Demand is Surging: Are Aerospace & Defense Keeping Up?

Alex Krutz and Aviation Week’s Michael Bruno explore how rising demand, shifting supply chains, and vertical integration are reshaping aerospace and defense, and what manufacturers need to capture the opportunity.

Link to the full episode of The Factory Doctor Podcast on YouTube: https://youtu.be/GQ4DNvM-MXk?si=e_6LhwCoXgEc8jLR

Alex Krutz: Welcome to the show, Michael.

Michael Bruno: Alex, thank you. It’s great to be here, and it’s great to see you again. I know you’ve been busy traveling.

Alex: Yes, I have, from last year to this year. There’s a lot going on, and I know we’re going to talk about that because we may see it from different perspectives, but it’s busy. I’m really excited to hear what you have to say.

A lot of folks who listen to and watch the show are familiar with aerospace and defense, but maybe give us a little bit about your history, how you got there, and a little bit more about Aviation Week and its history.

Michael: Sure. Let me start with Aviation Week. We’ve been around since almost the dawn of flight. We pride ourselves on being the almanac that’s been covering what’s happened ever since the Wright brothers got going. In fact, one of the Wright brothers was one of the founders of our magazine.

We’ve got this great black-and-white photograph that shows some people who were amazing cornerstones in aviation. They were the ones who got together in New York to put this magazine together more than a century ago.

It’s a privilege to be at Aviation Week because there have been a lot of great writers who have come before me, and I’m sure there are going to be even better ones who come after me. I’ve been at Aviation Week for about 21 years. As you mentioned, I’m the executive editor for business, so I am responsible for covering the companies more on the side of their profits and losses, what’s happening with their workforces, mergers and acquisitions, and those kinds of business trends.

You can dare to ask me about my favorite aircraft and what I think the top speed is reasonable, but I can’t really explain those things. There are much smarter people on staff than I am when it comes to the leading-edge questions—literally the leading edge of a wing.

I love covering aviation, even if I’m doing it from the business sector, because I’ve wanted to be an astronaut since I was a kid. If you had met me when I was five years old, I would have told you I had the whole life plan.

Alex: Who didn’t want to be an astronaut? That’s right up there with being a fireman and somebody who cures all diseases.

Michael: Absolutely. But did you go to space camp three times? Because I did.

Alex: That I did not. I did not do space camp three times. So that might make your SpaceX stories and other NASA stories that much more interesting.

Michael: Yes. A little bit finer appreciation, I think.

Alex: Everybody knows your content, and I’ve been honored over the years to have gotten to know you professionally and personally, and to have been quoted and worked with you on all kinds of different things. Usually, you have me on the Check Six podcast, but now I’m reversing the offer to say, “Hey, Michael, come on to The Factory Doctor, and let’s talk a little bit.”

Let’s get into industry insights. What are people not talking about that they should be within industry?

Michael: That’s a really interesting question because, of course, the headlines are dominated by issues that we’ve come to be very familiar with—artificial intelligence, things like that. But what I think people are not talking about in aerospace and defense in particular are three things.

Hiring. Hiring is really happening, not just to replace attrition. It’s truly happening across the industry.

The next thing I don’t think is getting enough recognition—and to set the politics aside for a moment—is tariffs and the fact that those are just not becoming a major barrier to this industry going forward. I’m personally very surprised by that, and I think a lot of people in industry are also surprised by that.

Related to that, the third thing I will say is not really well recognized right now is that there is a ramp-up happening in aerospace and defense across the board. Every corner you look at, whether it’s commercial aviation, defense, space, business jets, or maintenance, repair, and overhaul, it doesn’t matter. It’s a ramp-up everywhere. That is not something this industry, I think, has ever seen.

Alex: I’ll probably hit on a couple of those points. I think the ramp-up’s happening in all industries. In our lifetime, as far as cyclical activity, usually commercial is high and defense is low. Commercial goes into a lower cycle, and defense goes up.

But right now, we have both elevated, and then we have these other sectors: eVTOL, space, low orbital. We also have drones and different alternate defense technologies, and then we have AI coming in. There’s a whole bunch of different sectors that are super hot right now.

Michael: Yes, and several of them we were touching upon here within aerospace and defense—all these different corners. Even when we started covering aviation more than a century ago, it was pretty singularly focused. You didn’t even have the whole group of companies whose livelihoods depended on maintaining the aircraft. They were just trying to create them to fly in the first place.

Now we have whole supply chains based around purely supporting aircraft or spacecraft, satellites, and making these things. But what’s unique is that everyone, everywhere, is growing. Within our industry, I feel like that is very bizarre, frankly, because all of the companies are used to having one side of one of their P&Ls be lower naturally and another one be surging.

I think companies right now are really starting to struggle with how they meet the demand of every P&L going up at the same time. You’d think this is all great—it’s a great problem to have—but I’m beginning to hear more stress within industry about meeting this demand and not fumbling the opportunity of a lifetime.

Alex: One of my clients stated to me that this is a generational opportunity. Companies are really trying to work through how they seize on the demand, deliver to it, and step into it. It’s a really exciting time to be here.

This isn’t just a supercycle. This could be something that’s going to have some wind under its wings, if you will.

Michael: Yes.

Alex: The other thing—and again, I know there’s a lot of politics on that, but we’ll hit on the tariffs—I was a believer and still am that there’s a lot of benefit to them.

When we think about free, fair, and balanced trade, free trade is what we’ve had for many decades. Fair and balanced is where the tariffs have come in. Companies have enjoyed fruitful profits for quite some time because of lower-cost sourcing and such.

There’s also this aspect that companies have realized the total landed cost from those lower-cost countries, when you put in quality, engineering, and logistics costs. A lower purchase order price isn’t always the best price. I think revisiting more domestic manufacturing is still seeing some sunlight.

Michael: For me, tariffs have become an interesting story for two main reasons. One is that they have been one of the reasons prices have increased across the board, not just for aerospace and defense products and services. Everywhere in life, of course, some degree of the average American’s higher cost of living is based in those tariffs.

But for aerospace and defense, particularly commercial manufacturers—and you know this as well as I do—for a very long time, they just could not raise their prices on what they were selling. It was very difficult. These suppliers were locked into long-term agreements based on structures from a decade ago that had very low inflationary costs.

Fast-forward past the pandemic and past tariffs. Now we’re in a cycle where raising your prices is not just okay; it’s expected. Everybody expects it, whether it’s a government customer, an OEM, an airframer like Airbus and Boeing, or whether you’re a Tier 2 or a Tier 4. Everybody, everywhere, is allowed to raise their prices to some degree.

There’s still a good deal of debate about how much is appropriate and what customers are willing to sign for in contracts, but I think that’s a fundamentally new paradigm that is generally a good thing, believe it or not.

I don’t say that to you because I know you know it, but many people hear the idea that prices are going up. For our industry, prices have been down for so long and unable to go up that prices going up now, and looking like they can continue to inch up, is actually a good thing. It’s going to mean more reliable revenue that’s actually turning into profit on a wider scale across the board.

That’s something this industry has needed in order to funnel the money back into investments that need to happen, not just for next-generation aircraft, but services for airline customers. Everybody, you name it—general aviation and your local airport. Everybody needs the money. The money’s got to come from somewhere to make the improvements. We get to raise prices now and generate more revenue, and that’s a good thing.

One last thing I want to say about tariffs: I think it surprised everybody in industry, at least from my vantage point, that tariffs became something manageable for multiple reasons. Companies wound up having more strategies than they knew of when tariffs were first getting announced. They had more levers to pull.

The combination of prices being able to go up, everybody accepting that, and everybody realizing that having a stronger supply chain through regionalization or reshoring was generally a good thing for your business because there’s more stability in supply—tariffs have not become the barrier that almost universally everybody would have said the day before tariffs got announced, or Liberation Day last year.

Alex: I was one of those very few who said this isn’t going to be the deal everybody thinks it’s going to be. With my role at the Commerce Department last year, that was one of the large aspects of it: tariffs, but also bilateral trade deals and how to restructure free, fair, and balanced trade.

These are things that have been needed desperately within industry and in the U.S. for many years. I think we’re going to see some benefits. It is a bumpy road at times, and there are changes and some volatility in what’s announced and how to keep track of it. But generally, it’s to promote good business here in the U.S. for American businesses.

Great to hear your thoughts on industry insights with hiring, tariffs, and the persistent ramp-up for all industries. Let’s pivot a little bit into strategy and talk about what you think there.

Michael: I see a couple of really interesting trends happening in industry. Some of them are kind of like tariffs. I don’t think anybody would have predicted, even just a few years ago, that they would become as critical.

One of the trends I see when it comes to strategy is what I believe is a true pendulum swing toward vertical integration as being, maybe not universally recognized, but widely recognized as a good thing to do regarding supply chain stability and, believe it or not, having lower costs eventually.

You’re not having to ship parts around the world and pay for the transport costs, but also just knowing that your supply is reliable. That vertical integration is a little bit surprising because this industry, particularly on the commercial side, became so good at offshoring and outsourcing across the board.

Boeing and Airbus like to talk about having 12,000 or 13,000 suppliers, and hundreds of them are companies nobody even knows about that are halfway around the world. That became a business model that worked very well for a long time. The idea of overturning it was probably not on anybody’s radar.

Alex: I can understand where people look at it from the outside: financially, it worked out really well. But being on the side of fixing problems that outsourcing and offshoring caused can be tremendously difficult.

Transfers of work fail. Suppliers sign up for something they say they can make at half the price, and they can’t do it. Then the company has to go back to the previous supplier that isn’t tooled anymore, and it costs a lot more. Then there’s disruption to production.

I’m not disagreeing with you. I’m simply saying that, on the surface, it doesn’t necessarily work that well. I think there’s some level of offshoring and outsourcing that definitely does work. There are components and parts of the aircraft or these technologies that are better made in Asia, Southeast Asia, or Eastern European countries that are suited to be worked in different places.

But I would say that, from the broader perspective of full outsourcing, we’ve seen that pendulum swinging back. Major parts of the airplane, like the fuselage, being made somewhere else are not core to offshoring. I think we’re seeing that pendulum swing back.

While we’re on that topic, what do you think about GE Aerospace’s acquisition of CPP and the castings? Tell me a little bit about what you think there.

Michael: By the way, I find myself constantly having to remind myself of the company’s “new” name, GE Aerospace, no longer General Electric. I promise you, they let me know every time I even attempt to write General Electric anywhere. They’re always calling me up saying, “It’s GE Aerospace, Michael.”

It’s a fascinating deal for a couple of reasons. One is that I’ve had the privilege of talking to Larry Culp a few times over the years, and he has never been a big fan of vertical integration, certainly not for its own sake.

I asked him that question last year or the year before. I wrote a whole article about how he was not expecting to roll companies up once GE Aerospace got stood up. Then, lo and behold, just a couple of weeks ago, they announced that they’re going to buy CPP, this major investment castings provider.

It’s very much a vertical integration play. I asked Mr. Culp what the motivations were behind this, and he said right away that it’s about supply chain stability. It’s about enabling the combined company to reinvest some of the savings they expect to make together back into new technology for new airfoils.

Very logical from that perspective. But again, a vertical integration play that, if you had talked to Larry Culp a year ago, he would not necessarily have said he wasn’t going to buy CPP. But if you asked him about vertical integration, he would have said that’s more of a private equity thing than a strategy for a public company like his.

As we were talking about, vertical integration is now becoming more acceptable and more of a strategy across industry. Even when a company like GE Aerospace doesn’t mean to do it as a reason by itself, it’s one of the many good reasons to do a major acquisition. This is almost $12 billion. That’s a major acquisition.

Alex: I think we’re seeing it. Boeing brought Spirit AeroSystems back in. We’ve seen some SpaceX vertical integration. Companies like Anduril, Saronic, and others are doing a lot of that in-house as they’re building their businesses.

Michael: The eVTOL companies all want to be vertically integrated.

Alex: Absolutely. There’s protection of your cost structures. There’s less risk associated with that. I think that pendulum is swinging back from full offshoring and outsourcing to something a little bit more balanced as to what’s core to your business.

I think this is a bit outside of the core, even though, no pun intended, the castings are literally the core of the engine. I wouldn’t say that it’s not core to the product, but it’s not core to assembling an engine.

Michael: What I find interesting is that CPP is owned by private equity. The deal is not expected to close until a year from now, maybe, definitely by the end of 2027.

The private equity owners of CPP were known, I think quietly, to be seeking an exit from the company. I heard John Plant over at Howmet Aerospace say this isn’t necessarily a surprise. His company could never buy them because of antitrust issues, or at least that’s the main barrier he’s given.

But for somebody like GE to come along, it’s a combination of the vertical integration making sense and a little bit of cost savings for GE Aerospace in the long run. Private equity, which is now a huge owner across aerospace and defense, is eager to make exits on many of its deals.

Some of these deals got delayed because of the pandemic and because of the slow ramp-up by Boeing and Airbus. Now that the ramp-up is happening, private equity is able to offload some of the deals it’s been looking to offload. We’re seeing more of that come together.

I don’t know if this deal by itself triggers other investment casting or forging companies to get rolled up, but I do think there’s more interest. You hear other names get thrown out there, like Chromalloy or Doncasters. Doncasters is public. I think there’s going to be more attention given to some of these companies as somebody like GE Aerospace shines a really bright spotlight on it.

Alex: The thing here, Michael—and this is totally my perspective—is that I think it’s great for GE. I agree with you. They’re going to get some cost savings. They’re going to shore up their supply chain and their risk. It’s a good move for GE Aerospace.

But is it going to be good for everybody else? That’s the question. I don’t think so, really.

Michael: What do you think makes it not a good deal for industry at large?

Alex: Because there are other airframe manufacturers that are in CPP. There are other engine manufacturers that have that. We need more capacity.

One of the things, having worked in my role last year at the Commerce Department, was to highlight the need for forgings and castings. I think that’s really starting to take shape now, especially with the State Department coming out with the foundry school, all the incentives in the One Big Beautiful Bill, and the Office of Strategic Capital.

There are a lot of investments going into deeper parts of the supply chain, which have been outsourced and offshored for many years. That’s my thing: it’s great for GE, but I don’t think it’s going to be great for everybody else because we need more capacity, not to strengthen the capacity for one or two, more specifically with one of the biggest castings players in the marketplace.

Nonetheless, I hope we see benefits where they increase capacity for everybody, and I believe GE Aerospace will try to do that. But ultimately, we have some bigger problems. This highlights that more capacity is needed, not just optimizing the existing limited U.S. capacity we have.

Michael: To your point about more capacity being needed, you don’t need to look any further than the other big headline in the industry about castings and forgings, which was SpaceX saying—or at least Elon Musk confirming—that he’s going to create his own foundry down in Texas to provide castings for Raptor engines and, of course, for IGT power plants.

Alex: He’s going to do it. I’ll tell you why. When I was in my role last year as the DAS of Manufacturing, I visited their Gigaplant in Austin. They already did castings for their automotive chassis in-house, and nobody knows that, but Tesla is fully independent.

Michael: Yes. I think there is still a lot of interest, and I would say concern by some in the industry, that whenever SpaceX makes a motion into your industry, the nightmares begin very quickly about SpaceX taking over like they did with rockets and satellites.

There are a lot of questions out there about whether SpaceX becomes a provider, maybe even a merchant provider, of turbine blades in the future. I hear a lot of different opinions about that. But regardless, it speaks to what you’re saying: the need for more capacity.

If SpaceX is only providing to itself, that alone speaks to the fact that they could not go out and get the products they were looking for quickly enough. Elon Musk says he’s got to make these blades himself to power his data centers all by himself.

Alex: Absolutely. More to be seen on that, but if Elon says he’s going to do it, I have a high level of confidence he’s going to get it done. He’s got a proven track record.

Michael: Although it’s a question of when. The man has not always kept to his own schedule on everything, so we’ll see.

Alex: That is very true. I think that happens when you run three or four mega businesses.

Let’s talk one last question here. Let’s talk technology, and maybe wrap that into next-generation airplanes. Let’s specifically say the single-aisle, because I think the A350 and 787 wide-bodies are here to stay for a while.

With the quad-engine superjumbos going away, and that they can’t quite get to production rate on those, there’s a huge backlog. I think the twin is probably solidified for a while. But let’s talk next-generation airplanes and engines, and what technology is going to change that so we can actually get new platforms announced.

Michael: That is a great question. For a lot of people, the obvious answer is engines, whether it’s the new RISE engine that Mr. Culp and GE Aerospace are working on. That’s certainly one idea, these open-fan engines.

But I’ve heard a lot of doubt and skepticism about whether industry will actually adopt that new kind of engine, at least anytime soon. You could very well have a next-generation aircraft launched with a more conventional engine inside the cowl, just like we’re used to seeing.

I think the technologies industry is watching for now include everything from how much composites are going to be in the makeup of the new airframe, as well as other parts of the aircraft, to how much of the new aircraft is going to be connected. Will it truly be what you would call an electric aircraft across the board, with sensors everywhere providing real-time information to everybody from operators to maintainers, maybe all the way back to the factory where the aircraft was built and delivered just a couple of years before?

These are not necessarily new technologies, but the advancement of the technologies across the aircraft in the next generation could be a step change. There are a whole lot of other technologies that a lot smarter people at Aviation Week can talk about that I don’t quite understand because, like I said, I’m the business guy.

But I think the technologies we are seeing today largely are going to be the ones in that next-generation single-aisle. It’s just that the application of them is going to be far different from what is applied today. That change is what’s going to be truly revolutionary.

Alex: I agree with you, Michael, that we’re going to have lots of new technologies that are going to enhance our flight experience, the cost of the aircraft, affordability, and even aftermarket potential. There are going to be a lot of great things to see.

Maybe by our next air show in Paris this coming year, there might be an announcement that we can get back together and talk about.

Michael: We all wish, don’t we?

Alex: Absolutely. With that being said, Michael, it was a pleasure having you on the show. We should do it again, and maybe we’ll have that here soon when the next big M&A deal comes on.

Michael: Absolutely. It’s great to have you back. I know you went and did your government service, but I love having you back in industry and look forward to seeing you around.

Alex: I call it my government sabbatical. Got lots of education there on multiple fronts, but that was great.

Michael: I bet. Not very restful.

Alex: Nope. Absolutely. Michael, it was a pleasure having you on. Thanks for joining me, and we’ll talk to you soon.