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Aerospace and Defense

Deloitte Corporate Finance LLC

In such a quickly changing and difficult environment, it is critical to remain competitive. If you are a supplier looking for growth, liquidity, or seeking to make an acquisition or divestiture, we can help.

While the global commercial aircraft industry has not been immune to the current economic downturn, the overall long-term prospects for the industry remain strong. Forecasts for the next two decades suggest that revenue passenger kilometers (RPKs), which drive the industry, will grow at about 5% per year, or about twice the projected growth rate for the global economy as a whole.¹

Much of the growth in the commercial aerospace industry is expected to come from maturing economies, and Asia is first among them. China alone has 600 million people reaching middle class status over the next two decades, and is expected to experience a dramatic rise in business, tourist and freight traffic. Orders from India and the Middle East will likely also fuel growth. In the next two decades, Boeing forecasts delivery of 29,000 new commercial aircraft worth $3.2 trillion.¹

The world’s business jet manufacturers are also expected to benefit from the economic successes of China, India and the Middle East. Notwithstanding unprecedented order backlogs, the global economic downturn has resulted in a drop in demand for business jets. Despite difficult near-term prospects, we believe that business jets, for all the privacy, convenience and flexibility offered, have a bright long-term future ahead.

The defense sector should be somewhat buffered from the nation’s economic crisis in the short term. President Obama’s FY2010 budget proposal outlined $533.8 billion in spending, representing a 4% increase over FY2009. Additionally, supplemental appropriations of $130 billion have been requested for FY2010 to support current operations.² However, we expect future Department of Defense (DoD) budgets to – at best – flatten out and more likely decrease, due to expected slowdowns of military action in Iraq, coupled with expectations for Congress to squeeze the DoD budget in response to increasing federal deficits, the cost of the Wall Street bailout, domestic priorities and slowing U.S. gross domestic product (GDP) growth.

Notwithstanding the somewhat unpredictable near term environment the industry finds itself currently in, the A&D industry should continue to see some interesting merger and acquisition (M&A) activity. For commercial aerospace, the ongoing trend towards systems integration and the desire for aftermarket growth will continue to interest buyers, especially international players who may seek to capitalize on weakness in the dollar. For defense contractors, acquirers will likely continue to focus on filling technology or capability gaps in their portfolios which address the nation’s most urgent current needs. Furthermore, while the financing markets continue to rebound, companies with strong balance sheets remain well-positioned to pursue strategic opportunities in virtually all segments of the industry.

Deloitte Corporate Finance LLC: How we can help

As the corporate finance practice of the U.S. member firm of Deloitte Touche Tohmatsu Limited, Deloitte Corporate Finance LLC (DCF) has access to vast relationships and expertise within the aerospace and defense industry. The member firms of Deloitte Touche Tohmatsu Limited serve many of the largest companies throughout the commercial aerospace and defense industry. In addition, we have numerous relationships with private equity investors who remain interested in deploying their capital in the aerospace and defense sector.

Through our international reach, broad contacts and extensive transaction experience, we can assist you in originating, structuring and executing the transactions that can allow you to take advantage of the current industry environment.

¹ 2009 Boeing Current Market Outlook
² U.S. Department of Defense

For additional information please contact one of our Aerospace and Defense industry professionals:
Kevin McFarlane, Managing Director, Deloitte Corporate Finance LLC
Peter Frankfort, Senior Vice President, Deloitte Corporate Finance LLC

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