Study shows A&D’s resilience

Deloitte has released a study of the global aerospace and defence (A&D) industry’s financial performance in 2009, finding that, despite the recession, the sector remains resilient.

The study, which evaluated the financial performance of the 91 global companies with revenues exceeding $500m (£340m), revealed that global A&D revenue in 2009 remained essentially flat, with a slight 1.3 per cent increase over 2008 to $635bn. However, operating earnings decreased 15.3 per cent to $47.9bn, while operating margins fell 16.4 per cent to 7.5 per cent.

‘The A&D market has weathered the storm of the financial crisis well, due primarily to the fact that the industry relies on long-term contracts that protect it from short-term economic events,’ said Pauline Biddle, UK head of aerospace and defence at Deloitte.

‘In addition to this, the growing need for global defence, security and humanitarian aid have helped the industry through recent economic challenges. However, as the sector looks to increase revenues and profitability, it is still faced with significant obstacles, such as shrinking defence budgets, exchange-rate volatility and financing constraints.

‘Future growth in the A&D industry will vary by global region, with the most significant growth expected to come from the East, with India and the Middle East identified as the key markets. Further, it is likely that certain A&D product sub-sectors, such as data protection, biometric and domestic security technologies, will outperform others in the short to medium term. These are areas where the UK is strong with a good track record of innovation.’

The study also found that US A&D companies were more profitable and grew faster than their European counterparts. European companies, in particular, have faced challenges in rationalising their property, plant and equipment by closing facilities and integrating acquisitions efficiently. Further, European labour laws have prevented some companies from reducing headcount.

‘A number of UK companies managed to buck this trend through a combination of acquisitions and strong organic growth, as well as playing in niches with higher margins. One reason is that UK businesses in this sector have greater representation in the US market than their mainland European counterparts. Indeed, four UK companies feature in among the 18 global companies achieving double-digit revenue growth and almost half of the UK businesses in the survey are included in the top quartile for margin earners.’