Thursday, December 17, 2015
How A&D Companies are Advancing Tech Under Sequestration
[Avionics Today 12-17-2015] While budgetary concerns as a result of the 2011 Budget Control Act (BCA) have restricted Research and Development (R&D) funding in the U.S. aerospace market for the last five years, Deloitte’s latest report on the sector finds that companies are discovering ways to push innovation forward nonetheless. While the commercial market continues to see increases in Independent Research and Development (IRAD) spending, aerospace and defense sectors have been ratcheting back for the last five years. Deloitte’s report found that company-funded IRAD declined 26.5 percent from 2009 to 2014 and that the U.S. Department of Defense (DOD) reduced its Research Technology Development and Evaluation (RDT&E) funding from $79.7 billion in 2009 to $62.9 billion in 2014, a 21 percent decline.
Despite less access to capital, several companies are developing new technologies and pursuing or creating new markets through collaborations, unconventional partnerships, and other means.
While the latest bi-partisan funding bill is promising to raise DOD’s R&D spending by 4 percent for the first time in the last five years, Tom Captain, vice chairman and U.S. aerospace and defense leader at Deloitte, notes it is not clear if the increase will sustain into future years. Meanwhile, U.S. companies have to find creative ways to move past products that are in danger of becoming outdated.
“As past innovation technologies lose their luster and lose their premium value, they become commoditized, like cars, PCs or smartphones, and that drives down the price point. That is good for you and I as a customer — or the Defense Department, as a customer — but not so good for companies that profit from their products,” Captain told Avionics Magazine.
New Functionality, New Price Points, New Markets
To continue being able to price products at a premium, certain companies are still investing huge amounts of their own capital to offer new technologies that offer either functionality or price benefit — or both — to consumers.
One such company is SpaceX, which is currently attempting to build a rocket for one-third or half the traditional cost. At a significantly lower price point, it is creating new demand and markets.
“There are plenty of examples where new price points are developed and it creates whole new markets. [Global Positioning Systems] GPS, for example, autopilot, Traffic Collision Avoidance Systems [TCAS], weather radar, [Automatic Dependent Surveillance-Broadcast] ADS-B or digital communications — these are/were all new technologies, which created new markets, new functionality, and benefit in the cockpit and therefore allowed for premium pricing power by those that created those innovations,” said Captain, noting that even these products will become disrupted by new technologies over time as needs change and technology adapts.
To create new markets or technologies under sequestration, some companies are forging ahead by turning to non-traditional partnerships, such as Rockwell Collins collaboration with the U.S. Defense Advanced Research Projects Agency (DARPA) in order to create GPS technology. Similarly, Textron was able to design, build and fly its Textron AirLand Scorpion jet in just two years using Commercial Off-the-Shelf (COTS) products, assuming the risk, but also speeding the aircraft’s move to market. Textron and AirLand are hoping the product will appeal to Pentagon procurement reformers, who are looking for more affordable and innovative aircraft, according to the company.
New Acquisitions and Partnerships
Acquisitions and partnerships are also helping to push new core technologies to market more quickly. Safran’s collaboration with Albany International is one example of this. The partnership is focused on developing new fan blades and casings for the Leap jet engine, planned for the Airbus A320neo and Boeing 737 MAX. According to Deloitte, the shared investment by both companies across new facilities in both France and the U.S. was strongly backed by both governments for its focus on innovation and job creation. Acquisitions can also play a role, as evidenced by Raytheon’s recent acquisition of cyber security company Websense.
“We expect to see more acquisitions going forward. Skybox was acquired by Google to create a new player and there are many different kinds of innovations where acquisitions have been part of the landscape,” said Captain.
Companies are also looking to explore and deploy innovative technologies through partnerships with startups and new companies, as well. In fact, U.S. DOD Secretary Ashton Carter recently approached Silicon Valley and established a Manufacturing Innovation Institute for Flexible Hybrid Electronics to pursue innovation in wearable technology, and it’s likely we can expect more of this kind of collaboration in the aerospace sector as well.
“Startups will play a very significant role [in the new aviation landscape]. Startups are the ones that can take more risk and they are more agile and more entrepreneurial than a company that has been in business for a long time. The need to support and nurture the start-up market is very important,” said Captain.
Avionics can expect to see the benefit of these companies still working to initiate new technologies and markets under a decidedly quashed budgetary environment.
“We will definitely see advances in technology in avionics, made up of digital communications, weather sensing, traffic collision and avoidance, [Automatic Dependent Surveillance-Broadcast] ADS-B, situational awareness and autonomous control,” said Captain.
Autonomous control with Unmanned Aircraft Systems (UAS), beyond what is being achieved by the likes of Amazon Prime Air and Google in the commercial sphere, will likely take off.
“We expect to see next generation innovations in navigation and autonomous control. We will certainly see a parallel with what’s going on with driverless cars. With commercial aviation we will probably see that starting with freighters and helicopters,” said Captain.
He noted that it will likely move next to the commercial aviation sphere — although the consumer base may take a bit of convincing to before passengers are willing to enter a plane without a pilot in the cockpit, it will ultimately be a cost-effective way to move commercial aviation forward.
“[This] will certainly lower the cost of flying because people won’t need to have expensive labor in the cockpit, but also from a [Capital Expenditure] CAPEX perspective you won’t have to build in screens and communications gear and cockpits with windows, etc., which are very expensive. So, it will be lower cost to deliver an airplane and lower cost to drive an airplane, because you are doing it from the ground.”
Captain says Deloitte also expects to see innovations in propulsion, such as hybrid-electric propulsion and laminar flow, which will make the airplane fly more efficiently.
“These are the kinds of technologies and innovations that could be very disruptive, but will add functionality and will create a better and safer flying experience for the passenger at a lower cost,” said Captain.