2017 Global aerospace and defense sector financial performance study
Defense subsector expands, while commercial aerospace growth slows down
The 2017 study looks at the top 100 global aerospace & defense companies that have generated at least US$500 million in revenues in 2016. This assessment allows Deloitte to provide industry executives with a detailed understanding of how their sector is performing and how the aerospace & defense segments are performing relative to each other.
Five key themes from the aerospace and defense study
Global aerospace & defense (A&D) sector revenues grew by 2.4 percent to US$674.4 billion in 2016, slightly above the estimated global domestic product (GDP) growth of 2.3 percent. The top 100 companies analyzed added US$15.7 billion in revenues, with growth primarily driven by the European commercial and US defense subsectors. In terms of incremental revenue growth by segment, the original equipment manufacturers (OEMs) and electronics segments were the top contributors, adding US$3.4 billion and US$3.7 billion respectively.
New to the study is the analysis of letters to shareholders from the c-suite of the top 20 A&D companies which provides an insight into their strategic priorities and outlook. The following five key themes highlight what these companies are focusing on and communicating to their shareholders:
- Invest in creating and developing aerospace products that maintain margin and create a foundation for future in the face of challenging competition.
- Achieve long-term operational performance by managing cash, improving processes, and through more effective program transformations.
- Secure capital to create custom product (including aircrafts and engines) improvements which can lead to growth in deliveries and larger returns.
- Enhance innovation capabilities through alliances or acquisitions, as well as employing the best talent.
- Support continued business growth through investing in new services, focusing on new customers and markets as well as on contracts and technologies.
- Global A&D sector revenue growth is slowing, marginally outpacing global GDP growth.
- European A&D sector revenue growth continues to outperform the US sector.
- The global defense subsector continued to recover as global defense spending increased, especially in the United States.
- Global commercial aerospace revenue growth slowed from 6.3 percent in 2015 to 2.7 percent in 2016.
- The Original Equipment Manufacturers and electronics segment experienced incremental revenue growths.
- Global defense operating margin growth strengthens as the commercial aerospace margins tighten.
- Propulsion segment was the leader in operating margins. However, Tier two suppliers now rank second.
- Sector productivity experienced a moderate improvement in 2016, led by strong growth in Europe.
- Debt levels continue to rise as companies increase leverage to finance acquisitions, share buybacks, and develop new and innovative products.
- US and European A&D stocks outperformed their respective market indices.