Aerospace and defence manufacturers are finding that strong demand is no guarantee of strong returns. With backlogs still deep and order books stretched, the real question for many businesses is not whether work is coming in, but whether each programme is actually making money once supplier inflation, execution slippage and contract friction are taken into account.
One of the biggest pressures remains supplier cost. BCG has long argued that OEMs can only improve supply-chain pe...
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rformance if they standardise procurement, negotiate from a clearer view of supplier economics and build the capabilities to hold on to savings. That matters more now because many manufacturers remain tied to long-term contracts that leave little room to recover rising input costs. When prices move up but customer terms do not, margin erosion tends to arrive quietly.
McKinsey has pointed to another familiar drain: weak contract governance. In aerospace, profitability can be undermined by scope creep, urgent requests and inconsistent interpretations of contract terms. Its work on commercial aerospace suppliers suggests that disciplined governance can create a repeatable way to capture value, rather than leaving teams to fight the same margin leaks on every programme.
The problem is not confined to procurement or commercial management. It also sits inside the systems that are supposed to connect the business. ERP platforms built for generic manufacturing often struggle with the realities of aerospace and defence, where contract line items, work breakdown structures, flow-down requirements and programme-level costing all have to line up. As KPC Team has noted, when those details are not native to the system, teams end up recreating visibility in spreadsheets, which adds delay and invites error.
That fragmentation is becoming more costly as programmes grow more complex. PwC says legacy tools and siloed data are no longer enough for sustainment-heavy businesses, especially as AI starts to reshape pricing, risk allocation and life-cycle cost forecasting under performance-based contracts. Its view is that ERP, enterprise asset management and AI increasingly need to operate as one architecture rather than separate layers.
Manufacturers are also seeing margin pressure from shop-floor realities. MES-linked visibility can help track scrap, rework and material waste back to programme economics, making it harder for poor quality to disappear into overhead. For fixed-price work, that kind of traceability is not a luxury; it is often the difference between a managed programme and a profitable one.
The broader lesson is that growth alone does not solve a margin problem. Even in a market with record demand, profitability depends on execution, contract discipline and systems that can support the business as it actually operates. The companies that are pulling ahead are those treating programme profitability as an operational design issue, not a finance afterthought.
Source: Noah Wire Services
