Europe’s gray-to-green workforce transition in aerospace and defense

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The race for talent is intense across industries, and aerospace and defense (A&D) is no exception. The best employees, including skilled tradespeople and those with software development and engineering skills, are in high demand globally and know their value. In this environment, A&D companies around the world, despite their strong reputations, may find themselves at a disadvantage when attempting to recruit the best talent; they must compete with big tech companies and start-ups that have created strong value propositions that emphasize the importance of innovation and the creation of leading-edge technologies that change the world. Adding to the burden, A&D companies are dealing with the talent challenge at a time when the sector is growing rapidly, digitalizing many processes, and navigating other pressing challenges, including supply chain disruptions.

While we have previously written about the challenges from a US perspective, Europe faces its own share of pressing workforce issues that represent a significant call to action. The latest European Commission reporting found that 75 percent of companies report difficulties in finding workers with the necessary skills, and 40 percent of adults lack basic digital skills—all of which has been the impetus for the Commission to kick-start the “European Year of Skills.”1 In response, partly because of the war in Ukraine, a shift in the perception of the European A&D industry and its purpose (specifically the defense side of the sector) has taken place, including at the unexpected intersections of defense and start-ups and tech. For younger talent, for whom purpose matters significantly, this presents an opportunity.

Globally, the A&D sector faces multiple challenges as it attempts to attract younger or “green” employees to companies in which the workplace often skews “gray” and in which many of the most valued staff members are approaching their retirement years. While the United States leads on this trend with about one-third of industry employees aged 55 or older,2Navigating the gray-to-green transition in aerospace and defense,” McKinsey, March 16, 2023. in Europe, it’s closer to about one-fifth of the industry. A significant proportion of the A&D workforce is aged 50 to 54, however—approaching the retirement window. This trend is present among both highly skilled manufacturing trades and advanced technical engineering professions. In the context of broader labor challenges across Europe, this presents a significant risk to the ability to deliver on future, growing industry demand (Exhibit 1).

The transition from ‘gray’ to ‘green’ employees in Europe creates significant headwinds.

In another major postpandemic shift, workers are now more open to pursuing new opportunities, even if it means moving to a different employer. In Europe, as many as one-third of employees are thinking about changing jobs in the next three to six months.3European talent is ready to walk out the door. How should companies respond?,” McKinsey Quarterly, December 12, 2022. This number is lower compared to the United States, where 46 percent of employees are thinking about changing jobs in this time frame; however, this statistic is still notable in a region with a traditionally less dynamic job market.4 Younger workers with less job experience are the most likely to make a shift, with research showing they are twice as likely to change employers compared to long-tenured employees.5Navigating the gray-to-green transition in aerospace and defense,” McKinsey, March 16, 2023.

The demographic shifts, as well as the new attitudes about switching jobs, have decreased talent replacement rates at A&D companies.6 If companies cannot replace long-tenured employees who retire, and if the turnover rate for young employees is high, A&D companies may find that their workforce lacks some of the most essential skills. In Europe, the situation is even more acute, with employers struggling to keep pace with their American counterparts on this front. This is evidenced by a lower hiring rate and higher attrition rate, especially in areas critical to the future of the industry, such as digital and advanced-analytics profiles.7 This trend in Europe will likely continue to worsen: as shown in McKinsey’s earlier research on female technical talent in Europe, women’s graduation rate in higher education from STEM disciplines is declining. At current rates, the share of women in tech roles in Europe is set to decline to 21 percent by 2027.8Women in tech: The best bet to solve Europe’s talent shortage,” McKinsey, January 24, 2023. For A&D players in Europe, this is a sobering reality that will require extraordinary measures to change.

New generation, new expectations

Younger workers—the “green” contingent—tend to have a different conception of the employee–employer relationship than do older employees in the “gray” group.9Great Expectations: Navigating challenging stakeholder expectations of brands,” McKinsey, December 9, 2021. Younger workers grew up in a world where the internet made goods and services readily available—often instantly or with same-day delivery—and allowed them to conduct much of their social lives online. Not surprisingly, these experiences have shaped what many younger employees now expect in the workplace, and our global research shows that six factors are particularly important to them:

In this environment, the employee value proposition (EVP) that A&D employers offer has never mattered more. On a global level, the industry lags its highly competitive tech and auto peers on many of the touchstone perceptions of the EVP, including pay and differentiated benefits.14Debugging the software talent gap in aerospace and defense,” McKinsey, July 18, 2022. That said, when it comes to the A&D industry, Europe leads the United States on most elements of the EVP, especially as it relates to perceptions of senior leadership, corporate culture, and work–life balance. This is evidenced at a macro level by data from employee sentiment analyses, as well as at a more granular level by a recent ranking of the best employers in France (in which two A&D players are in the top ten15) or by Universum’s yearly pulse survey of French engineers, which highlights that six out of the top 15 most attractive players are in A&D.16 However, beyond what employers offer their employees, Europeans are less in tune with the values, mission, and collective purpose of the aerospace industry than their American colleagues (Exhibit 2).17

While aerospace and defense employers in Europe offer a stronger employee value proposition, employees are less connected to the industry overall.

Despite geographic variation, the global trend is clear: the prize is high for creating a healthy organization with a strong EVP. For industrial manufacturing companies, including those in A&D, those who get it right are perceived by employees as making faster decisions and having strong leaders, tighter control, and better innovation. Additionally, such companies are better able to hire critical, highly competitive technical talent (Exhibit 3).

The prize is high for creating a healthy organization with a strong employee value proposition.

Taking a new approach to recruitment

A&D companies that fail to understand the needs of younger employees will find it difficult to recruit them in this competitive market. This is especially true in Europe, where the EVP of the A&D employer is stronger than the tie to the actual industry.18 With demand for workers becoming even more intense, a lack of talent will increasingly limit an A&D company’s growth and performance.19

Navigating the gray-to-green transition will require entirely new processes and mindsets. For instance, A&D companies must go on offensive when attempting to recruit the best employees, rather than relying on their traditional channels or hoping that their reputation alone will be a draw. Human resources leaders may want to create new knowledge management solutions and retention strategies. As A&D companies rethink their talent approaches, they may benefit from focusing on three key dimensions (Exhibit 4):

  • The quest for meaning. This relates to elevating the collective sense of meaning in the sector, especially among the younger generations, to create stronger attractiveness (for example, in the fields of national security, innovation, decarbonization, and new space frontiers) and retention. Middle managers (for instance, forepersons and supervisors) play a critical role in establishing this sense of meaning, and investing in them pays off: new research shows that having more top-performing middle managers leads to much better financial outcomes.20Investing in middle managers pays off—literally,” McKinsey, June 26, 2023. This suggests that upskilling and shifting the responsibilities of middle managers is a significant lever to instill meaning at scale.
  • Expanded talent pools. This includes widening the aperture for talent sources to consider nontraditional talent, strengthening partnerships with external parties, and rethinking cooperation with educational systems. Often, A&D players limit their views of expanded talent-pool levers and primarily develop their own academies, but that tactic has proved not to be enough. In the United States, early traction has already been made by including nontraditional sources in the scope of hiring. A&D players in Europe could look to the many European workers that are skilled through alternative routes but not formally educated. This workforce often has the skills for higher-wage jobs but is overlooked. According to LinkedIn,21 adopting a skills-first approach for hiring could increase the size of the talent pool for European countries by six times. Another global theme picking up steam but not yet fully embraced in Europe is the desire of older adults to continue to work in their old age. Many feel this way (as much as 20 to 25 percent) but are not currently acting on it.22Age is just a number: How older adults view healthy aging,” McKinsey, May 22, 2023. This represents another talent pool for Europeans to consider.
  • New career paths and recognition measures. A&D companies could begin offering more nonlinear career paths or could allow employees to assume new roles and responsibilities before they receive a formal promotion. Recognition could also take new forms. For instance, employees could receive badges if they acquire new skills or receive mentoring from senior employees if they demonstrate strong potential. In some cases, they could even be given responsibility for high-priority projects normally given to those with more experience. Such changes may help companies satisfy employee needs for rapid career progression, visible performance acknowledgment, and the opportunity to try out different roles. Given A&D’s commitment to both security and reliability, the talent management of tomorrow will have to focus on expertise and performance, both technical and managerial.
Effective action will focus on three key dimensions.

Leading A&D companies understand how critical these changes are and how they are essential to driving future value creation. They also understand the degree of change management that is required to shift an industry that has long benefited from a stable approach to talent management. Those that are making moves are doing so quickly and boldly.

While all A&D companies are struggling to navigate the ongoing gray-to-green transition, European players face the most intense challenges. If they do not adopt a new approach to talent recruitment and retention, they may find that their workforce has multiple capability gaps that hinder both productivity and performance. But it is within their power to reverse the situation if HR and top executives across the C-suite are willing to go on the offense and create new strategies for recruiting younger employees, all backed by sufficient investment and resources. A&D companies can potentially enhance such efforts by working with educational institutions and members of the public sector to develop training programs that provide their students with critical skills. It’s a winning proposition for all involved—including the young employees who will find challenging and rewarding work in the vitally important A&D sector.

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