The Defence Industry Continues to Shrink in the First Half of 2012
"The company's state of preparedness for the decline in defence sector engagements during the crisis is one of the key factors for its future existence,"
— Bronislav Pánek,
Deloitte's Lead Partner for the Manufacturing and Consumables Industries in Central Europe
New York/Prague, 29 October 2012 – According to a new financial report from Deloitte United States, Mid-year 2012 Top 20 Global Aerospace and Defence Company Financial Performance Analysis, defence contractors in the top global aerospace and defence (A&D) companies experienced a 1.0 percent decrease in global revenues in 1H (first half) 2012, on top of the 3.3 percent decline in revenues in 2011.
“The continuation of domestic budget pressures in individual economies, particularly in the U.S. and Europe, are resulting in lower defence budgets” said Tom Captain, Global A&D Sector Leader, Deloitte. “Defence contractors are responding with stepped-up cost cutting, acquisition activity, growth in adjacent markets, and a focus on cyber-security, intelligence, surveillance, and reconnaissance technologies.”
On the other hand, the commercial aerospace industry grew at 14.9 percent in 1H 2012, resulting from the record production of new fuel-efficient aircraft. This significant increase in revenues for the segment helped the global A&D industry enjoy a 5.5 percent increase in total revenues compared to the first half of 2011.
Overall, the global A&D industry posted increased operating earnings of 8.8 percent to US$20 billion in 1H 2012, largely due to the favourable impact caused by the delivery of commercial aircraft. At the same time, companies took action relating to cost cutting and efficiency initiatives in advance of expected continued declines in defence budgets and as a result of the virtual absence of one-time charges.
“The company’s state of preparedness for the decline in defence sector engagements during the crisis is one of the key factors for its future existence. Timely cost cutting and strengthening of production for the public sector enable A&D companies to better handle the expected decrease in defence costs. Strengthening the development capacities for the public sector, which, due to growing fuel prices, constantly seeks structural solutions that reduce the weight of aircraft and increase their cost effectiveness will also be of major importance,” said Bronislav Pánek, Deloitte’s Lead Partner for the Manufacturing and Consumables Industries in Central Europe.
For these reasons, operating margins increased 3.0 percent in 1H 2012 to 8.4 percent. Commercial aerospace companies enjoyed a significant jump of 29.2 percent in earnings, while the defence segment stayed flat at a nominal increase of 1.5 percent in earnings. Similarly, commercial aerospace operating margins increased 12.4 percent, while defence companies increased 2.6 percent in this important financial metric.
About the Report
The Mid-year 2012 Top 20 Global Aerospace and Defence Company Financial Performance Analysis was compiled by comparing and contrasting the performance of the top 20 global A&D companies’ commercial and defence segments on the metrics of revenue, operating earnings and operating margins. The above-mentioned companies represent approximately 71 percent of total global industry revenue. The report used the latest unaudited data through 30 June 2012 for each company. To view a copy of the report, please visit: www.deloitte.com/manufacturing.
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© 2012 Deloitte Czech Republic