Global A&D Financial Performance Study (2012)

Soaring revenue increases of US $38.4 billion in 2012 from commercial aerospace lifts the industry while defense declines

Deloitte LLP’s Global Aerospace and Defense Industry Financial Performance Study includes an analysis of 105 A&D companies that recorded revenue greater than US$500 million in 2012. Industry revenues grew overall by 5.9% in 2012, as record production of commercial aerospace made up for global defense industry revenue declines.

Key findings of this report:

•Commercial aerospace revenue increased 16.2% or $38.4 billion in 2012, compared to an 8.7% increase in 2011.

•Global defense revenues fell 1.3% in 2012, principally due to cessation of major armed conflicts and sovereign affordability challenges.

•Commercial aerospace is becoming more dominant, increasing its share of the global A&D industry with 45.9% of the total revenues posted in 2012.

•European financial performance improvements outpaced the U.S. on most metrics.

•Supplier revenue growth exceeds performance of original equipment manufacturers.

Global A&D financial performance study

Commercial aerospace drives sector growth and more – The global aerospace and defense (A&D) Industry’s revenue grew overall by 5.9 percent in 2012,1 all due to record production of commercial aerospace, and even made up for global defense industry revenue declines. Boeing Commercial Airplanes and Airbus Commercial

topped their previous year’s combined production with the delivery of 1,189 aircraft in 2012, the highest production level achieved in commercial aircraft history.2,3 According to Deloitte’s analysis of the leading global A&D companies, the commercial aircraft segment’s revenue increased 16.2% or US$38.4 billion in 2012.4 Boeing Commercial and Airbus Commercial generated over half of the increase in commercial aircraft revenues, as combined revenue increased by 27.2 percent, or approximately $20.5 billion in 2012.5,6 To give a perspective on how large this is, if this were a company, it would rank as the 10th largest global

A&D firm.

Overall industry financial performance improved in 2012 – Despite declines in defense spending, the key financial performance metrics for the global Industry improved in 2012, as commercial aerospace’s growth more than offset declining revenue in defense. Reported operating earnings, a key financial metric, increased 8.4 percent and operating margin improved 2.3 percent. In addition, free cash flow (FCF) increased 2.8 percent, and reported operating earnings per employee increased 7.5 percent.14 Of the key financial metrics we measured, only the book to bill (BTB) ratio declined in 2012, primarily due to a 49.7 percent decline in EADS’ very high 2011 BTB ratio. Although the company’s BTB ratio decreased to 1.45x, it still ranks in the top quartile of A&D companies in 2012. Although the Industry’s overall BTB ratio had a marked decline in 2012, if the impact of Boeing and EADS’ contributions are excluded, the BTB ratio actually increased 3.3 percent to 1.08x, mainly due to the order strength of commercial aerospace suppliers. Overall financial performance is expected to increase in 2013 as additional revenue volume from commercial aerospace provides economies of scale, which may result in higher margins, absent additional one-time charges to earnings. Additional cost cutting in anticipation of further defense budget cuts is also expected to contribute to this positive trend.

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