CSC's 2015 Aerospace and Defence Market Survey (in association with AIA)

2015 A&D
MARKET
SURVEY
Perspectives of A&D Leaders on Key Business
and Technology Trends
Pricing pressures and government regulations affect R&D
Demand for product innovation and modernization grows
Cybersecurity threats and costs rise
Skills shortage continues
SPONSORED BY CSC AND AIA

EXECUTIVE SUMMARY
The recovery of the global economy and increased demand for commercial
aircraft are lifting the aerospace and defense (A&D) industry out of a challenging
market. A&D companies are continuing to invest in product innovation and
technology modernization for commercial operations, while government and
defense contracts are focused on cost control and more targeted capital
investments, according to the 2015 Aerospace and Defense Market Survey,
conducted jointly by CSC and the Aerospace Industries Association (AIA).
The 14th annual survey on business, economic and technology trends polled
senior executives and senior managers at A&D companies. Key takeaways
include the following:
• Designing and producing innovative products and up-selling and cross-selling
products continue to be top goals in the commercial sector. However, pricing
pressures are forcing organizations to pursue continuous-improvement and
cost-containment measures, slowing the rate of innovation.
• Sequestration has taken a toll on overall defense spending, with 64.5% of
respondents citing budget uncertainty for decreased investments in R&D.
Only 50% of respondents say they are investing in R&D, with cybersecurity,
UAVs and electronic warfare topping the list of R&D investments.
• A majority of respondents (67.8%) report increased spending to protect
against cyberthreats, with nearly half of those (29%) increasing their spend-
ing by 25% or more on cybersecurity in the past year.
• Technology modernization continues to be a major initiative, focusing on
application replacement or modernization, and IT infrastructure
modernization. Cloud computing is cited as a priority for implementing
modernized applications by 41% of respondents.
• Finding skilled workers to replace the industry’s graying workforce continues
to be a key factor affecting A&D companies. Critical areas include aerospace
engineering, mechanical engineering and cybersecurity.
• More than 71% of respondents in the government sector report at least a 10%
increase in product costs related to complying with government acquisition
regulations. Thirty percent reported cost increases of at least 26%.
In response to pricing pressures and lower government spending, A&D
companies are becoming more selective in their R&D investments and are more
focused on product innovation, continuous improvement, cybersecurity and
technology modernization.
TABLE OF CONTENTS
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Demographics: Company Size and Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commercial Sector Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commercial Sector Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Commercial Sector Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Government Sector Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Government Sector Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Government Sector Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Technology Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Regulatory Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1
2015 A&D MARKET SURVEY

The survey provides a solid distribution across company size, though biased
toward larger companies, with 22.3% of respondents having an employee base
between 10,000 and 50,000. Companies with more than 50,000 employees
represent 27.7% of the total respondents. Companies with 10,000 or fewer
employees represent the remaining 51% responding to the survey. Commercial
sector respondents represent 48.4% of the total, and government-sector respon-
dents represent 51.6%. Many of the respondents are in an “Executive
Management” role, followed by “Business Development,” “R&D/Product
Development” and “Supply Chain” personnel.
COMMERCIAL SECTOR MARKET OVERVIEW
The commercial airline industry continues to grow. Emerging economies con-
tinue to industrialize, expanding the middle class and increasing demand for
commercial flights, transportation and logistics.
The regions of Africa, Greater China, India, Latin America and the Middle East are
growing GDP faster than North America and Europe (Figure 1). In 2014, an
estimated 3.3 billion passengers took to the air on nearly 100,000 flights per day
around the globe. The demand for new business for the commercial sector looks
very strong in 2015 and in the near future. Air travel remains a central building
block for wealth and economic growth of both mature and emerging economies.
Figure 1: Projected Compound Annual Growth Rate
The demand for airplane delivery or ramp-up is at an all-time high. Perhaps the
only other time in history we’ve seen a similar level of airframe manufacturing
was during World War II. In 2015, the industry has a backlog exceeding 8,500
commercial aircraft — and depending on the Joint Strike Fighter and other
military aircraft, an additional 4,000 units. According to fleet data from the
CAPA Centre for Aviation, younger, more efficient aircraft will experience the
highest fleet growth rates in the coming years, while some aircraft will be used to
replace existing equipment.
North America’s demand for new commercial aircraft is slowing, and its fleet is
aging. North American orders for 2,267 new aircraft in 2014 accounted for 27%
of all airplanes in service in the region, according to the CAPA Fleet Database. In
comparison, the Asia-Pacific and Middle East regions are experiencing signifi-
cant increases in demand, with combined orders for 4,284 aircraft, accounting
for 52.8% of all aircraft in service in both of those regions (Figure 2).
DEMOGRAPHICS: COMPANY SIZE AND SECTOR
Q1. What is the size of your company/organization? (Select one)
Q2. In what sector do your current customers operate, primarily?
The 98 respondents to the AIA and CSC 2015 Aerospace and Defense Market
Survey fall into two fundamental industry categories: commercial and govern-
ment. The composition of the industry categories broadly consists of the
following subsegments:
Commercial Government
Commercial Aircraft
Intelligent Transportation Systems
Business Aircraft
Military Aircraft
Missiles and Space
Electronic Systems
Ships
Ground Support Equipment
Survey respondents were selected from the subscription database of AIA and
client contact database of CSC. Respondents were nearly evenly split between
the commercial and government sectors.
WORLD
REAL GDP
GROWTH %
Compound Annual Growth Rate
2013–2033
Source: IHS Global Insight 2014 WORLD AVERAGE: 3.3%
2.5%
3.7%
6.1%
3.1%
4.6%
3.8%
1.8%
6.5%
2.5%
Fewerthan100
employees
Between100and1,000
employees
Between1,000and10,000
employees
Between10,000and50,000
employees
Morethan50,000
employees
Commercial
Government
2 3
2015 A&D MARKET SURVEY 2015 A&D MARKET SURVEY

CONTINUOUSLY IMPROVING
MANUFACTURING PROCESSES
The design-to-order, build-to-order A&D
manufacturing environment poses challenges
to continuous-improvement techniques. While
organizations have invested heavily in
production improvements, they have not
achieved long-term benefits of lower costs and
improved efficiency. Many companies are
currently exploring the following approaches to
cost containment:
Systems Engineering
Systems engineering focuses on how complex
engineering projects should be designed and
managed over the lifecycle of the project. This
interdisciplinary approach applies to managing
complex issues such as logistics, the coordina-
tion of globally disperse teams, automated
shop-floor control and aftermarket services.
Synchronous Manufacturing
In commercial and military markets, leading
innovators have adopted a systematic and
synchronized approach to the entire manufac-
turing value chain that addresses materials,
workforce, machines and methods. It helps
prime contractors become predictable and
more reliable suppliers. The key is to
understand the need for dynamic planning,
scheduling and executing all parts of the
manufacturing process — and when a
disruption occurs, to deliver discrete actionable
information to quickly resolve problems such as
late materials, disabled machinery or
inadequate staffing.
Integrated Products and Processes
The management and collaboration of design
engineering, manufacturing engineering, and
planning is critical to reducing waste.
Collaboration allows engineers and production
planners to define how highly complex products
are manufactured, modified and maintained
during product support and end-of-life
requirements.
Region Orders In service Orders as % of number in service
Middle East 946 1,247 76%
Asia-Pacific 3,338 6,862 49%
Europe 2,118 6,744 31%
Latin America 645 2,078 31%
North America 2,267 8,544 27%
Africa 188 1,329 14%
Figure 2: Aircraft Orders and Aircraft in Service by Region, 18 Feb. 2014 Source: CAPA Centre for Aviation
The market for commercial aircraft is forecast to grow over the next 8 to 10 years
in regions such as Asia-Pacific and the Middle East. Growth in these emerging
regions is one of the key market drivers for commercial aircraft sales, MRO,
logistics and support/field service, and aftermarket programs.
COMMERCIAL SECTOR DEMOGRAPHICS
Q3. Identify your organization’s aerospace and defense business segment(s).
(Select all that apply)
Q4. Select your primary function area. (Select one)
More than half of respondents report working for a “Commercial Aircraft
Manufacturer/Integrator” (53%). Other key segments include “Tier 1 and Tier 2
Component Supplier,” “Business Aircraft Manufacturer/Integrator,” “Aftermarket
Components Manufacture and Repair,” and “Logistics, Field Service, MRO
Service Provider.”
Executive management, R&D and sales are strongly represented in the survey.
Executive management (43.8%) is responsible for leading the enterprise and
achieving the expected financial results of the corporation. Business develop-
ment/sales (12.5%) must bring the right product to the right market with a price
point to meet market demand. It then falls on the R&D/product engineering
discipline (15.6%) to take those business and market requirements, target costs
and schedule to launch a successful product.
Commercial
airline
Commercialaircraft
manufacturer/integrator
Businessaircraft
manufacturer/integrator
Commercialspacesystems,lift
vehicles,payloads&launchservices
Tier-1
componentsupplier
Tier-2
componentsupplier
Tier-3
componentsupplier
Logistics,fieldservice,
MROserviceprovider
Aftermarketcomponents
manufactureandrepair
Other
Executive
management
Business
development/sales
R&D/product
engineering
Program
management
Supplychain
management/sourcing
Fieldservice
Other
4 5

COMMERCIAL SECTOR TRENDS
Q5. Rank your organization’s three most important strategic business objectives
over the next 1 to 2 years. (1 being the highest objective, 2 the second highest
objective, 3 the third highest objective)
Respondents were asked to rank their top three business objectives for the next
1 to 2 years. For the third consecutive year, the goal to “Design and Produce
Innovative Products” was ranked as the No. 1 objective, followed by “Up-Sell/
Cross-Sell More Products into the Existing Customer Base” (No. 2) and “Improve
Internal Efficiency/Lower Cost” (No. 3).
A variety of market conditions are focusing commercial sector firms on innova-
tion, including:
• Fuel Efficiency. For U.S. airlines, domestic flights now average 0.54 aircraft
miles per gallon of jet fuel, an improvement of more than 40% since 2000.
Heavier jets on international flights experienced a 17% improvement to 0.27
miles per gallon. However, more work can be done. Innovation in aerodynam-
ics and the use of lightweight composite materials in airframes and airfoils
have led to significant improvements. Replacing mechanical components with
electronics improves weight-to-thrust ratios.
• Eco-Efficiency. This requires continued commitment to sustainability by both
manufacturers and airlines. Innovative solutions are aiming at reducing an
aircraft’s carbon footprint throughout its entire lifecycle — from design and
manufacture to in-flight operations and end-of-life management.
• Noise. The “quiet aircraft” for both the airframe and propulsion systems
continues to be a priority. Manufacturers continue to focus on dominant
sources of engine noise: the blades of the fan at the front and the jet exhaust-
ing at the rear. Opportunities for innovation also exist in airfoil and nacelle
design and configuration.
• Materials. Materials science is at the forefront in the commercial segment and
even more so in the government segment. All manufacturers are investing in
research and development for lightweight materials with superior strength
that can be produced easily. To reduce parts inventories, a set of discrete
parts in a sub-assembly can be configured into a single part. R&D is also
exploring composite ceramics and 3D printing techniques.
Increasing Up-Sell and Cross-Sell
The emphasis on cross-selling and up-selling in the 2015 survey implies that all
commercial aircraft companies, including original equipment integrators and Tier
1 and Tier 2 suppliers, are focused on how they go to market. Up-selling and
cross-selling generally includes additional products or services that customers
want and use. Cross-selling involves offering additional products to support or
complement the product the customer has already decided to buy. Up-selling
involves persuading a customer to switch to a more expensive product to
improve quality, availability and new features.
Effective cross-selling and up-selling can:
• Increase the initial aircraft order total
• Increase the conversion rates of existing customers
• Achieve higher margins
• Improve overall customer satisfaction
Continued Focus on Internal Efficiency and Lower Costs
The A&D industry’s focus on operational efficiency and cost take-out has been a
continual theme in every Aerospace and Defense Survey. Highly engineered and
complex aircraft products are typically produced in low volumes using high-
touch labor, and because of their complexity, the manufacturing process may
involve parts that are subject to continuous design changes and regulatory
requirements that drive up costs.
Designandproduce
innovativeproducts
Findnewcustomeropportunitiesby
growingintonewmarketsegments
Developnewchannelsfornew
andexistingproducts
Up-sell/cross-sellmoreproducts
intotheexistingcustomerbase
Improveinternal
efficiency/lowercost
Growthesustainment/
aftermarketbusiness
Other
“We must increase our
expenditure on R&D if we
want to maintain our tech-
nological superiority.”
– Respondent, 2015 A&D Survey
6 7

Q6. Rank the top three aerospace and defense industry macroforces affecting
your organization over the next 2 to 3 years. (1 being the largest, 2 the second
largest, 3 the third largest)
Survey respondents were asked to identify the top three macroforces affecting
their organization over the next 2 to 3 years. For the third year in a row, “Pricing
Pressures in Commercial Markets” was ranked No. 1, indicating the increasing
competitiveness in the commercial sector. The No. 2 macroforce, also impacted
by competition, was “Mergers, Acquisitions and Divestitures.”
In the 2015 survey, the “Growing Shortage of Skilled Talent” was ranked third.
The graying of the A&D workforce first emerged as a concern in 2010, when it
became one of the top macroforces. This factor is closely followed by
“Reductions and Reallocations in Defense Spending.” The impact of shrinking
defense budgets continues to influence the industry but has fallen in the ranking
since 2010, possibly reflecting the new normal of uncertainty in defense markets.
The expected growth in emerging markets will challenge executive managers on
product localization, global supply chain and product support. While a smaller
number of respondents identified the impact of “Mergers, Acquisitions and
Divestitures Reshaping the Industry” as a macroforce, the responses indicate
that M&A activity is still expected to continue.
Q7. Looking at your business applications and IT infrastructure, what is your
modernization strategy going forward? (Select all that apply)
Technology modernization continues to be a major initiative, according to survey
respondents. Asked about their “Modernization Strategy,” respondents across
the board identified three clear strategies: “Application Replacement or
Modernization” (No. 1), “IT Infrastructure Modernization” (No. 2) and “Integrating
What We Have for Better Data Sharing” (No. 3).
These results tie into the industry’s overall goals to improve business operations,
increase internal efficiency and lower cost. Revitalized applications and modern-
ized infrastructure provide better data sharing and collaboration, which
collectively contribute to lower costs.
To compete at scale on products, services and location at ever-decreasing target
costs, business needs are putting more pressure on IT organizations. Business
leaders look to IT to enable and unlock new revenue streams across the enter-
prise — and at lower costs.
Globalization
Reductionsandreallocations
indefensespending
Pricingpressuresin
commercialmarkets
Mergers,acquisitionsanddivestitures
arereshapingtheindustry
Agrowingshortage
ofskilledtalent
Compliancewithexport,tariff/trade,intellectual
property,environmentalandsecurityregulations
Influencefromemergingmarket,
technologyorbusinessdisruption
Applicationreplacement
ormodernization
ITinfrastructure
modernization
Migrationoffthemainframe
ontolessexpensiveplatforms
Transitioningourapplicationsto
avirtualizedinfrastructure
Movingourapplications
tothecloud
Integratingwhatwehave
forbetterdatasharing
Alloftheabove
None,wedon’thavean
applicationorITinfrastructure
modernizationstrategy
Other
8 9

GOVERNMENT SECTOR MARKET OVERVIEW
The backdrop for the government sector contrasts sharply with the commercial
sector. Broad-base instability in all industry subsegments is resulting from a mix
of sociopolitical upheaval, accelerated growth of emerging markets, introduction
of advancements in technology and fiscal headwinds in mature markets. With so
much change occurring so rapidly, A&D companies have seen downward
pressure on pricing, which is lowering profitability. The tough environment has
executive management searching for solutions frequently, as business strategies
that once may have had a 5-year forecast must be refreshed more often.
The continued impact of shrinking defense budgets has resulted in a declining
forecast for both fixed-wing and rotary military aircraft over the next 10 years.
According to Forecast International, “Yearly production will peak at 1,367 units in
2014, drop to a low of 1,095 in 2018, and then rise slightly to 1,122 by 2020 before
tapering off for the remainder of the period. Rotorcraft will account for 52
percent of all units produced during the 2013-2022 timeframe, with fixed-wing
aircraft accounting for the remaining 48 percent.”
While there is a decline in the fixed-wing and rotary military aircraft business, the
U.S. military UAV market is projected to grow at a 12% CAGR, reaching $18.7
billion in 2018. New budget and political realities facing the U.S. government are
calling for smaller, more effective and less risky military solutions. Despite the
general downturn trend in the defense market, the UAV segment is forecast to
survive relatively intact.
The global space subsegment is growing despite the economic downturn, with
an average predicted annual growth rate of 12%. Figure 3 represents the global
military space requirements market forecast by technology type.
Figure 3: Space Requirements Market Forecast
Source: Market Info Group LLC
GOVERNMENT SECTOR DEMOGRAPHICS
Q8. Identify your organization’s aerospace and defense business segment(s).
(Select all that apply)
Q9. Select your primary functional area. (Select one)
Space Based Space Surveillance
Earth Observation
Military Communications
2012
2015
2017
$78.2B
$174.1B
$323.6B
Aircraft
Space
Electronics/ITsystems
Ships
Ground
Mid-tiersupplier
Smallsupplier
Other
Executive
management
Business
development/sales
R&D/product
engineering
Program
management
Supplychain
management/sourcing
Manufacturing/quality
engineering
Repairoperationsand
management
Field
service
Manufacturing
operations
Other
10 11

Government respondents to the AIA and CSC 2015 Aerospace and Defense
Market Survey represented 51.6% of the total respondents. Executive
Management and Business Development roles accounted for the majority of the
input at 45% and 12.5%, respectively. Respondents were asked to choose all
subsegments that applied, resulting in:
Military Aircraft 78.0%
Missiles & Space 56.1%
Electronic Systems 58.5%
Ships 31.7%
Ground Support Equipment 41.5%
Others:
Mid-tier Supplier 19.5%
Smaller Suppliers 7.3%
Other 9.8%
Note: Percentages represent companies that serve multiple subsegments.
Therefore the total is great than 100%.
GOVERNMENT SECTOR TRENDS
Q10. Rank your organization’s three most important strategic business
objectives over the next 1 to 2 years. (1 being the highest objective, 2 the
second highest objective, 3 the third highest objective)
Government respondents were asked to rank their organization’s three most
important strategic business objectives over the next 1 to 2 years. The top three
objectives: (1) “Find New Customer Opportunities by Growing into New Market
Segments,” (2) “Improve Internal Efficiency and Lower Cost,” and (3) “Design
and Produce Innovative Products.”
Find New Customer Opportunities by Growing into New Markets
As overall access to funding continues to become more difficult, companies
reported that looking to adjacent technologies and markets is a major source of
revenue growth — identified as a priority by respondents in the last three surveys.
Improve Internal Efficiency and Lower Cost
In the near term, government defense companies face ongoing pressure to
reduce costs, and many of the same challenges in the commercial sector for
internal efficiency and lower costs apply to them.
Design and Produce Innovative Products
Agility and organizational transformation are tasks confronting all government
defense firms, especially in design and production.
The future design and innovation ecosystem will feature a new level of technical
interaction across a network of enterprises and will embrace diverse sets of
resources. Such programs will incorporate smart products made with smart
materials that will be uniquely identifiable during the manufacturing process, an
end-to-end engineering design and innovation network, and a host of autono-
mous machines and supply chains.
Q11. Rank the top three defense industry macroforces affecting your
organization over the next 2 to 3 years. (1 being the largest, 2 the second largest,
3 the third largest)
Designandproduce
innovativeproducts
Findnewcustomeropportunitiesby
growingintonewmarketsegments
Developnewchannelsfor
newandexistingproducts
Cross-sellmoreproducts
intothegovernmentsector
Up-sell/cross-sellmoreproducts
intotheexistingcustomerbase
Improvecustomer
service/satisfaction
Managethetotal
productlifecycle
Improveinternalefficiency
andlowercost
Growthesustainment/
aftermarketbusiness
Globalization
Reductionsandreallocations
indefensespending
Pricingpressuresinthe
defensemarket
Mergers,acquisitionsanddivestitures
arereshapingtheindustry
Agrowingshortage
ofskilledtalent
Influencefromemergingmarket,
technologyorbusinessdisruption
12 13

For the third consecutive year, “Reductions and Reallocations in Defense
Spending” was ranked No. 1 in macroforces affecting the government sector over
the next 2 to 3 years. This year, the gap between the next macroforces,
“Globalization,” “Mergers, Acquisitions and Divestitures” and a “Shortage of
Skilled Talent,” continued to widen.
Although ranked relatively low as a macroforce, the influence of “Emerging
Markets” cannot be discounted. As emerging markets become more advanced
and as associated wealth grows, these geographies will become sources of
design and production innovation.
In the last survey, the “Qualified Workforce” trend was ranked fourth, just behind
“Mergers and Acquisitions.” Continued difficulty in finding qualified employees in
the domestic workforce, especially in the aerospace and mechanical engineering
and skilled trades, is a persistent issue. The demand for highly skilled workers is
expected to increase dramatically.
Attracting people with the right skills is challenging, with fierce competition for
resources within the A&D industry and with adjacent industries such as automo-
tive, high-tech, consumer products and consulting.
TECHNOLOGY TRENDS
A&D companies are placing a high priority on product innovation, and rapid
changes in technology are enabling, and in many cases, driving those innova-
tions. At the same time as the industry is embracing mobile devices, cloud
computing and the Internet of Things, companies are facing increasingly com-
plex risks related to information security, operations and supply chains. To
support these technology initiatives, most A&D companies are focused on
modernization of core applications and hardware.
Q12. What are your top cybersecurity priorities for your organization?
(Select up to three)
Cyberattacks against commercial and non-commercial IT systems are forcing
organizations to pay greater attention to and invest in cybersecurity technolo-
gies and capabilities. The risks to a company’s intellectual property and even to
national security are rising and in many cases are unpredictable. Survey respon-
dents reported their top three cybersecurity priorities: “Protect Our
Organization’s Intellectual Property” (No. 1), “Protect Confidential Client
Information” (No. 2) Reduce Our Overall Cybersecurity Vulnerability” (No. 3)
and “Protect Our Organization’s Reputation and Brand” (No. 4).
Protectourorganization’s
intellectualproperty
Protectconfidential
clientinformation
Protectourorganization’s
reputationand/orbrand
Preventlossofcapital
and/orrevenue
Understandourcurrent
cybersecurityvulnerabilitylevel
Reduceouroverall
cybersecurityvulnerability
Bettercontrolinternalaccessto
informationandsystems
Betterdetectwhenlossofdata
ordenial-of-serviceattacksoccur
Ensurethatourorganizationisincompliance
withapplicablesecurityregulations
Hireathird-partycybersecurityconsultant
toassistwiththreatprotection
Morequicklyrespondtocyber-
threats—inrealtimeifpossible
Bepreparedforcybersecurity
incidentswhentheyoccur
Idon’tknow
14 15

Q13. Over the past year, our overall vulnerability against cybersecurity
threats has ... (Select one)
Nearly half of respondents (46.8%) reported that cybersecurity threats had
increased “Somewhat” or “Significantly.” Only 11.3% said cyberthreats had
decreased over the past year.
These results are no doubt partly in response to a series of high-profile attacks
on A&D companies, retailers, banks and Internet service providers. Increasingly,
cybersecurity efforts are focused on deterring such attacks before they take
place, especially in the government sector, which has the necessary resources
and tools to focus on prevention.
Preventing threats is a key goal in the A&D industry, which is an early adopter of
cyber-physical systems, where intelligent software is embedded into hardware
and usually connected to a network. Adding more software-defined and con-
nected products to the aviation industry is making cybersecurity and physical
security more difficult than ever.
Other threats focus on manufacturing infrastructure. Often not considered
mainstream IT, manufacturing shop floor networks and devices are potentially
vulnerable to attack. A breach of manufacturing process data in military
and commercial systems could help attackers reverse-engineer critical
proprietary systems.
Q14. Over the past year, the cost to protect our organization and intellectual
property from cybersecurity threats has ... (Select one)
Increasing threats are translating into higher spending on cybersecurity. A
majority of respondents (67.8%) reported increased spending to protect against
cyberthreats, with nearly half of those (29%) increasing their spending by 25% or
more on cybersecurity over the past year.
The primary initiatives for chief information security officers, in place at most
A&D companies, include compliance, strategy and risk management. Key
spending priorities are:
• Risk assessments
• Training and awareness
• Data protection
• Incident response
• Continuous event monitoring
Increasing pressures to adopt cloud-based and mobile applications to support
business demands are posing new vulnerabilities. As threats grow, cybersecurity
costs are expected to continue to rise.
Increased
significantly
Increased
somewhat
Remained
thesame
Decreased
somewhat
Decreased
significantly
Idon’tknow
Increased
over50%
Increasedbetween
25%and50%
Increased
lessthan25%
Decreased
Idon’tknow
“Cybersecurity standards
are too lax. BYOD is a
vulnerability on its own,
and an effective platform
to spread malware onto
company systems.”
16 17

Q15. As the threat of cyberdisruptions and breaches grows, many believe that a
multipronged national response is needed. To reduce your company’s vulnerabil-
ity, which approach would you consider the most cost-effective to reduce risk?
As the threat of cyberattacks grows, an increasing number of jurisdictions
support a multipronged national response to stop a global problem. However,
only 4.8% of respondents saw “Regulations Mandating Information Sharing with
Government and/or Cyber Compliance Regimes” as a cost-effective defense
against cyberthreats.
Rather, 38.7% cited the need for “STEM Programs Promoting a Skilled Cyber-
Trained Workforce” as the top solution, followed by “Cyber Defense Standards
and Certification for Industry” (29%). The results for cybersecurity parallel
one of the top macroforces affecting the industry, a “Growing Shortage of
Skilled Talent.”
Q16. Budget impacts to our IT organization have affected our ability to protect
ourselves against cybersecurity threats. (Select one)
Budget cuts have become the norm across the industry. Nearly one-third of
respondents (30.6%) reported that budget cuts affected their ability to secure
their IT systems against cyberattacks. However, nearly half of the respondents
(46.8%) agree that their cybersecurity capabilities were not affected by budget
cuts at all.
Q17. Many organizations use cloud computing to help increase effectiveness,
efficiency and agility while lowering overall IT cost. Within your organization,
what priority is cloud computing given? (Select one)
Cloud computing has experienced several phases of maturity to address key
technical and operational issues of A&D organizations. Early cloud adopters
demonstrated to other business leaders that the future of IT is in leveraging
cloud computing for a more agile IT infrastructure and application management.
In the 2015 survey, 41% of respondents cited cloud computing as a “Medium” or
“High” priority for implementing new or modernized applications. However,
about one-fourth of respondents (24.6%) cited “Too Many Barriers to Adopting
the Cloud” as a reason for not moving business applications to the cloud at this
time. Many business leaders are still uncertain about the cybersecurity and data
privacy of cloud-based applications, which means much educating still needs to
be done by cloud vendors and IT organizations.
Highpriority.Cloudisthefirst
considerationforallnewormodernized
businessapplications.
Mediumpriority.Cloudisconsideredfor
selectedapplications.
Lowpriority.We’reattheearlystagesof
researching/planningourcloud
computingusage.
Notbeingconsideredatthistime.There
aretoomanybarrierstoadopting
cloudatthistime.
Idon’tknow.
Regulationsmandating
informationsharingwithgovernment
and/orcybercomplianceregimes
Cybersecurityliability
andinsurancesystem
Cyber-defensestandardsand
certificationforindustry
Voluntaryinternational
cybercomplianceregimes
Science,Technology,Engineering,
Mathematics(STEM)programspromoting
askilledcyber-trainedworkforce
Other
True
False
Idon’tknow
18 19

Q18. BYOD (bring your own device) has grown tremendously in the past few
years. What is your current IT policy concerning BYOD? (Select one)
The Bring Your Own Device (BYOD) mobility trend has sent shock waves across
IT and business communities. Most CIOs are under high pressure to deliver the
same experience on personal mobile devices as they do over company-issued
devices. While cost restrictions have slowed the response of many companies,
the security of data on mobile devices as well as the threats such devices pose to
the organization have prevented many A&D firms from loosening BYOD policies.
Many have reacted quickly to address real concerns around enterprise mobility
management (EMM) and specifically around security and privacy.
Only 14.8% of respondents said their company encourages the use of whatever
device they wish to support the business. In contrast, 21.3% report that their
company provides specialized apps and 41% require separation between work
and personal devices.
Over the past few years, many approaches and solutions have been imple-
mented to help companies fully manage and secure the full lifecycle of mobile
users, devices, apps and data. While EMM has made a lot of progress over the
last few years, nearly 50% of respondents reported that they don’t embrace
BYOD and are not allowed to connect personal devices to the company network.
While security and privacy remain the top reasons for not adopting BYOD,
some companies are either issuing company-owned smartphones and tablets
or allowing BYOD with separation between work and personal areas on the
device and full encryption for the work partition. This approach has solved
many technical issues while giving employees the freedom of choosing a
preferred device.
Q19. Organizations recognize that success depends upon delivering new tech-
nology innovations that provide measurable value and return on investment.
With this in mind, in which of the following areas of IT innovation are you focused?
Tremendous advances in many hardware and software technologies over the last
few years are causing seismic shifts across industries and creating new business
opportunities in the A&D sector.
While IT and business leaders are overwhelmed with innovative technologies,
focus is required to cost-effectively apply those innovations to products and
services. The gap between existing infrastructure and business applications is
widening faster than ever. Therefore, the No. 1 priority for respondents is to
invest heavily in “Application Modernization” and the underpinning IT infrastruc-
ture. Other priorities include “Mobility” (No. 2), “Manufacturing Automation”
(No. 3), “Supply Chain Visibility” (No. 4) and “Big Data Analytics” (No. 5).
Investment in the “Internet of Things” (IoT) is a low priority, but this was not
surprising given the lower maturity level of emerging IoT hardware, software,
protocols and standards.
While manufacturing is becoming a global industry with global product design,
sourcing and manufacturing plants, existing on-premises IT infrastructure is
increasingly becoming a huge obstacle for businesses. “Virtualization and Cloud
Computing” (ranked No. 6) are making it easy and cost efficient to expand and
restructure business within a short time.
Usersareencouragedtousewhatever
device(s)theywishtoaccessemail,
applicationsorothersystems.
Weprovidespecializedapps(suchas
GOOD)thatusersmaydownloadanduse
ontheirowndevices.
Weaskouruserstomaintainseparate
workandpersonaldevices.
PersonaldevicessuchasphonesoriPads
arenotpermittedatwork.
Idon’tknowwhatourBYODpolicyis.
Internet
ofthings
Machine-to-machine
communication
Application
modernization
Mobility—access
fromanywhere
Virtualizationand
cloudcomputing
Bigdata
analytics
Manufacturing
automation
Outsourcing
Supplier/supply
chainvisibility
PLM
Other
20 21

Q20. To help control the rising costs of maintaining business applications,
which of the following actions will you take? (Select all that apply)
CIOs face the dilemma of maintaining and supporting several generations of IT
systems while having to respond to challenging business requirements defined
by the latest technologies and user experiences. This is especially hard with
limited budgets and skill sets.
This situation also hinders the company’s ability to leverage new technologies to
create new business and promote innovation across the company. The results of
this survey reflect strong awareness among IT leadership and show that
“Analyzing the Application Portfolio to Eliminate Redundant Applications” is the
No. 1 priority for IT investments. These investments are helping companies
modernize IT infrastructure and open the doors to innovation.
The No. 2 approach to modernization is using “Commercially Available Software
as a Service Where Possible” to accelerate efforts and leverage new technolo-
gies, followed by “Migrating Applications to the Cloud” (No. 3) and “Rewriting
Applications for Modernized Platforms” (No. 4).
The survey shows an important trend of using next-generation technologies and
usage-based IT models to reduce costs and make more investments available for
business and product innovation across the company.
REGULATORY TRENDS
Q21. The defense sector hopes to expand its access to technology and innova-
tion through increased private research and development (R&D) investment,
more competition for defense contracts, and the use of cash incentives to
motivate performance. Is your company increasing R&D investment to capture
future defense business?
Q22. If yes, which of these sectors are you focusing your R&D in?
Moveexistingapplicationsas-istonewer,
lessexpensiveplatforms
Rewriteexistingapplicationstorunon
newer,lessexpensiveplatforms
Analyzetheexistingapplicationportfolioto
reduceoreliminateredundantor
unnecessaryapplications
UtilizecommerciallyavailableSoftware-as-
a-Serviceapplicationswherepossible
Transitionkeybusinessapplicationsto
commercial-off-the-shelfproducts
Moveapplicationsmanagementtoa
third-partyprovider(on-shoreoroff-shore)
Movetoacentralizedmethod
ofapplicationdistribution
Migrateapplications
tothecloud
Hireathird-partyconsultanttohelp
formulateanapplicationsstrategy
Noneoftheabove—wedon’thavean
applicationmodernizationstrategy
Cyber
UAVs
Electronicwarfare
Hypersonics
Alternativeenergy
Directedenergy
Anti-submarinewarfare
Yes
No
“The government is
obsessed with knowing
everything about costs and
profit, instead of being
obsessed with allowing
industry to provide prod-
ucts and services that
create the most value.”
22 23

Q23. If no, which statement best describes your rationale for not increasing
your R&D investment?
Only 50% of those in the government sector surveyed are “Planning Increased
R&D Investments to Capture Defense Business.” These results do not factor
in spending on new technologies that cannot be publicly discussed for
security reasons.
For companies planning R&D investments, the top four areas of investment are
“Cybersecurity,” “UAVs,” “Electronic Warfare” and “Directed Energy.”
Sequestration has taken a toll on overall R&D spending, with 64.5% of respon-
dents citing “Instability and Uncertainty in the Defense Budget” as a reason for
not investing in defense R&D projects.
For the most part, respondents are more selective about where they place R&D
funding and are investing in programs such as cybersecurity and electronic
warfare that require lower capital and support costs.
Public announcements for new programs such as the Long Range Strike Bomber
(LRS-B) in the United States, and orders for aircraft such as the F-35B jump-jet in
the United Kingdom and the Gripen NG in northern Europe and Brazil have
created the potential for more rapid adoption of next-generation technologies.
A key objective for these aircraft is the ability to rapidly incorporate new sensor
and threat detection technologies. With the first LRS-B expected to be fielded
by 2025, designers hope to fundamentally change the industry’s traditional
approach of periodic releases designed to improve performance and technology,
but rather the aircraft would be able to rapidly adopt new technologies to
combat threats as they evolve.
Cybersecurity and electronic warfare innovation will likely play a major role in the
development of the LRS-B. The investment in cybersecurity reflects not only the
money spent to combat the persistent threat from bad actors, but also the need
to protect warfare equipment and systems from intrusion.
Not surprising is the investment in UAVs. Coupled with electronic warfare, UAVs
are clearly in demand by defense for all branches. The ability to linger for long
durations over a battlefield to gather and disseminate real-time data to the
warfighter is very important for sustaining military advantage.
Q24. Have you declined to bid on defense or federal government contracts
because acquisition regulations are too costly to comply with?
Survey responses related to interaction with government agencies indicate a
growing number of A&D suppliers are declining to bid on defense or federal
government contracts (36.7% of respondents) “Because Acquisition Regulations
Are Too Costly to Comply With.”
Q25. How much does complying with government acquisition regulations
add to your product’s cost?
A vast majority of A&D companies reported rising product costs caused by
“Complying with Government Acquisition Regulations.” More than 71% of
respondents reported at least an 11% increase in product costs. Thirty percent of
respondents reported that regulations increased product cost by at least 26%.
1,800 PAGES OF FEDERAL ACQUISITION
REGULATIONS
Federal Acquisition Regulation (FAR) includes
more than 1,800 pages of regulations governing
purchasing processes for goods and services.
FAR’s rules and regulations are highly restrictive,
not only affecting costs but also the level of risk
that contractors are willing to assume.
According to Stan Soloway, president and CEO of
the Professional Services Council and a former
deputy undersecretary of Defense for Acquisition,
“Professionals are under a lot of pressure to get
things right and stay within the law.”
This environment makes it difficult for a company
to be flexible and agile, and it serves as a
potential headwind to innovation. The list of
applicable regulations and policies includes:
• Federal Acquisition Regulation (FAR)
• General Services Acquisition Manual (GSAM)
• Office of Federal Procurement Policy (OFPP)
• AbilityOne
• Code of Federal Regulations
• Agency Supplemental Regulations
• Federal Register
• Regulations.gov
• Acquisition Center of Excellence (ACE)
for Services
• Civilian Agency Acquisition Council (CAAC)
• Financial Management Service (FMS)
Treasury Offset Program
• NAICS (North American Industry
Classification System)
• Product Service Code Manual
• VETBIZ.gov
Lowreturn/profiton
militaryprograms
Thesaledoesn’tjustifygiving
upintellectualproperty
Thecostofcompliancewith
governmentregulationsistoohigh
Instabilityanduncertaintyin
defensebudget,programs,
requirementsandtimelines
Yes
No
0–10%
11–25%
26–40%
Over40%
“There has to be a
cleaner way to compete
via RFPs.”
24 25

Q26. Which aspect of compliance drives your costs?
Respondents were asked about costs related to compliance with federal rules
and regulations. Many respondents selected multiple factors, but it was clear
that “Costing and Pricing Requirements” was the No. 1 driver of compliance
costs, followed by “Audits” (No. 2), “Quality Assurance” (No. 3) and “Information
Security/Protection” (No. 4).
Q27. Has the number of DoD audits of your companies systems and processes
grown over the past 5 years?
For the most part, the number of DoD audits among respondents has been
relatively stable over the past 5 years, as 70% of those surveyed reported either
no increase in audits over that time or just a 0 – 10% increase.
The remaining 30% reported audit increases of 11% or higher. There are many
factors that come into play for this sample, including the amount spent on
defense, the impact of large programs consuming the budget, and an increasing
backlog of audits. The Defense Contract Audit Agency (DCAA) is significantly
behind schedule in completing audits, and the lack of increase in the number of
audits could be the result of a lack of workforce.
CONCLUSION
Product innovation and cross-selling and up-selling will continue to be important
sources of revenue for A&D companies. However, for the commercial sector to
address the growing backlog for aircraft, organizations need to invest in process
improvements, global collaboration and technology modernization. At the same
time, the A&D industry continues to look for ways to attract and retain skilled
workers, against a background of growing cybersecurity needs and emerging
issues such as BYOD.
Investments in the government sector are declining at alarming rates, exacer-
bated by uncertainty in defense spending and costly government procurement
regulations. Contractors are making more selective investments in critical areas
such as cybersecurity and UAVs; however, the key to success in the defense
sector is designing more flexible aircraft and weapons systems that can readily
adopt new technologies.
As the recovery of the global economy continues to lift the A&D industry out of a
challenging market, continued investments in products, people and technology
will help companies create competitive advantage and ensure long-term, sustain-
able growth.
PRINCIPAL AUTHORS AND CONTRIBUTORS
Tim Ellis, Industry General Manager, Global Aerospace & Defense, CSC
Ahmed El Adl, Chief Technology Officer, Global Manufacturing, CSC
John Rassieur, Americas Consulting Leader, Aerospace & Defense, CSC
Dave Howells, Senior Principal Consultant, Aerospace & Defense, CSC
Bill Koss, Assistant Vice President, Contracts & Finance, National Security &
Acquisition Policy, AIA
FEEDBACK?
Contact us at csc.com/2015A&Dsurvey.
ABOUT CSC
With 50+ year heritage in aerospace and defense, CSC is a global leader of
next-generation information technology (IT) services and solutions. CSC works
closely with the world’s leading government and commercial A&D clients world-
wide to transform traditional IT environments, manage and analyze data, and
take advantage of mobility and emerging technologies. For more information,
visit the company’s website at csc.com.
ABOUT AIA
Based in Arlington, Virginia, the Aerospace Industries Association (AIA) is led by
a Board of Governors that meets twice a year and consists of senior representa-
tives of member companies at the C-suite level, and an Executive Committee that
meets more frequently. A hallmark of AIA is that it receives its policy guidance
from the direct involvement of CEO-level officers of the country’s major aero-
space and defense companies. The government frequently seeks advice from AIA
on issues, and AIA provides a forum for government and industry representatives
to exchange views and resolve problems on non-competitive matters related to
the aerospace and defense industry. For more information, visit AIA’s website at
aia-aerospace.org.
Audits
Costand
pricingrequirements
Quality
assurance
Information
security/protection
Other
No
Yes,0–10%
Yes,11–25%
Yes,morethan25%
26 27

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