2018 Global aerospace and defense industry financial performance study

2018 Global aerospace and defense industry financial performance study Commercial aerospace sector performance decelerates, while defense sector continues to expand ContentsExecutive summary 1Scope of the study 3Global aerospace and defense (A&D) industry: Performance overview 52017 global A&D industry performance: A detailed analysis 9 Global defense sector compared with commercial aerospace sector 19Comparison of US and European A&D industry performance 20Comparison of US and European defense sector performance 23 Segment performance 21Study methodology 26Authors 29Contacts 30Endnotes 31 Executive summaryGlobal aerospace and defense industry recuperated as revenue growth increased in 2017; however, the industry lagged compared to global gross domestic product (GDP). Global aerospace and defense (A&D) industry revenues grew 2.7 percent or US$18.3 billion in 2017 to reach US$685.6 billion. The overall industry growth rate increased from 2.4 percent in 2016, yet was slower than the 2017 estimated GDP growth of 3.1 percent1 as the commercial aerospace sector growth slowed to 1.2 percent in 2017. Global commercial aerospace revenue growth further decelerated to 1.2 percent in 2017 from a growth of 2.7 percent in 2016. The sector added US$4.0 billion in revenues to reach US$323.1 billion in 2017. The decline in growth was largely due to a slowdown in twin-aisle aircraft deliveries in the US. The commercial aerospace sector growth in the US remained soft, up marginally by 1.3 percent in 2017, whereas the European commercial aerospace sector experienced strong growth of 3.7 percent as the region experienced higher aircraft deliveries during the year. Global defense sector revenues recorded a 3.9 percent increase as defense spending continues to rise across the globe. After posting moderate growth in 2016, global defense revenue experienced robust growth of 3.9 percent in 2017 to reach US$361.5 billion. This was largely driven by the US, where the defense sector revenues were up 4.5 percent, owing to higher funding from the US Department of Defense (DoD), the sector’s major customer. The European defense sector revenues grew 2.6 percent in 2017, compared to a mere 0.6 percent in 2016. One of the factors driving growth in the defense sector in Europe is the increasing pressure from the US administration on NATO members to increase military expenditure to 2 percent of G D P.2 US A&D industry revenue growth outperformed its European counterparts, led by robust performance of the US defense sector. In 2017, the US A&D industry experienced a 3.4 percent year-on-year (YoY) growth, marginally outpacing the 3.2 percent growth recorded by the European A&D industry. This trend reversed after two straight years of European companies outperforming the US companies (in 2015 and 2016). Original equipment manufacturers (OEMs) and companies in the electronics segment drove overall revenue growth. OEMs and companies in the electronics segment added US$5.6 billion and US$4.7 billion in revenues, respectively. While growth for OEMs was primarily led by a revenue increase at Lockheed Martin, which contributed US$3.8 billion in revenues in 2017, Rockwell Collins and Raytheon were the leading contributors to the electronics segment revenue. Global A&D industry core operating margins improved in 2017, primarily led by the US, with stable margins for the European A&D industry. Operating margins for the industry expanded to 10.8 percent, up from 10.2 percent in 2016. The margin improvement was mainly led by the US A&D industry, which recorded healthy margins of 12.7 percent in 2017, increasing from 11.6 percent in the previous year. Higher industry margins can be attributed primarily to strong core operating earnings growth (up 64.2 percent) at The Boeing Company (Boeing). In contrast, the European A&D industry recorded an operating margin of 8.5 percent, largely flat as compared to 8.6 percent in 2016.Propulsion segment recorded the highest operating margins, followed by tier 2 suppliers. Although operating margins for the propulsion segment were mostly flat in 2017 at 17.4 percent, they were the highest amongst all segments. This was followed by tier 2 suppliers, which continue to earn margins higher than tier 1 suppliers, recording an operating margin of 16.5 percent in 2017, up from 16.0 percent in 2016. Tier 1 suppliers’ margins remained stable at about 10.0 percent in 2017.Productivity improvement in the industry accelerates as overall profitability rises, primarily in the US. The A&D industry productivity continued to