Global Aerospace and Defense Industry Sluggish in 2011
The financial performance of the global aerospace and defense (A&D) industry generally fell in 2011, says a report.
Despite the uncertainty in the defense sector, Deloitte’s report found that the global A&D industry as a whole grew in 2011 to $681 billion, posting a sluggish revenue gain of 2.3 percent, compared to 2.5 percent in 2010.
The study reveals 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).
Despite this decline, the 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 study.
“With the defense segment comprising about two-thirds of the global A&D industry, our report suggests that ongoing defense outlook uncertainty is likely to impact overall financial performance in 2012,” said Tom Captain, principal, Deloitte Consulting LLP and global and U.S. aerospace & defense leader. “However, the findings indicate that defense spending is increasing in countries such as India, China, Japan, the United Arab Emirates, Saudi Arabia, and Brazil as a result of growing wealth and in light of mounting national security concerns.”
Financial performance differences between the commercial and defense segments widened in 2011; commercial revenues grew 10.1 percent while defense revenues declined by 3.3 percent.
Contributing to the commercial revenue growth were record production levels of large commercial aircraft and higher demand for aircraft services. The study found that Defense revenues were likely impacted by decreasing defense budgets, competing domestic priorities, weaker than expected economic performance in the western world, and the drawdown of forces in Iraq and Afghanistan.
There are also financial performance differences between A&D companies based in the United States and Europe. According to the study, the industry achieved 3.3 percent revenue growth in the U.S. in 2011, while it grew less than one percent (0.8 percent) in Europe. Significantly, operating earnings in Europe fell by 21.6 percent and increased 2.9 percent in the U.S.
Reported return on invested capital was 20.7 percent and 8.7 percent in the United States and Europe, respectively. Furthermore, the U.S. employee productivity outpaces Europe with operating earnings per employee up 1.9 percent. Conversely, Europe saw this important metric fall 25 percent.
Tier one (5.1 percent), two (11.1 percent), and three (29.1 percent) A&D suppliers, many of which serve the commercial aerospace segment, reported revenue increases; while original equipment manufacturers experienced revenue growth of just 0.1 percent.