51 |
| 7 | Honeywell Aerospace | 15.46 | 13.62 |
| 8 | Hanwha Aerospace | 8.25 | 6.04 |
| 9 | MTU Aero Engines | 8.02 | 5.8 |
| 10 | Howmet Aerospace | 7.43 | 6.64 |