July 8, 2013 Source: Deloitte Aerospace & Defense Group
NEW YORK --- A new study released by Deloitte today analyzed 24 metrics of financial performance for the global aerospace and defense (A&D) Industry. The study found that in 2012, commercial aerospace revenues significantly increased and more than made up for declines in the defense segment. Commercial aircraft segment revenues increased 16.2 percent or US$38.4 billion in 2012, while defense segment revenues decreased 1.3 percent, for a combined increase of 5.9 percent, up from a 1.6 percent increase in 2011.
Global defense is heavily weighted towards the U.S. defense sector, which continues to be impacted by budget reductions – US$487 billion across 10 years under the Budget Control Act of 2011, and an additional US$42 billion annual budget reduction associated with the automatic "sequester," which took effect on March 1, 2013. Operating profits declined for this segment by only 1.6 percent and operating margins were flat, considering that defense companies had significant one-time charges, reflecting aggressive cost cutting in the face of declining revenues. Innovations in cybersecurity, intelligence, surveillance and reconnaissance technologies, among other areas, offer attractive pathways for a return to growth. In addition, as noted in the study, foreign military sales offer some upside potential, as certain geographies face increasing national security threats.
Boeing Commercial Airplanes and Airbus Commercial surpassed their previous year's combined production with the delivery of 1,189 aircraft in 2012. This is the highest production level achieved in large commercial aircraft history. In 2012, commercial aerospace accounted for 45.9 percent of the total revenue posted across the global A&D Industry, up from 41.9 percent in 2011. Combined revenue increases for commercial aircraft for these two companies was $20.5 billion, and were it to represent a stand-alone company, it would have ranked as the 10th largest A&D firm globally, underscoring the astonishing growth of the commercial aerospace sector in 2012.
"The global A&D market is shifting, and we may see the commercial aerospace segment reach parity with defense in the next few years, after many years of being overshadowed by military spending. Our study found that European A&D companies are recovering from systemically lower financial performance compared to U.S. A&D companies, although operating margins and return on invested capital (ROIC) continue to lag for European A&D companies," said Tom Captain, vice chairman, Deloitte LLP and global aerospace and defense sector leader.
The Deloitte Global Aerospace and Defense Industry financial performance study includes analysis of 105 A&D companies or segments of industrial conglomerates with A&D businesses that recorded revenue greater than US$500 million in 2012.
Deloitte's A&D sector focuses on top issues facing the industry. Deloitte A&D practitioners have deep industry experience and are actively involved in various segments of the industry, including: M&A, advanced technology programs, airplane program launches, and acquisition reform and economic assistance packages.
Click here for the full report (44 PDF pages) on the Deloitte website.