The global commercial aerospace industry showed significant growth last year, increasing revenue 16% ($38 billion), while the defence industry saw revenue decrease by 1.3% for a combined increase of 5.9%, according to a new report released by Deloitte.
The company said that the global defence industry is heavily weighted towards the US defence 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% and operating margins were flat, considering that defence companies had significant one-time charges, reflecting aggressive cost cutting in the face of declining revenues, the report said.
“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,” Deloitte said.
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% of the total revenue posted across the global aerospace and defence industry, up from 41.9% in 2011.
Combined revenue increases for commercial aircraft for Airbus and Boeing was $20.5 billion, and were it to represent a stand-alone company, it would have ranked as the 10th largest aerospace and defence firm globally, underscoring the astonishing growth of the commercial aerospace sector in 2012, Deloitte noted.
“The global A&D market is shifting, and we may see the commercial aerospace segment reach parity with defence 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.