Aerospace Industry Overview
Aerospace Industry Overview
Global Aerospace and Defence Outlook
Revenues for the Aerospace and Defence (A&D) industry are expected to increase modestly in 2013, given large increases in global revenues for commercial aerospace coupled with declines in defence spending. The global defence industry should expect to see more aggressive competition for fewer large defence programmes. In contrast, the commercial aerospace sector is expected to reach record levels of revenue in 2013. The balance of defence and commercial production activity should provide the diversification the A&D industry may need to continue to thrive and grow.
Global Defence and Security
Continued global economic challenges coupled with revenue gaps and cost pressures in 2013 may result in flat to somewhat negative revenue performance, lower returns on invested capital and margin contraction for many defence industry companies, creating pressure to consolidate in order to squeeze out excess defence segment capacity. In response, the segment is likely to undergo more streamlining of its cost structure, divestiture of non-core assets, and additions of gap filling, as well as game changing acquisitions. Companies have also renewed foreign military sales efforts into new geographic markets.
Global Commercial and Business Aircraft
Along with record revenues in 2013, it is likely that the new trend of global production levels above 1,000 aircraft per year for the third year in a row (see Figure 1) will continue. Backlogs are expected to continue growing, with airlines continuing to update their fleets with new fuel-efficient aircraft in order to stay competitive. Suppliers to aircraft original equipment manufacturers (OEMs) are likely to be challenged to keep pace with production requirements and are expected to invest in skills development, tooling and manufacturing capacity.
The A&D industry is becoming more global due to heightened competition, growing travel demands and increased security requirements in emerging markets. Globalization provides opportunities for lower cost and for technologically advanced product introductions. Increasingly, these products can be designed and manufactured virtually anywhere. Globalization is also affecting product selections, in that military and commercial customers alike are requiring that value be “offset” by placing work in their countries of origin. This tendency is likely to continue, as traditional countries are pressured to keep their jobs at home, but is balanced by the need for companies to grow revenues and continue to reduce labour costs. The trend in the industry towards globalization is also marked by new market entrants, particularly in the commercial aircraft segment.
No matter the outcome of the budget sequester action, there is likely to be continued pressure to reduce defence expenditures. Continued debate on several important questions regarding US defence and security policy and investment priorities are expected to shape the financial performance of the defence industry. The formulation of a renewed US defence strategy, coupled with the resulting war fighter requirements, and ultimately the defence budget, will likely provide the guidance necessary for defence contractors to size their workforce appropriately, to understand what revenues they can count on, and therefore what their financial performance will be in 2013 and beyond.
Due to the increasing demand in A&D equipment for the armed forces, India continues to be one of the promising A&D markets in the world. Milestones in certain deals are expected to be achieved in 2013, such as submarines, missiles and the Indian Air Force Medium Multi-Role Combat Aircraft (MMRCA). More overseas companies will be involved in the Indian market and new joint ventures are likely to be signed between Indian private and overseas companies. The Indian government will continue to focus on indigenization with increasing presence of Indian companies that could expect certain fiscal and economic benefits from the government. Indian companies will likely succeed with the help of foreign companies, which creates a benefit for both.
The Canadian A&D industry shows strong performance leading into 2013. The increasing demand for civil aircraft, which constitutes more than 76% of the Canadian A&D industry, represents the main driver for growth in the segment in 2013. Given its relatively low dependence on the defence segment, the Canadian A&D industry is not impacted as much from the defence downturn in the United States and in Europe. Furthermore, Canadian defence will likely soon begin to see the benefits of the National Shipbuilding Procurement Strategy which awarded contracts to two Canadian shipyards that will have an estimated aggregate value of CAD$ 35 billion over the next 20 years.
Continued innovations that are the hallmark of this industry should power the next generation of technology development that can contribute to safer, more fuel-efficient aircraft, as well as more capable weapons to help keep war fighters out of harm’s way.
2013 Global aerospace and defense industry outlook”, Deloitte Touche Tohmatsu Limited, http://www.deloitte.com/view/en_GX/global/industries/manufacturing/