The aerospace industry is experiencing significant transformations driven by technological progress. So, what are the trends to keep an eye on as we progress through 2025?
Key trends shaping the aerospace sector in 2025 include:
1. US Government & Global Political Environment
The evolving geopolitical landscape will have a profound impact on the aerospace and defense industry, influencing trade policies, military spending, and regulatory focus. Several key areas stand out:
- Trade & Tariffs on Aerospace Products: Shifts in U.S. foreign policy and expanded tariffs on aerospace components and raw materials, affecting both finished product sales and supply chain costs with a potential to reshape global sourcing strategies and manufacturing footprints.
- Increased NATO & EU Defense Spending: As global tensions rise, NATO and European allies are expected to increase defense budgets, leading to new contracts for unmanned aerial systems (UAS), next-generation fighter jets, and missile defense programs.
- FAA Prioritization: Modernization vs. AAM/UAM Support: A key policy question for the FAA over the next four years will be whether to prioritize modernization of the existing air traffic control system (NextGen) or push regulatory advancements supporting the rise of eVTOL and Urban Air Mobility (UAM). The outcome will shape investment strategies for airports, OEMs, and AAM operators
2. Advanced Defense and Next-Generation Systems
- The Department of Defense (DoD) budget is undergoing a strategic shift, prioritizing next-generation capabilities, deterrence, and force modernization in response to evolving global threats. While traditional procurement programs for fighter jets, rotorcraft, and sustainment operations remain critical, there is a growing emphasis on unmanned systems, AI-driven autonomy, hypersonic weapons, and space-based defense infrastructure. Increased investments in Collaborative Combat Aircraft (CCA), drone swarms, and resilient satellite constellations reflect a move toward distributed, networked warfare. Additionally, the Pentagon is redirecting funds toward supply chain resilience and munitions stockpiles, ensuring preparedness for prolonged engagements.
- Established and emerging companies like Anduril, Kratos, General Atomics, Lockheed Martin, Shield AI, and Palantir are playing a key role in the development of Collaborative Combat Aircraft (CCA), “affordable mass” weapons systems, drones, and next generation propulsion systems. The momentum is driven by availability of previously unavailable and cost-reduced technologies but also as a response to China and Russia aggressively developing low-cost, swarm-enabled UCAVs and drone systems.
3. Supply Chain Optimization:
The aerospace sector continues to grapple with supply chain challenges in key areas, including labor shortages and parts availability. Airbus and Boeing are striving to ramp up production to meet rising demand and work through backlogs, with Airbus aiming for 75 A320 jets per month by 2027 (from 46 in 2024) and Boeing targeting 50 737 MAX jets per month (from 38 in 2024).
On the propulsion front, ‘teething” issues remain with LEAP and PW1000 engines along with challenges in raw materials, castings and machined parts.
The continued challenges have driven verticalization by OEMs looking for acquisitions and investment but also create opportunities for innovative, small companies able to produce quality finished hardware for low-volume, high-mix opportunities as well as innovators in AI driven manufacturing and MRO productivity.
4. Commercial Aircraft MRO
The commercial engine Maintenance, Repair, and Overhaul (MRO) sector is experiencing a significant ramp-up, largely driven by the rapidly increasing fleet of LEAP and GTF (Geared Turbofan) engines entering service along with the need to support existing fleets of aircraft with parts and services.
Demand for efficient, predictive maintenance solutions is accelerating. AI-powered capabilities leveraging digital twins, improved aircraft connectivity and predictive analytics are transforming engine maintenance by enabling real-time health, remote monitoring, early failure detection, advanced borescope procedures and optimized repair cycles.
Trends to watch:
- Rate of narrowbody aircraft retirements
- Potential flood of Used-Serviceable Material (USM) with large numbers of retirements • Incorporation of advanced AI in commercial MRO
5. Urban Air Mobility (UAM) and Regional Air Mobility (RAM):
In 2025, expect increased consolidation and attrition as the realities of aircraft commercialization loom large – cost, conformance and certification. 2024 saw Lilium and Volocopter file for insolvency and Rolls-Royce shut down their electric propulsion business after failing to find a buyer for the business.
- Expect to see continued shifts towards hybrid-electric propulsion systems and “range extenders” vs. all-electric (100% battery) propulsion systems for urban mobility.
- Manufacturers continue looking to adjacent markets – ex: cargo, defense and first responder support – that may provide for enhanced funding sources and more accessible market entry opportunities.
Regulations: The FAA’s MOSAIC and EASA’s SC-VTOL frameworks are expected to provide clearer guidance for eVTOL certification. The FAA’s Urban Air Mobility (UAM) Concept of Operations (ConOps) will advance, defining how eVTOLs integrate into controlled and uncontrolled airspace.
Meanwhile in China, the country’s “low-altitude economy” continues growing and encompasses economic activities up to 1,000 meters above ground, including drones, eVTOLs, and other general aviation components with plans to expand this sector to a valuation of 1.5 trillion yuan (approximately $207 billion) by the end of 2025. Drones are already in use for last-mile delivery and for delivering medical supplies, food, and essential goods to remote or hard-to-reach locations.
6. Sustainability and Green Aviation:
The aviation industry (ICAO) has made an ambitious commitment to NetZero emissions by 2050. While the likelihood of meeting this target becomes increasingly less likely and requires investments not currently being made, environmental considerations will remain for the industry, with a focus on reducing carbon footprints from both new technology and fuel-based solutions.
Projections indicate that about 500 million tons of SAF capacity will be required by 2050… but what is it today? According to IATA, SAF production was expected to reach 2.1 million tonnes or 0.7% of total jet fuel production in 2025. IATA analysis shows that to reach net zero CO2 emissions by 2050, between 3,096 and 6,658 new renewable fuel plants will be needed – with an extraordinary investment required – in addition to incentives towards meeting medium-term targets, particularly when it comes to second and third-generation feedstocks.
In parallel, the development of more efficient, next-generation aircraft concepts and designs must play a key role in reducing fuel consumption and lowering operating costs. Airframers typically target a threshold of 10-15% reduction in operating costs – mostly from fuel efficiency plus maintenance costs reductions – to launch a new aircraft program. Aircraft manufacturers are studying innovative aircraft designs including hybrid propulsion and advanced designs that move from the traditional tube and wing that have dominated commercial aviation for many decades. In parallel, engine companies are developing (increasingly) geared engine designs with larger fans (ducted and unducted) for greater fuel efficiency.
Questions & trends to watch:
- Does Embraer jump into the narrowbody market with a new, disruptive offering? • Will Boeing’s new leadership dust off the middle-market aircraft? At this point, Boeing & Airbus are saying that a new NB won’t appear from them until the 2030’s.
- Continued investments by propulsion OEMs in next generation designs
7. Space Exploration and Launch:
The space launch services market is expected to grow at 14%+ per annum largely driven by increased global connectivity and emerging demand for advances in direct-to-cell satellite.
What was once over 200 international companies five years ago vying to be the “next SpaceX” is now down to a few well-backed emerging players seeking to carve their own piece of the market. Blue Origin launched the New Glenn rocket for the first time in January, but it’s first stage booster failed to land on the company’s cargo ship followed by the company laying off 10% of its workforce on Feb. 13, 2025. Of the start-ups, RocketLab appears to be the strongest launch provider with continued success of the Electron (53 launches) and progress with the medium-lift, two-stage, human-rated Neutron launch vehicle.
At OAC, our advisory belief remains that while there may be niche opportunities in non-LEO orbits or for university/scientific research, the small-launcher market primarily exists as a proving ground towards building a larger rocket with reduced $/kg payload costs.
8. Supersonic and Hypersonic Travel:
Efforts to reintroduce supersonic and even hypersonic passenger flights continue with companies like Boom, Hermeus and other start-ups seeking to reduce flight times through development of new aircraft and propulsion systems. The next few years will be critical for these companies to demonstrate that they can continue raising the extraordinary sums required for development, while managing burn-rate and delivering on the technologies (aircraft and propulsion) being proposed.
