Aerospace and defence sector faces tough times in 2012 - report

06 March 2012 by defenceWeb

The commercial aircraft sector is likely to enjoy high production volumes this year due to increasing demand for leisure and business travel, particularly in the Asia Pacific region, while the global defence market is expected to experience flat or declining growth due to decreased military spending, principally in the United States and Europe, Deloitte says.

According to Deloitte’s "2012 Global aerospace and defence outlook: A tale of two industries", the growth in the commercial aircraft industry is expected to be driven by continued production and development of next-generation aircraft programs that aim to address increasing fuel costs.

"The commercial aircraft sector has taken an innovative approach to responding to increasing fuel costs," said Tom Captain, Global Aerospace and Defence sector leader at Deloitte. "The development of fuel-efficient aircrafts that utilize next-generation engine technology has resulted in a significant rise in aircraft orders. However, certain suppliers will be challenged to keep pace with the expected increase in production rates and new program introductions this year."

Meanwhile, continued global economic challenges coupled with revenue gaps and cost pressures may result in margin contraction for global defence players. As a result, the defence sector is likely to undergo more streamlining of its cost structure, divestiture of non-core assets, and additions of gap filling, as well as transformation acquisitions.

"Expect to see more aggressive competition for the fewer large defence programmes of record, as well as growth in defence sales to India, Brazil, the United Arab Emirates, the Kingdom of Saudi Arabia, Brazil, Japan, and South Korea – countries with emerging wealth and a need to strengthen their defence capabilities," continued Captain.

Overall, the financial performance of the top global aerospace and defence companies in 2012 is expected to be similar to 2011 performance, with the decline in defence revenues offset by cost-cutting and aggressive growth actions.

In 2012, the aerospace and defence industry is likely to continue to develop game-changing technology innovations in areas such as cyber-security, directed energy, high-powered microwave weapons, hypersonic missiles, long-range and high-altitude unmanned aerial systems, and extraordinary software that can trace financial transactions of known terrorists, Deloitte said.

Meanwhile, Global Industry Analysts (GIA) predict that the global aerospace and defence industry will reach a value of US$544.7 billion by 2015. GIA this month said that after a considerable slowdown in revenue growth during the 2007-2009 recession, the global aerospace and defence industry is back on the growth track, posting steady gains in revenue over the last two years. The industry in short to medium term period will be primarily driven by increasing defence spends across the globe against the backdrop of rising security concerns, improving air-traffic and resulting increase in demand for new commercial aircraft. Robust demand for new commercial airplanes from developing markets, especially Asia-Pacific, augurs well for the industry.