Flat Revenues Plague Defense and Aerospace Industry

Michelle Remo, “Big 4″ observer
July 12, 2011 /

For the second consecutive year, the defense and aerospace industry has sustained flat financial performance as revenues remain flat amid hardship in keeping with inflation, a report said.

Deloitte’s “2010 Global Aerospace & Defense Industry Performance Wrap-up” released today analyzes the financial performance of global defense and aerospace industry companies with revenues exceeding $400 million.
According to the report, the industry has experienced comparatively flat to modest increases in core operating profit, excluding non-recurring charges.

Most of the industry did not sufficiently boost sales orders to replace sales revenue billings despite backlog re-bounce from 2009 levels, the report stated, adding that the industry experienced uneven growth with commercial aircraft orders gaining momentum while defense contractors struggled with a difficult budget environment.

“Flat results are not surprising given the tough economy. Global defense contractors are experiencing new challenges in growing revenues and profits,” said Tom Captain, vice chairman, Deloitte LLP and global aerospace and defense sector leader.

In contrast, commercial aerospace companies focusing on emerging markets are seeing a rise in revenues and improving profits as business and personal travel rates continue to climb, Captain added.

Other findings of Deloitte’s report indicated an increase of 24.9 percent in the reported operating profit of the commercial aerospace industry due to nominal one-time charges of $1.7 billion in 2010 compared to $10.5 billion in 2009.

“In the absence of such charges operating profit increased by 4.5 percent in 2010,” Deloitte said in a statement.

Moreover, core operating margins of 8.9 percent suggested a 2.9 percent increase or 26 basis points (bps) although reported operating margins increased by 23.0 percent or 162 bps due to the virtual absence of large non-recurring charges to earnings in 2010 relative to 2009.

“U.S.-based A&D companies’ revenues grew faster in 2010 than their European counterparts with U.S. revenues growing 1.9 percent in 2010 vs.0.9 percent growth among European companies,” the report stated.

In the study, U.S. companies were projected to be more profitable than their European counterparts. The US defense and aerospace industry has seen a reported operating margins of 10.5 percent compared to 6.0 percent, reflecting the long-term difficulty in rationalizing labor costs due to European labor laws.

“On a more positive note, commercial aircraft experienced a near record year by producing 972 aircrafts in 2010. The sector enjoyed substantial sales order increases with net bookings growing towards pre-recession levels,” Deloitte said.


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