Insights from AlixPartners : how innovations are disrupting Aerospace & Defense?

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INSIGHT
Aerospace and Defense
March 2015
Disruptive Innovation in Aerospace
and Defense
Nevertheless, disruptive innovation in A&D is occurring on two
main fronts:
}} New players and ventures—such as Space Exploration
Technologies (SpaceX), Google, and Facebook—that are
challenging legacy players in space transportation and satellites
}} New technologies—such as additive manufacturing and
new materials with ultralightweight aircraft seats or tools—
that are used in conjunction with big-data analytics in
specific aerospace product segments or operations
New players and ventures
Since its founding in 2002, SpaceX has boldly challenged its
space transportation competitors with its military and
commercial launchers and its unmanned- and manned-missions
modules. SpaceX made its first spaceflight in just six years and
brought to market the Falcon launcher and Orion spacecraft to
resupply the International Space Station (ISS). To do so, the
company had to dramatically reduce the development cycle,
which it did by cutting industry-standard development costs by
a factor of four and operating costs by two.
There are some key success factors that have allowed SpaceX to
do this:
}} An entrepreneurial CEO, Elon Musk, who is a successful,
serial entrepreneur in multiple sectors and who, in addition
to SpaceX, is a founder of digital-payment company PayPal,
electric-car manufacturer Tesla Motors, and, more recently,
high-speed transportation system HyperLoop.
}} A lean and flat start-up organisation, where results matter
more than process and where stock options for employees
is the norm.
}} A modular and simple design with a focus on reliability and
compatibility, the same Merlin engines are used for the
Falcon 9 vehicle’s two stages. The Falcon 9 is also
designed for dual, military-civilian use, which makes it
unique in the market. The ultimate goal is reuse of the full
launch system, and trials are in progress.
In aerospace and defense (A&D), disruptive innovation can come in many forms. It can
come in the form of a new product, technology, material, or process that leads to a step
change in performance or efficiency; it can involve the emergence of a new market that
redraws the landscape of a particular industry; or it can be about new business models or
service offerings. For example, in the ‘80s, Airbus disrupted product technology when it
introduced fly-by-wire technology through the A320 instead of the heavy, mechanical flight
control system. However, there are many barriers that hinder disruptive innovation in
A&D, such as (1) long development cycles and long lifetimes for an aircraft in operation, (2)
a relatively small pool of potential customers, and (3) certification constraints.

2. INSIGHT | Disruptive Innovation in Aerospace and Defense
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}} Access to NASA intellectual capital and support from the
US administration through development contracts that
challenge established players.
}} A vertically integrated operating model that concentrates
75% of manufacturing operations at a single site and that
designs and builds Merlin engines in-house.
}} An integrated business model along the value chain.
Whereas the legacy value chain comprises four different
players—a satellite original equipment manufacturer (OEM),
a launch services provider, a launcher OEM, and a
propulsion supplier—SpaceX covers all of those roles with
its new satellite manufacturing venture, which, from a
system design perspective, enables further optimisation
across those elements.
}} A disruptive and aggressive marketing and lobbying
strategy that targets three markets simultaneously: the
commercial launcher market, the government launcher
market, and space missions (ISS resupply/Orion capsule).
The emergence of SpaceX has driven some of the company’s
key competitors to radical strategic moves, including the joint
venture between Safran and Airbus Group in commercial
launchers, announced in 2014, to protect the future of Ariane.
Orbital’s merger with ATK is a move towards integration of the
launcher and propulsion OEM—in line with SpaceX’s model and
the Safran/Airbus joint venture. SpaceX indeed presents a
challenge to Orbital’s US market, but its Russian market faces
geopolitical pressure as well as serious technical issues. It is
worthwhile to note in that context that Orbital’s Antares launcher
explosion in October 2014 was caused by its Russian engine.
At the same time, Internet titans such as Google and Facebook
are challenging traditional telecommunications satellite
operators by developing innovative solutions such as the
network of balloons, solar-powered drones, or constellations of
medium-Earth-orbit satellites, which provide Internet access for
remote areas. Both OneWeb, backed by Richard Branson and
O3b founder Greg Wyler, and SpaceX recently announced they
would explore the frontier of broadband constellations. SpaceX
will be backed by Google and financial investor Fidelity in the
venture: the two recently announced a joint, $1-billion
investment in SpaceX for a 10% stake in the company.
Key technological options include:
}} Medium-Earth-orbit satellite fleets developed by O3b.
O3b stands for Other 3 billion, or the 50% of mankind in
remote areas with no access to geosatellite-based Internet.
Medium-Earth-orbit satellite fleets present the lowest
technological risk and could complement geostationary
satellites in remote areas. The credibility of this option has
been further reinforced by Musk’s and OneWeb’s separate
announcements in January 2015 that both of them would
pursue similar concepts.
}} Solar-powered drone fleet concepts developed by Titan
Aerospace, which was acquired by Google, and by
Ascenta, who was in turn acquired by Facebook in 2014.
These concepts have the highest breakthrough potential,
but they also carry significant risk because the technology
is not mature.
}} Fleets of balloons, such as Google’s Project Loon, which
carry the highest technological risk because a proof of
concept is not yet available. Nevertheless, these are
potential game changers that could lead to widely
available low-cost Internet. To prove the technology,
Google is partnering with French government space
agency CNES, which has decades of experience with
scientific balloons.
}} Nanosatellites, which (1) are much smaller than their
geostationary cousins, (2) can contain a significant
proportion of functionality for a fraction of the cost, and (3)
constitute another pillar of disruptive innovation in the
space sector. These satellites provide only degraded
functionality—such as lower-resolution images than
traditional geostationary satellites provide—but costs are
typically $150,000 to $1 million for a CubeSat versus $200
million to $1 billion for a full-size satellite including launch.
The lower cost of space access that is enabled by those
micro- or nanosatellites will open up space to many new
applications.
New technologies
The second main front of disruptive innovation in A&D focuses
on new technologies, new tools, and new materials that enable
a product step change, as illustrated by, for instance, Expliseat,
3-D printing, and big-data applications, among others.

3. INSIGHT | Disruptive Innovation in Aerospace and Defense
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}} Expliseat, which manufactures lightweight commercial-
aircraft seats, is less advanced in its industry than SpaceX is
in space, but the company has already certified its product
and gained some first contracts. Expliseat relies on radical
design simplification that uses 10 times fewer components
than its peers do and on the extensive use of advanced
composite materials and titanium to achieve a drastic, 50%
weight reduction. This could be a game changer for seat
economics, with potential payback in less than three years
on the retrofit of a full coach cabin.
}} 3-D printing, also called additive manufacturing, already
has some serial A&D manufacturing applications, with
many more ahead. A&D companies are at the forefront of
3-D metal printing because of the technology’s main
features: fast prototyping, freedom in design, weight
saving, optimised airflow, and toolless production. The
3-D-printing tool is expected to grow fivefold to $10 billion
in the next eight years. To be out of this game is therefore
not an option for any major A&D player. Key aerospace
applications to date include thermoplastic parts and metal
brackets (already in serial production on the B787 and the
A350 for aircraft OEMs), selected metal parts for engine
OEMs, and some space applications as well. But the main
growth drivers in 3-D printing are the shift of applications
from prototyping to final production and the development
of spare-parts applications.
}} Big-data application areas are critical in the A&D industry;
billions of records have to be managed in such areas as (1)
in-service data that facilitates the trend and the health
monitoring of engines or aircraft and (2) inventory
management. Applied analytics and advanced
algorithms—applied to huge amounts of data records from
different systems—can enable a significant leap forward in
aerospace applications.
In-flight health-monitoring systems are natural applications
because the data produced can be compared with a library of
profiles that, via advanced algorithms, can predict equipment
failure so that the data can be replaced beforehand.
In inventory management, data is often split between different
systems, and planning information has to be compiled from very
different sources with a mix of historical data, planned
maintenance events, customer-specific information, and
equipment reliability data and then has to be combined by way
of optimised algorithms. The global civil air transport spare-
parts inventory was estimated at $45 billion in 2010, so any tool
or approach that could significantly improve inventory
management would be a huge hit in an era when both airlines
and companies that perform maintenance, repair, and overhaul
are looking for cash anywhere they can find it.
Implications for innovation-minded organisations
An innovation is disruptive when its introduction triggers a
significant change to the equilibrium of a market. This kind of
innovation is therefore more likely to be brought by someone
who’s not part of the current market equilibrium—that is, a new
player—or by a new approach to innovation and product
development.
Indeed, many examples of disruptive innovation have come
from new players, and that’s the case for Space X, Expliseat, and
the Internet titans. But does it mean legacy players cannot do it?
What do they need to put in place to be successful and to
reinvent themselves and the products they bring to the market?
The keys lie in more-agile and more-nimble design concepts;
renewed perspective on performance, wherein 80% of the
functionality for 20% of the cost is at least as much a revolution
as is a 15% performance increase; accelerated prototyping; and
test and decision loops enabled by flat and lean organisations.
The 80/20 functionality vs cost arbitrage is not applicable nor
possible everywhere but companies should systematically and
proactively scan all dimensions of their products for areas
where it can be. To do that, companies should conduct
thorough functional reviews and value analyses of product
functionalities to differentiate the core attributes customers
require from those that are merely nice to have.
Obviously, this new paradigm represents a clear departure from
the traditional mind-set and long-established approach to
engineering, which have historically focused on performance
first, weight second, recurring cost third, and full life-cycle cost
only after all of the other factors have been considered.
Nevertheless, the culture of cost and functionality trade-offs
must be instilled more rigorously in engineering organisations—
through systematic capture, formalisation, standardisation, and
application of knowledge from past programmes and
competition.
In fact, that culture of cost versus functionality and that positive,
can-do attitude form the hidden link between SpaceX,
nanosats, and GoPro, the hugely successful company that
revolutionised leisure videos with a simple product—a miniature
“outdoors-proof” portable camera—and created an entirely
new $1-billion market in the process.

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