Ongoing innovation in the aerospace industry, both in the United States and elsewhere internationally, is helping the previously hard-hit sector bounce back post-pandemic.

Leading aerospace companies — including aircraft manufacturers, avionics suppliers, and passenger airlines — continue to pour resources into research and development and identify issues and opportunities to address through product improvements, technology creation, and process optimization.

These efforts, along with a steadily improving global economy, helped the aerospace industry experience record profits in 2023, with civil aviation companies leading the way, thanks to a rise in consumer flight demand.

This recent financial uptick is certainly good news for companies across the commercial aerospace industry.

But there’s even more opportunity for these businesses to continue to grow and unlock transformation.

3 emerging innovation opportunity areas in the aerospace industry

"The myriad technologies applied throughout the industry offer a plethora of opportunities for companies — ones that can help drive both margins and innovations for the future and seize the opportunities that lie ahead," Deloitte’s 2025 Aerospace and Defense Industry Outlook noted.

Despite the high volume of tech being built to help stakeholders across the aerospace industry, there are still plenty of innovation gaps that can (and should) be addressed to help public- and private-sector organizations in the space modernize their operations and future-proof their businesses.

Based on our research and industry discussions, a few we think are worth prioritizing in the years ahead include:

1) Dual-use applications

Mind the Bridge research found 15,000 startups and scaleups are creating dual-use technologies for civilian and defense use cases, with an estimated 700 of these companies dedicated solely to DefenseTech creation.

As retired U.S. Air Force Brigadier General and Small Business Consulting Corporation CEO and Founder Gerald Goodfellow shared in our Alloy 2024 session on defense innovation, these companies can face several barriers to get a government contract, due mostly to procurement-related red tape.

But it's clear that creating dual-use applications that can be leveraged on the national level in the federal government for defense-related needs and for commercial aerospace purposes presents a sizable innovation opportunity.

‍Established aerospace and defense corporations like Boeing, Honeywell, and Raytheon are primed to build their own companies that can tackle dual-application experimentation and the creation of new startups and solutions.

"Strong demand and healthy capital inflows have allowed certain dual-use tech organizations to thrive," a trio of McKinsey and Co. partners recently wrote. "Private investors ... in many cases are looking to back dual-use technology, given its large potential returns and broad applicability."

Developing new solutions tied to global positioning, thermal imaging, remote sensing, advanced propulsion, and human-machine interfaces are just a handful of innovation opportunity areas that can help both the aerospace and defense sectors enhance commercial and military aircraft.

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2) Sustainability and decarbonization

The road to net zero looks different for each industry. Yet the collective goal remains the same for businesses in all sectors: Find ways to reduce carbon emissions across one's value chain through industrial recarbonization.

The airline industry, in particular, is facing increasing pressure to make the requisite changes to become greener — a problem compounded by the fact that the number of global air passengers is projected to double by around 2040.

Sustainable aviation fuel has shown it can (when adopted at scale) reduce CO2 emissions from aviation companies by between 70-90%. But more innovation is needed, if the aerospace industry wants to meet its 2050 target.

Proactive measures are being taken by some airlines to tackle this problem.

Delta created Sustainable Skies Lab to "bridge the gap between fledgling ideas and proven innovation by focusing on clean fuel, efficient flying operations, revolutionary fleet concepts and sustainable travel and business practices."

Innovation hubs like these that explore how artificial intelligence, machine learning, and other emerging tech can help increase fuel efficiency, optimize flight paths, reduce flight delays, and predict consumer demand can ultimately help the aviation industry contribute to international environmental goals.

3) Supply-chain resilience

The majority (55%) of aviation executives recently polled by Accenture indicated their companies still use "time-consuming and often cumbersome manual processes" to monitor supply chain activity and related risk.

Manufacturing delays due to parts-production issues are forecast to continue in the years ahead, leading to further fragility in the aerospace supply chain, the firm's 2024 Commercial Aerospace Insight Report found.

"Supply chains within the aerospace and defense ... sector have arguably been strained more than those of any other industry," EY noted. Yet innovations aiming to solve these challenges offers a reason for optimism.

Innovation tied to supply-chain digitization is better enabling aerospace organizations to source scarce materials, tackle labor (hiring and retention) issues, and analyze supplier reliability, thanks to big data and predictive analytics.

Developing new Industry 4.0 technologies (think those tied to AI, the blockchain, the Internet of Things, and digital twins) can streamline supply chain operations, automate processes, and lead to cost efficiencies.

Rolls-Royce is a prime example of an aerospace and defense company that has innovated its way to a smarter supply chain. A collaborative approach with engineers at airline partners to mass-produce and deliver aviation engine and turbine components on time has streamlined the company’s design and assembly-line execution.

Building companies to address these (and other) aerospace innovation opportunities

There is no one ‘right’ innovation approach for aerospace businesses. Investing in existing companies, forming partnerships with startups, and doubling down on R&D initiatives are all worthwhile innovation avenues.

But too few aerospace companies are engaging in venture building to launch transformative startups that solve big problems they’ve long wanted to address for their own business, customers, and/or partners.

Alaska Airlines has recognized the value of this approach. That’s why the company partnered with a transportation- and mobility-focused venture lab. The partnership has already yielded one startup, an AI operational logistics platform that optimizes flight scheduling, just a year after starting to work with one another.

The future of aerospace is undoubtedly bright. Disruptive innovation is well underway on commercial space travel, reusable rockets, urban air mobility solutions, and other cutting-edge technologies.

However, arguably the lowest-hanging innovation fruit for aerospace and defense corporations is the creation of a dedicated venture studio.

‍Building a venture studio would enable these organizations to launch their own startups at scale and, in turn, address pressing issues, future-proof their businesses, make them more resilient when economic headwinds inevitably arise, and further position them as a leader in their space.