2011 Global A&D Industry performance wrap-up
Widening gap between commercial versus defense; United States versus Europe
A new report by the Deloitte Touche Tohmatsu Limited (DTTL) Global Manufacturing Industry group entitled 2011 Global Aerospace and Defense Industry performance wrap-up indicates the financial performance of the global aerospace and defense (A&D) industry generally fell in 2011. Despite the uncertainty in the defense sector, the global A&D industry as a whole grew in 2011 to US$681 billion, posting a sluggish revenue gain of 2.3 percent, compared to 2.5 percent in 2010.
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, 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.
The financial performance differences widened between the commercial and defense segments in 2011: commercial revenues grew 10.1 percent while defense revenues declined by 3.3 percent. Factors contributing to the growth of commercial revenues were record production levels of large commercial aircraft and increases in demand for aircraft services. Additionally, defense revenues were likely impacted by decreased defense budgets, competing domestic priorities, weaker than expected economic performance in the western world, and the drawdown of forces in Iraq and Afghanistan.
Regionally, the financial performance differences between A&D companies based in Europe and the United States continue to diverge. 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, 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.
On the supplier side, companies experienced revenue growth in 2011. 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. These increases compare with revenue growth of just 0.1 percent for original equipment manufacturers, many of which are defense segment companies.