Deloitte: Global Aerospace and Defence industry sluggish in 2011
New report suggests that financial performance gaps widen between commercial and defence sectors, and European industry lags U.S
9 July 2012
According to the 2011 Global Aerospace and Defence Industry performance wrap-up by Deloitte Touche Tohmatsu Limited’s (DTTL) Global Manufacturing Industry group, the financial performance of the global aerospace and defence (A&D) industry generally fell in 2011. Despite the uncertainty in the defence sector, the report found that the global A&D industry as a whole grew in 2011 to US$681 billion (£438.6 billion), posting a sluggish revenue gain of 2.3 percent, compared to 2.5 percent in 2010.
The 2011 Global A&D Industry performance wrap-up also found that reported operating earnings for the global industry decreased 3.1 percent, as did reported operating margins (down 5.3 percent), free cash flow (down 13.3 percent), and reported operating earnings per employee (down 5.2 percent). On the positive side, the report found that book to bill (BTB) ratio, an indicator of future revenue growth, increased 17.4 percent, primarily as a result of higher sales of new fuel-efficient commercial aircraft.
According to the report, financial performance differences widened between the commercial and defence segments in 2011: commercial revenues grew 10.1 percent while defence revenues declined by 3.3 percent. The report also suggests that factors contributing to the growth of commercial revenues were record production levels of large commercial aircraft and increases in demand for aircraft services. Additionally, the report indicates that defence revenues were likely impacted by decreased defence budgets, competing domestic priorities, weaker than expected economic performance in the western world, and the drawdown of forces in Iraq and Afghanistan.
“With the defence segment comprising about two thirds of the global A&D industry, the 2011 Global A&D Industry performance wrap-up suggests that a continued uncertain defence outlook is likely to impact overall financial performance in 2012,” said Tom Captain, Global A&D Leader, DTTL. “However, the report findings indicate that defence spending is increasing in geographies such as India, China, Japan, the United Arab Emirates, Saudi Arabia and Brazil, as a result of increases in wealth and in light of growing national security concerns.”
The report found that regionally, the financial performance differences between A&D companies based in Europe and the United States continue to diverge. According to the report, the European A&D industry grew less than one percent (only 0.8 percent) while the U.S. industry achieved 3.3 percent revenue growth in 2011. Most significantly, the report found that reported operating earnings in Europe fell by 21.6 percent, while companies in the United States were able to grow operating earnings by 2.9 percent.
Furthermore, the report suggests that European A&D companies continue to lag in employee productivity, with Europe reporting operating earnings per employee down 25 percent, while their U.S. peers improved 1.9 percent in that important metric. According to the report, in 2011, reported operating margin in the United States was 10.5 percent and 4.7 percent in Europe; reported return on invested capital was 20.7 percent in the United States, while in Europe it was 8.7 percent.
“Findings in the 2011 Global A&D Industry performance wrap-up report show that European and U.S. A&D company financial performance gaps widened, continuing a trend from 2010 and suggesting ongoing differences in work force practices between Europe and the United States,” said Pauline Biddle, A&D Sector Leader, Deloitte United Kingdom and Deloitte Switzerland. “However, the report suggests that increases in commercial aircraft production and decreases in one-time impairment charges in Europe in 2012 are expected to improve financial performance.”
On the supplier side, companies experienced revenue growth in 2011, the report found. Other report findings: Tier one, two, and three A&D suppliers, many of which have significant participation in the commercial aerospace segment, reported revenue increases of 5.1 percent, 11.1 percent, and 29.1 percent respectively. And according to the report, these increases compare with revenue growth of just 0.1 percent for original equipment manufacturers, many of which are defence segment companies.
To access 2011 Global Aerospace and Defence Industry performance wrap-up, go to www.deloitte.com/manufacturing.
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Deloitte Touche Tohmatsu Limited Global Manufacturing Industry group
The Deloitte Touche Tohmatsu Limited Global Manufacturing Industry group is comprised of around 2,000 member firm partners and over 13,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line experience, and thought leadership allows them to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, and commitment to each other and strength from diversity. Deloitte member firms provide professional services to 80 percent of the manufacturing industry companies on the Fortune Global 500®. For more information about the Global Manufacturing Industry group, please visit www.deloitte.com/manufacturing.