U.S. Aerospace and Defense Firms Embrace AI and Digital Transformation to Tackle Geopolitical and Supply Chain Challenges

U.S. aerospace and defense companies are navigating a rapidly evolving landscape marked by rising geopolitical tensions, skills shortages, and increasing demands for sustainability. According to new research reports published by Information Services Group (ISG), a global technology research and advisory firm, these enterprises are leveraging artificial intelligence (AI) and other advanced technologies to enhance efficiency and client experience (CX) while addressing these multifaceted challenges. Key Trends and Challenges Geopolitical Disruptions Increasing military spending driven by geopolitical tensions is injecting more capital into the industry. This influx is accelerating the modernization of existing systems and spurring the development of next-generation technologies. The global nature of the supply chain and cross-border collaborations in manufacturing and technology further exacerbate these dynamics, necessitating agile and flexible operational strategies. Skills Shortages A critical issue facing the sector is a skills shortage, particularly in areas requiring expertise with new digital tools and AI. Companies are responding by heavily investing in workforce training and development, aiming to equip their employees with the necessary skills to remain competitive and innovative. Sustainability Demands The push for aviation decarbonization is another significant challenge. Aerospace and defense firms are exploring various methods to reduce their environmental impact, such as adopting greener materials and optimizing fuel consumption. However, these efforts are often complicated by the need to balance sustainability with operational efficiency and cost-effectiveness. Technological Innovations AI and Generative AI AI and generative AI are being integrated into aerospace systems to streamline operations and improve safety. Tech companies are facilitating this transition by providing advanced AI solutions for areas like airport operations, maintenance, repair, and overhaul (MRO), and supply chain management. The primary goals are to reduce costs and enhance CX, but regulatory bodies are emphasizing the importance of robust AI safety protocols to mitigate risks in safety-critical functions. Digital Transformation To stay ahead, enterprises are undergoing comprehensive digital transformations. This includes the adoption of cloud platforms, digital twins, and predictive analytics. Modernizing legacy systems, particularly enterprise resource planning (ERP) platforms, is a crucial part of this process. These initiatives aim to create more efficient, resilient, and connected operations. Supply Chain Agility Supply chain challenges, such as parts shortages and labor issues, are prompting companies to implement innovative solutions. These measures include enhancing supply chain visibility, optimizing inventory management, and developing collaborative relationships with suppliers. The goal is to build a more agile and responsive supply chain that can adapt to changing market conditions and increased demand for new aviation products. Role of Service Providers Mid-sized and specialist providers are playing a pivotal role in helping aerospace and defense companies implement new operational processes and technologies. These providers offer customized and innovative solutions tailored to specific needs, including product lifecycle management, fleet optimization, client engagement, and advanced supply chain analytics. Their agility and specialized expertise make them valuable partners for larger enterprises seeking to navigate the complexities of digital transformation. Industry Leaders and Rising Stars The 2025 ISG Provider Lens™ Aerospace and Defense Services and Solutions reports for the U.S. evaluate the capabilities of numerous service providers across multiple dimensions of the industry. Leading providers in all four quadrants—Engineering, Design, and Innovation; MRO and Aftermarket; Supply Chain Operations and Logistics Management; and Technology Transformation and Consulting—are Accenture, Capgemini, HCLTech, IBM, Infosys, and TCS. Cognizant and Tech Mahindra are recognized as Leaders in three quadrants, while Akkodis, Cyient, Deloitte, EY, General Dynamics IT, Genpact, LTTS, PwC, and Quest Global lead in two quadrants. DXC Technology and Kyndryl are Leaders in one quadrant. Additionally, Cognizant, DXC Technology, Tata Elxsi, and Tech Mahindra are identified as Rising Stars, companies with a "promising portfolio" and "high future potential." The mid-sized and specialist report highlights Cyient, LTTS, and Quest Global as Leaders in all three quadrants, with Engineering Industries eXcellence and Tata Elxsi leading in two quadrants. AXISCADES, FPT Software, Hitachi Digital Services, and Microland are Leaders in one quadrant each. eInfochips, FORCAM, and Hitachi Digital Services are also classified as Rising Stars in one quadrant. Industry Insights and Recommendations Industry insiders and analysts emphasize that aerospace and defense companies must prioritize organizational change management and substantial skills development to fully capitalize on new technologies. According to Swadhin Pradhan, assistant director and principal analyst at ISG, this involves developing broad-based strategies that ensure long-term competitiveness and resilience. Providers are instrumental in this process, offering guidance and support through their extensive expertise and customized solutions. Conclusion The U.S. aerospace and defense sector is grappling with a multitude of challenges, from geopolitical uncertainties to sustainability pressures and skills shortages. To remain competitive and resilient, companies are embracing AI and other advanced technologies, modernizing legacy systems, and investing in workforce development. Collaborating with mid-sized and specialist providers is proving essential in implementing these strategies effectively. The 2025 ISG Provider Lens™ reports provide valuable insights and recommendations, guiding enterprises in their digital transformation journeys and highlighting the key players driving innovation in the industry. Additional Information Founded in 2006, ISG (Nasdaq: III) is a global advisory firm known for its proprietary market data and deep understanding of provider ecosystems. The firm supports more than 900 clients, including 75 of the world’s top 100 enterprises, in achieving operational excellence and faster growth through AI and other cutting-edge technologies. ISG's commitment to empirical, data-driven research ensures that their findings are both accurate and actionable.