2016 Global aerospace and defense sector poised to resume growth
Travel demand, new technologies, and security threats are fueling increases in aircraft production, defense budgets, and the global supply chain
The global aerospace and defense (A&D) industry is expected to return to growth in 2016 with total sector revenues estimated to grow at 3.0 percent, according to the Deloitte Touche Tohmatsu Limited (Deloitte Global) Consumer & Industrial Products Industry group’s 2016 Global aerospace and defense sector outlook. This positive signal follows years of declining revenue growth of 3.2 percent in 2013, 1.9 percent growth in 2014, and an expected decline of minus 0.5 percent in 2015 as found by Deloitte Global in its 2015 Global aerospace and defense sector financial performance study.
Over the last three years, global A&D industry revenue was largely impacted by decreased revenues in the United States (US) defense subsector. The return to growth in 2016 is expected to be fueled by increases in the US defense budget, a resurgence of global security threats, and growth in defense budgets of key nations around the world. In addition, relatively stable growth in global gross domestic product (GDP), lower crude oil and other commodity prices, and continued increases in passenger travel demand are contributing to expected growth in production rates for next-generation commercial aircraft.
Defense budgets in the US, United Kingdom, France, Japan, several Middle Eastern countries, and other nations are increasing at a time when national security threats are being heightened. Global revenues in the defense subsector are expected to return to growth in 2016, as governments equip their armed forces with modern defense weapons platforms and next-generation technologies, including cyber, intelligence gathering, defense electronics, and precision strike capabilities.
The commercial aerospace subsector is expected to continue its decade-long trend of above-average growth rates, driven by growth in passenger travel demand and an accelerated equipment replacement cycle. Strong increases year over year of global revenue passenger kilometers are leading to an unprecedented level of aircraft production rates, which in 2015 were about twice the levels experienced 10 years ago.
The 2016 Global aerospace and defense sector outlook outlines a projection for aircraft production for 2016 and beyond, as well as defense spending by major countries. It also provides perspectives on defense contractor expectations, the anticipated impact of the lower oil prices on aircraft sales, the economic slowdown in China and its potential impact on the commercial aerospace subsector, and the near-term effects a strong US dollar may have on the industry.
Executive Summary - 2015
The 2015 Global Aerospace & Defense Industry Outlook, from Deloitte Touche Tohmatsu Limited (Deloitte Global) Consumer & Industrial Products Industry group, is an assessment of the 2014 financial performance of 100 major global aerospace and defense (A&D) companies using information from public company filings and press releases. The key financial indicators studied include sales revenue, operating earnings, and operating margin. The results presented in this study reveal important observations about the overall global A&D industry.
Key findings from the 2015 report:
- Revenue and earnings growth in the commercial aerospace sector is expected to be a bright spot and driving force behind the global aerospace and defense (A&D) industry performance in 2015.
- The commercial aerospace sector is expected to set new records for aircraft production in 2015.
- Global revenues in the defense sector will likely continue to decrease in 2015 at an estimated 1.3 percent. Yet, defense spending is increasing in several areas of the globe.
- Over the next few years, the defense sector will be challenged in two major ways: how to grow profitably in a declining market and what actions are necessary to cut costs to maintain acceptable financial performance.
Executive Summary - 2014
Deloitte Touche Tohmatsu Limited’s Global Manufacturing Industry group 2014 Global aerospace and defense sector financial performance study is an assessment of the 2013 financial performance of 100 major global aerospace and defense (A&D) companies using information from public company filings and press releases. The key financial indicators studied include sales revenue, operating earnings, and operating margin. The results presented in this study reveal important observations about the overall global A&D industry.
Key findings from the report
- Global aerospace and defense sector growth slowed down in 2013, with the U.S defense subsector slowdown a key contributor
- Top 10 global A&D companies rankings have changed from prior year, reflecting commercial aerospace growth
- While the A&D sector becomes more global, U.S. companies continue to dominate. Europe is gaining momentum in revenue growth, but losing some ground in profitability
- Profitability is improving across the global A&D industry
- A&D sector share prices outpaced global equity indices
The 2014 infographic gives a summary of key financial indicators. It talks about the average performance of A&D companies in 2013:
- Revenue: US$706 billion
- Operating earnings: US$63 billion
- Operating margin: 8.9%
- Return on invested capital: 17.0%
- Free cash flow: 5.1%
- Number of A&D employees: 2,042,252