Aerospace and Defence 2025 global outlook

The global defence sector continued to experience strong growth throughout 2025 as governments responded to heightened geopolitical tensions, regional conflicts, and an increasingly complex international security environment. Rising strategic competition between major powers, continued instability across Eastern Europe and the Middle East, and growing security concerns within the Indo-Pacific have encouraged nations to strengthen military capabilities and increase long-term defence investment.

Global defence budgets have reached record levels, with many governments committing to multi-year procurement programmes aimed at modernising armed forces and improving operational readiness. Investment remains focused on enhancing conventional military capabilities while expanding capacity in emerging domains including cyber defence, space operations, electronic warfare, artificial intelligence, autonomous systems, and integrated missile defence.

The United States continues to account for the largest share of global defence expenditure, with significant investment directed towards next-generation military technologies, advanced command-and-control systems, autonomous air and maritime platforms, hypersonic weapons, resilient communications, and space-based defence capabilities. Programmes supporting digital transformation, battlefield connectivity, and multi-domain operations remain central priorities across all branches of the armed forces.

Across Europe, defence spending continues to increase as NATO members strengthen military capabilities and seek to meet or exceed alliance spending commitments. Governments are accelerating procurement of advanced combat aircraft, air defence systems, armoured vehicles, long-range precision weapons, and intelligence, surveillance and reconnaissance (ISR) capabilities while expanding domestic industrial capacity to improve supply chain resilience.

The Indo-Pacific remains one of the fastest-growing defence markets, with countries including Japan, Australia, South Korea and India continuing substantial military modernisation programmes. Investment is focused on maritime security, naval expansion, integrated air and missile defence, cyber resilience, space-based surveillance and advanced unmanned systems to address evolving regional security challenges.

Defence manufacturers continue to benefit from expanding order books and sustained government demand. However, the industry continues to face challenges associated with component shortages, supply chain disruption, skilled labour availability and increasing production costs, particularly for highly specialised defence systems.

Commercial aviation

The commercial aerospace industry continued its recovery during 2025 as global passenger traffic remained above pre-pandemic levels across many international markets. Strong demand for both leisure and business travel has encouraged airlines to expand fleets, restore international routes and place additional aircraft orders to support long-term growth.

Aircraft manufacturers continue to increase production rates in response to historically large order backlogs extending well into the next decade. Despite improving manufacturing output, supply chain constraints remain one of the industry's most significant challenges. Shortages of engines, structural components, electronic systems and skilled labour continue to affect production schedules and delivery timelines throughout the global aerospace supply chain.

Airlines remain focused on improving operational efficiency through investment in new-generation aircraft offering lower fuel consumption, reduced maintenance requirements and improved environmental performance. Fleet renewal programmes continue to accelerate as carriers replace older aircraft with more fuel-efficient narrow-body and wide-body platforms capable of reducing operating costs while supporting corporate sustainability objectives.

Digital technologies are becoming increasingly important throughout aircraft manufacturing and airline operations. Artificial intelligence, digital twins, predictive maintenance, advanced analytics and connected aircraft systems are enabling manufacturers and operators to improve productivity, reduce downtime and optimise maintenance planning. Automation and advanced manufacturing techniques are also improving production efficiency while helping address labour shortages.

The global maintenance, repair and overhaul (MRO) market continues to expand alongside growing aircraft utilisation and increasing fleet sizes. Airlines are investing in digital maintenance systems, predictive diagnostics and lifecycle management technologies to maximise aircraft availability and reduce operating costs throughout the life of the aircraft.

Space

The global space economy continues to expand rapidly during 2025 as both government agencies and private sector organisations increase investment across commercial and national security programmes. Satellite communications, Earth observation, navigation services, environmental monitoring and defence-related space capabilities remain major drivers of investment.

Commercial launch providers continue to increase launch frequency while reducing launch costs through reusable launch technologies and operational improvements. Lower launch costs are enabling greater participation by commercial enterprises, research organisations and emerging space nations, supporting continued expansion of the global satellite market.

Demand for satellite-based broadband, secure communications, precision navigation and Earth observation services continues to grow across both public and private sectors. Increasing reliance on space-derived data is supporting applications in agriculture, logistics, environmental monitoring, disaster response, financial services and national security.

Governments continue to strengthen investment in military space capabilities as space becomes an increasingly important operational domain. Programmes supporting satellite resilience, space situational awareness, secure communications and missile warning systems remain strategic priorities for many nations.

Commercial investment also continues in lunar exploration, in-orbit servicing, satellite refuelling, debris removal and next-generation space infrastructure. These emerging markets are expected to play an increasingly important role in supporting long-term commercial activity beyond low Earth orbit while creating new opportunities for aerospace manufacturers and technology providers.

Outlook

Research and development will remain a primary driver of long-term growth across the Aerospace and Defence sector. Investment continues to accelerate in artificial intelligence, autonomous systems, machine learning, advanced materials, digital engineering, additive manufacturing, quantum technologies and advanced propulsion systems. These technologies are expected to fundamentally reshape the design, manufacture and operation of future aerospace platforms while improving performance, efficiency and resilience.

Artificial intelligence is becoming increasingly integrated throughout aerospace and defence activities, supporting autonomous operations, mission planning, predictive maintenance, manufacturing optimisation, cybersecurity and real-time decision-making. Digital engineering and model-based systems engineering are also transforming product development by reducing development times, improving quality and lowering programme risk.

Sustainability remains one of the aviation industry's highest strategic priorities. Manufacturers, airlines and engine producers continue to invest heavily in Sustainable Aviation Fuel (SAF), hydrogen-powered aircraft, hybrid-electric propulsion systems and next-generation ultra-efficient engines. While large-scale commercial adoption will take time, continued technological progress and supportive government policies are expected to accelerate the transition towards lower-carbon aviation.

Urban Air Mobility (UAM) also continues to advance during 2025. Electric vertical take-off and landing (eVTOL) aircraft are progressing through certification and flight testing as regulators develop operational frameworks and supporting infrastructure. Although widespread commercial deployment is still emerging, these aircraft are expected to create new opportunities in regional mobility, passenger transport, cargo logistics, emergency medical services and infrastructure inspection over the coming decade.

Looking ahead, the Aerospace and Defence sector enters the second half of the decade with strong long-term growth prospects. Rising global defence expenditure, sustained commercial aviation demand, expanding investment in the space economy and rapid technological innovation are expected to support continued growth across the industry. Despite ongoing supply chain challenges, labour shortages and geopolitical uncertainty, the sector remains well positioned to benefit from increasing government investment, accelerating digital transformation and growing demand for more sustainable, resilient and technologically advanced aerospace capabilities