Defense Industry Continues to Shrink in First Half of 2012

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Oct 02, 2012, 10:00 ET

NEW YORK, Oct. 2, 2012 /PRNewswire/ -- According to a new financial report from Deloitte, Mid-year 2012 Top 20 Global Aerospace and Defense Company Financial Performance Analysis, defense contractors in the top global aerospace and defense (A&D) companies experienced a 1.0 percent decrease in global revenues in 1H (first half) 2012, on top of the 3.3 percent decline in revenues in 2011.

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"Continuation of domestic budget pressures in traditional economies, particularly in the U.S. and Europe, are resulting in lower defense budgets," said Tom Captain, Deloitte's U.S. and Global A&D leader. "Defense contractors are responding with stepped up cost cutting, acquisition activity, growth in adjacent markets and a focus on cyber-security, intelligence, surveillance and reconnaissance technologies."

On the other hand, commercial aerospace grew at 14.9 percent in the 1H 2012, resulting from record production of new fuel efficient aircraft. This significant increase in revenues for this segment helped the global A&D industry enjoy a 5.5 percent increase in total revenues compared to the first half of 2011, more than making up for the decrease in defense revenues.

Overall, the global A&D industry posted increased operating earnings of 8.8 percent to $20.0 billion in 1H 2012, largely due to the positive impact caused by delivery of commercial aircraft, company cost cutting and efficiency initiatives in advance of expected continued declines in defense budgets, and the virtual absence of one time charges.

Due to these reasons, operating margins increased 3.0 percent in 1H 2012 to 8.4 percent. Commercial aerospace companies enjoyed a significant jump of 29.2 percent in earnings, while the defense segment stayed flat at a nominal increase of 1.5 percent in earnings. Similarly, commercial aerospace operating margins increased 12.4 percent, while defense companies increased 2.6 percent in this important financial metric.

About the Report

The Mid-year 2012 Top 20 Global Aerospace and Defense Company Financial Performance Analysis was compiled by comparing and contrasting the performance of the top 20 global A&D companies' commercial and defense segments on the metrics of revenue, operating earnings and operating margins. These companies represent approximately 71 percent of total global industry revenue. This report used the latest unaudited data through June 30^th, 2012 for each company. To view a copy of the report, please visit: www.deloitte.com/us/2012adfinancialperformance .

About Deloitte's Aerospace & Defense Group

Deloitte's A&D sector focuses on the top issues facing the industry. Deloitte A&D practitioners have deep industry experience and are actively involved in various segments of the industry, including M&A, advanced technology programs, airplane program launches, and acquisition reform and economic assistance packages. For more information about Deloitte's Aerospace & Defense group, please visit: www.deloitte.com/us/a&d.

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

SOURCE Deloitte