2016 Global aerospace and defense sector financial performance study
Sector returned to growth, with US defense subsector revenue bottoming out
This study analyzes the top 100 global aerospace and defense (A&D) companies, or business units of industrial conglomerates with A&D business, with reported revenue of more than US$500 million in 2015 with financial statements filed by 31 December, 2015.
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- Five-year history of A&D sector revenue and growth performance
- Scope of the study
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- Global aerospace and defense revenues in constant currencies returned to growth, outpacing inflation, however, the sector experienced a decline when measured on a non-constant US dollar (US$) basis
- Defense subsector is rebounding likely due to increased military spending by governments that are recapitalizing their defense infrastructure
- Commercial aerospace deliveries and order backlog reached record-highs with strong revenue growth in 2015, with future years of sector industrial stability expected
- European aerospace and defense sector is eclipsing the US sector in revenue growth, likely due to increased market competitiveness, increased defense spending and continued growth in commercial aircraft production
- Productivity remains high, after experiencing improvement likely due to increased replacement of labor with process automation, efficiency initiatives, and lower overhead costs brought about through increased mergers and acquisitions activity
- Propulsion, avionics and complex systems suppliers continue to experience higher operating margins and profitability, compared to aerostructures and services companies
- US aerospace and defense (A&D) sector operating margins continue to remain higher than European A&D sector, with a 3.1 percent gap, however profitability of European A&D companies is increasing.
- Companies are taking on more debt to finance stock buybacks, acquisitions, and product development, especially in the US, taking advantage of historically low interest rates
- Many financial performance metrics were driven by increased revenue at commercial aircraft original equipment manufacturers and their suppliers, as well as increased profits from European defense companies
The US defense subsector continued to decline in 2015, however, the magnitude of decline has abated, with recovery expected next year as global defense budgets are likely to increase.
Five-year history of A&D sector revenue and growth performance
Scope of the study
The study was conducted by assessing performance based on calculating 29 key financial metrics, which include key nominal and growth metrics for revenue, operating earnings, operating margin, ROIC, free cash flow (FCF), FCM, BTB ratio, employee productivity, and equity market performance. All financial metrics in the study are based on a constant currency conversion method to eliminate the impact of foreign exchange fluctuations on companies’ or the global A&D sector’s performance.
Where metrics were compared to previous years, we restated previous years' numbers to be consistent. Financial performance metrics at the company level are cited throughout this study, especially for the top performing companies and selectively for the lower performers. However, unique metrics for a given company should not be viewed in isolation, as there typically are unique transactions for individual metrics by company, e.g., prior year acquisitions, special circumstances, etc. The combined metrics for a given company, taken as a whole, are more likely to form the basis for an overall assessment of the financial performance of the global A&D sector, as well as individual companies.