Global aerospace & defense sector outlook
There are positive signs for the global aerospace and defense (A&D) industry in 2010 according to a new report by the Deloitte Touche Tohmatsu Limited (DTTL) global Manufacturing industry, Compass 2010 — Global aerospace & defense sector outlook. Orders for new commercial aircraft are projected to rebound in 2010 to over 800 units, reversing the steep decline experienced in 2009. Likewise, orders for business jets are showing signs of improvement, and new requirements for innovative technologies are expected to drive demand for defense companies.
China is expected to become a major provider of commercial aircraft over the next 20 years. India is drawing the attention of the defense industry, with their defense procurement budget expected to rise to US$45 billion by 2012. Although Japan anticipates a modest rise in commercial aircraft parts production and no significant increases in defense budgets, the steady growth of the industry in the long-term in mainland Asia also is expected to benefit Japan.
However, the European sector is at an inflection point. There are ongoing challenges to deliver cross-border joint development and procurement programs to meet expectations in terms of timing, cost, risk, and program management and capability, with cost overruns in key programs making headlines. At the same time, competition has increased from nontraditional smaller companies which have demonstrated innovative approaches to technology programs and they are quickly capturing market share for government defense and space programs.
According to the outlook, one of the key trends to watch for in 2010 is the likely acceleration of merger and acquisition activity in the industry. Consolidation in tier-one and tier-two suppliers is expected to rise, to gain economies of scale and increase industry asset utilization. It is anticipated that large original equipment manufacturers (OEMs) will continue to acquire smaller companies to fill capability gaps.
The global A&D industry to date has been largely sheltered from the credit crunch due to the long-term nature of its contracts. In the UK for example, companies are carrying very strong order backlogs which will help them in 2010. However, the future of the European sector will depend upon the extent of collaboration to gain economies of scale, be more cost-competitive, and achieve better market access. In the Indian market, most segments are expected to show significant growth this year. In China, growth in the middle class will continue to fuel the need for more aircraft to drive business and leisure travel. Japan and China will continue to accelerate its presence in the industry through the development of new regional and commercial aircraft.