Opinion: Pressures Of Digital Revolution Are Intensifying

Start ups will disrupt business innovation cycles, but can regulations keep up?

The air transport industry has a history associated with leading-edge technology, increasing levels of efficiency and safety, and massive expansion of its services. This has been possible due to substantial investment across the whole aviation value chain. Flying was once the privilege of a wealthy minority; it has become affordable for vast numbers of people and now is the most popular way of traveling long distances. 

This is all truly remarkable. It is a tribute to those who have worked in this industry—to their competence and determination, appetite for innovation and passion for the art of flying. Because of their dedication and talents, some formidable companies have survived multiple crises and economic downturns, prospered immensely, and harnessed respectable amounts of capital and intellectual resources.

Gigantic barriers to entry have hindered the prospects of newcomers, even those with solid economic and state financial support. Is it possible for new players to challenge the status quo? There are reasons to think it might be, and chief among them is the digital revolution, the so-called fourth industrial revolution.

As this revolution accelerates, no one should assume leadership in aerospace today will assure leadership in the future. New information technologies have enabled start ups and unlikely players to disrupt other industries and markets dramatically. The barriers to entry in some industries seemed insurmountable. Photography, newspapers, taxi cabs, music, retail sales—the list of industries is long. Companies that did not adapt quickly enough failed and some early digital disruptors were upended later by still more innovative and agile newcomers. And the pace of the digital revolution has only increased.

If anything, the pressures brought on by this revolution are intensifying. The “Internet of Things” (IoT) is the latest digital challenge to business as usual. As the IoT evolves, the potential for disruption in the aviation and aerospace value chains also increases.

Of course, digitization is not new to aviation. Online reservations, e-tickets, luggage bar-code tracking, self-check-in kiosks, onboard Wi-Fi, aircraft health monitoring, fly-by-wire systems, electronic flight bags—these are just some of the many examples air transport’s continual evolution. But how is the aviation industry doing in IoT?

To answer that, let us consider a value hierarchy of IoT. Starting at the base, there is data collection and monitoring. Then there is compiling and generating intelligence to optimize operations at large. Move on and IoT will lead to improved products and services—and new products or an expanded portfolio. At the highest level, IoT might lead a company to a wholly new business model.

The industry has arguably done well in sensing, monitoring and optimizing. Going forward, however, the most important changes will be in product design and new business models. Those can reshape aviation’s competitive landscape. What if the lead time to develop a new commercial aircraft is reduced from the typical seven years to two years, as it was, say, when the revolutionary DC-3 rolled out? Could that be done while preserving all the technical and safety requirements? If so, the cost of development would be dramatically reduced. 

What if “flying cars” become a reality? What if incipient technology of self-controlling “air traffic” of small drones migrates to larger aircraft? Is the next generation of fighters going to be manned? Will the competition of companies evolve to become a competition of networks of companies? Will there be a vertical integration of the aviation supply chain as a result of one party having control of all, or most, data and information? 

The dominant players will not be the ones that succeed in perfecting the status quo, but those that drive the changes that are inexorably coming. They will help dictate the pace of transformation. Two factors that are especially key are the regulatory framework and cyber-security. Both must be in the forefront for all stakeholders. They may slow the process of digital innovation in aerospace, but failure to consider them would jeopardize the safety considerations that are part of aviation’s foundation. 

We must keep in mind that there is an abundance of good projects and available capital in the world. Those projects will always find funding—even in “mature” industries. But the aerospace and aviation industries will be able to tap into that and grow only if they are disciplined in their thinking and move quickly. As the old saying goes, it is not the strongest nor the most intelligent that survives, but the one who can adapt most quickly.

Frederico Curado is a former CEO of Embraer

The views expressed are not necessarily shared by Aviation Week.

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