Commercial aerospace revenues soar as defence aerospace spending dives, says Deloitte
Commercial aerospace has become the driving force in the growth of global aerospace, achieving the highest production levels ever for commercial aircraft and eclipsing the revenues generated by a defence industry that continues to decline, says Deloitte.
Revenue increases from the commercial aerospace industry soared during 2012, exceeding US$ 38.4 billion, thus lifting the entire industry while the contribution from defence aerospace continued to slide downwards, says Igna Gray, a Director at professional services firm Deloitte. The results come from a Deloitte ‘Global Aerospace and Defence Industry Financial Performance Study’ which analysed 24 metrics of financial performance across 105 companies in the sector - a study that has implications for South African Aerospace and Defence Industry companies whose businesses generally track global trends.
“The results indicate that after many years of being overshadowed by military spending, the commercial aerospace segment could be reaching parity with military expenditure. The study shows that the commercial aircraft segment revenues increased by 16.2 percent (US$ 38.4 billion) in 2012, while defence segment revenues decreased by 1.3 percent, for a combined increase of 5.9 percent, up from a 1.6 percent increase in 2011.
Boeing Commercial Airplanes and Airbus Commercial surpassed their 2011 production levels by delivering 1 189 aircraft in 2012, the largest production levels achieved yet in large commercial aircraft history. In 2012, commercial aerospace accounted for 45.9 percent of total revenue posted across the global Aerospace and Defence industry, up from 41.9 percent in 2011.”
“Combined revenue increases for commercial aircraft for Boeing and Airbus was US$ 20.5 billion. If the two represented a stand-alone company, it would have ranked as the 10th largest A&D firm globally, underscoring the astonishing growth of the commercial aerospace sector in 2012,” says Gray, adding that European Aerospace and Defence companies are now recovering from systemically lower financial performance when compared to their U.S. counterparts.
Global defence aerospace spending is primarily influenced by the U.S. defence sector, which continues to be impacted by budget reductions that are to be trimmed by US$ 487 billion across 10 years under the Budget Control Act of 2011. An additional US$ 42 billion annual budget reduction was lost to defence spending through the automatic “sequester,” which took effect on 1 March 2013.
During the past several years, the defence segment typically accounted for about 66 percent of revenues for the entire A&D industry. The dominance of the defence segment could be attributed to the long-term nature of the military build-up and need to support two major and long-term military conflicts in the Middle East during the first decade of the new century. This occurred simultaneously with slower growth experienced in commercial aerospace starting with the 2002 recession and continuing with the great recession starting in 2008.
However, Gray says that innovations in cyber security, intelligence, and surveillance and reconnaissance technologies - among other areas - offer attractive pathways for a return to growth. In addition, as noted in the study, foreign military sales offer some upside potential, as certain geographies face increasing national security threats.
Although some South African aerospace and defence firms already have a footprint in commercial aviation, the new trends suggest that there is now an opportunity for traditionally defence orientated companies, to examine opportunities for moving into commercial aviation products, beyond defence.
“This will require new or strengthened global relationships, investment in research and development as well as a commitment to innovation and the upgrading of exisiting, but sometimes ageing technologies,” says Gray.
During the next 20 years, passenger travel demand growth is expected to continue to increase, especially in Asia and the Middle East markets. “Further growth is being stimulated by demand from airline operators as they retire obsolete, less fuel efficient airplanes. Boeing forecasts that 35 280 new aircraft will be produced from 2013 through 2032. With seven years of backlog, production increases are expected to continue and record levels of commercial aircraft production may be expected again in 2013,” she concludes.