Deloitte Releases Global Aerospace and Defense Sector 2010 Mid-Year Outlook

2010 Holding Steady with Continued Flat Performance

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Jul 20, 2010, 08:56 ET

WASHINGTON, July 20 /PRNewswire/ -- Deloitte today released its mid-year financial analysis of the global aerospace & defense (A&D) industry for 2010. The report findings were based on examination of quarterly financial statements released to-date in calendar 2010 by 25 top global A&D firms based on revenues. Overall, the report finds that in spite of downward pressure on defense spending and the relatively slow sales in commercial aircraft and business jet segments, the industry has continued to show resiliency albeit in a no-growth environment, much like 2009.

Sales revenue growth was a negative 1.01 percent. Operating profit growth was a negative 1.92 percent and operating margin growth was a negative 0.92 percent, all reflecting flat financial performance.

"Despite these growth challenges, the industry remains resilient and performing better than many other sectors hit hard by the recession. The imperative now will be to cut costs and grow top line revenue in new areas to demonstrate to global stock exchanges the ability to grow profits again," said Tom Captain, vice chairman and Deloitte LLP's A&D sector leader.

Defense spending, led by the United States Department of Defense (DoD) is decreasing, with a 5 percent drop in research and development spend expected into DoD's FY2011, with a base budget increase of only 1.8 percent, not enough to keep pace with inflation. The United Kingdom is expected to have a steeper drop off in defense spending, according to the report. However, spending in India is expected to increase to $32 billion, and spending in the Gulf Coast Countries is expected to rise dramatically.

"The decreasing defense spend by developed countries will require smarter use of the remaining funds in order to develop and deploy the technologies needed to counter our ever more sophisticated adversaries," added General Charles Wald (USAF Ret), director and senior advisor in Deloitte LLP's aerospace and defense practice.

Other key findings from the study include:

Commercial aircraft sales are rebounding, albeit from a low base, with a 127 percent annual increase through to May 2010
Commercial aircraft backlog as of May 2010 stands at 6,600 units, representing six years of locked in work, and provides some comfort to suppliers going forward
For defense companies, key areas generating new revenue sources include mission capability software integration, battle space simulation, directed energy, precision engagement and threat identification, as well as energy and infrastructure security
The number of merger and acquisition deals is up 10 percent over last year with more than a 300 percent increase in the value of deals completed or in process

"We expect to see more deals by private equity and strategic buyers alike as competition for desirable assets heats up over the next several months," said Pauline Biddle, aerospace & defense sector leader, Deloitte UK & Switzerland Manufacturing Group.

To access the Deloitte study in full, please visit: www.deloitte.com/manufacturing.

About Deloitte

As used in this document, "Deloitte" means Deloitte Touche Tohmatsu, a Swiss Verein. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

SOURCE Deloitte