A&D firms face a new era of risk: The risk environment for aerospace and defense (A&D) is more volatile and interconnected than ever. Cyber threats, supply chain vulnerabilities, tariffs, talent shortages, rapidly emerging technology and more have industry leaders navigating uncharted airspace.
Why it matters: The many and varied top risks for A&D — macroeconomic, strategic and operational — influence everything from who wins contracts to whether legacy firms can stay competitive as AI-fueled defense innovation accelerates.
Bottom line: Now is the time for A&D organizations to reassess their risk radar. Protiviti’s new Executive Perspectives on Top Risks Survey, created in collaboration with NC State University, reveals how A&D leaders are recalibrating their priorities for 2025 — and beyond.
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Aerospace and defense (A&D) firms are no strangers to complexity. Even relative newcomers to the industry recognize that shifting defense budget cycles, supply chain disruptions and geopolitical instability come with the territory. However, according to the latest Executive Perspectives on Top Risks Survey from Protiviti and NC State University’s ERM Initiative, the real challenge for A&D firms today isn’t just the ability to manage change. It’s about proactively embracing or even jump-starting reinvention.
Results from our global survey highlight an urgent need for organizations in the A&D sector — including the largest and most well-established players — to rethink their processes, step up modernization of legacy systems and prepare for a future where agility is critical. The risks for this industry group are rising — and they are increasingly interconnected.
Here are some highlights from Protiviti’s expanded analysis of key risks for A&D companies for the next two to three years and beyond, based on our 2025 survey findings.
Cybersecurity: A rising priority for A&D firms — with a regulatory twist
It’s no surprise that cyber threats tops the list of near-term concerns for A&D leaders. Their organizations are high-value targets, with nation-state actors and cybercriminals aiming to steal intelligence, disrupt infrastructure, undermine trust or worse.
But there’s more at the root of this risk concern. The U.S. Department of Defense’s Cybersecurity Maturity Model Certification (CMMC) 2.0 is pushing companies to meet stringent cybersecurity standards so they can stay eligible for contracts. Compliance with CMMC is costly and complex — not to mention non-negotiable.
With CMMC pressure mounting and threat actors growing bolder, cyber risk management has become a business imperative for A&D firms, not just an IT concern.
Artificial intelligence — a strategic imperative and talent challenge for A&D
AI is transforming modern defense operations, powering everything from predictive maintenance to autonomous mission planning. Yet, many A&D firms are struggling to capitalize on AI’s potential because they can’t align the talent needed to work with it effectively.
“Adoption of AI and other emerging technologies requiring new skills in short supply” ranks as the second-highest near-term risk for the industry, according to our Top Risks survey. Competition from tech giants and financial services firms only intensifies the challenge for A&D organizations, making it harder for them to attract and retain top-tier talent in AI, cloud, analytics and other in-demand areas.
Some firms are forming partnerships with universities or scaling internal training to help close tech skills gaps. But with the pace of technological change quickening, time is an unavailable luxury for A&D firms.
Growing economic pressures amid global instability
Cybersecurity and emerging tech may dominate boardroom conversations, but economic conditions and geopolitical uncertainty are close behind. In fact, these issues rank third and seventh, respectively, among the top 10 near-term risks for the A&D industry group.
Defense budgets are always vulnerable to shifting priorities, but recent trends have been especially volatile. As U.S. government agencies rethink spending — emphasizing AI, space and cyber capabilities — funding for traditional platforms is in flux. Cost-cutting across the federal landscape could delay contract awards, stall modernization programs and create uncertainty for A&D firms banking on long-term investments.
Outside the U.S., geopolitical tensions are redrawing the global defense map. From rising competition with China to sustained conflict in Eastern Europe, allied nations are increasing their defense budgets — often with a goal of reducing reliance on U.S.-based contractors. At the same time, trade restrictions and export controls are limiting market access and complicating multinational operations.
Add in inflationary pressures, tariffs, rising wages and material shortages, and the picture becomes even more complex. These macro forces are pushing A&D companies to rethink financial models, diversify supply chains and adopt more agile cost-optimization strategies. The firms that thrive will be those able to adapt quickly — without compromising performance or security.
The competitive threat of defense tech startups
The rise of “defense tech” firms — lean, venture-backed startups offering fixed-price contracts and rapid innovation — is reshaping the A&D competitive landscape. These newcomers operate with Silicon Valley speed, integrating AI, automation and advanced materials into their solutions without the constraints of legacy systems or procurement red tape.
Government buyers — facing shrinking budgets, urgent mission timelines and intensifying pressure to modernize — are taking notice. By offering more predictable pricing and shorter development cycles, defense tech firms are positioning themselves as lower-risk, higher-velocity partners — appealing to government buyers who increasingly prioritize speed and agility over legacy approaches.
The result is that legacy firms in the A&D sector are facing pressure on all sides because:
- Cost expectations are shifting.
- Procurement models are evolving.
- Cultural inertia is being exposed.
- The pace of innovation is now a competitive differentiator.
For established players, the rise of agile defense tech startups is a call to action. Competing effectively may require not only internal transformation, but also strategic partnerships, acquisition deals, or even an entirely new approach to research and development (R&D) and talent development. In short, to stay relevant, innovation must be at the heart of how legacy firms think, act and deliver value.
What the future may hold for the A&D industry group
Looking toward 2035, talent availability tops the list of long-term strategic concerns for A&D leaders. An aging workforce, coupled with evolving generational values, is making it harder to attract the next generation of engineers, analysts and innovators.
At the same time, persistent threats — cyberattacks, disruptive technologies and increasing competition — are being compounded by emerging risks, including AI governance, third-party vulnerabilities and supply chain transparency.
One thing is certain: A&D companies will need to evolve. The real question is how quickly — and how boldly — they’re willing to meet the moment.
Download the 2025 A&D insights brief from Protiviti
Don’t miss Protiviti’s first-ever Top Risks commentary focused on the global A&D industry. Download the full brief now to dive deeper into the issues reshaping this critical sector, with insights on how forward-looking A&D companies are preparing for what will likely be a turbulent but opportunity-rich decade ahead. Or view our infographic, which breaks down the near-term risk outlook for the industry.
