Rebound seen for global aerospace, defence sector

Singapore - THE global aerospace and defence (A&D) industry is expected to return to growth in 2016 with total sector revenues to expand 3 per cent, after contracting in 2015.

Factors driving the bullish outlook include a pick-up in defence spend as well as big order books in the commercial aerospace sector, according to the Deloitte Touche Tohmatsu 2016 global aerospace and defence sector outlook.

In contrast, revenues were projected to have declined by 0.5 per cent last year, the report highlighted.

"Strong increases year over year of global revenue-passenger-kilometres are leading to an unprecedented level of aircraft production rates, which in 2015 were about twice the levels experienced 10 years ago," said Tom Captain, Deloitte's global leader for the aerospace and defence segment.

The commercial aerospace sector should see a robust year in 2016, bolstered by record production for next-generation aircraft on order from airlines in the Asia-Pacific and the Middle East. This comes as growing affluence in emerging countries in the two regions drive travel demand - both in the leisure and business travel segments. As at Q3 2015, the world's two biggest commercial planemakers, Airbus and Boeing, had combined orders of more than 12,400 aircraft.

Despite concerns that slower economic growth in China might hit the commercial aerospace subsector, the report highlighted that the market should remain resilient, thanks to cheaper oil prices, government support for the industry in China as well as robust passenger demand.

Commercial aerospace subsector revenues are expected to grow by 3.4 per cent this year, while defence subsector revenues are expected to grow by 2.7 per cent, thanks to the US Department of Defence experiencing a US$13 billion (S$18.6 billion) bump in budget.

The US accounted for the biggest chunk of global military spend in 2014 at US$1,747 billion. But in recent years, there has also been a surge in military sales to foreign countries. For instance, in the US alone, foreign military sales have jumped from US$21.36 billion in FY2010 to US$46.6 billion in FY15 - a trend that is likely to continue.

"Defence budgets in the US, United Kingdom, France, Japan, several Middle Eastern countries, and other nations are increasing at a time when national security threats are being heightened," Mr Captain pointed out.

He added: "Global revenues in the defence subsector are expected to return to growth in 2016, as governments equip their armed forces with modern defence weapons platforms and next-generation technologies, including cyber, intelligence gathering, defence electronics, and precision strike capabilities."

But firms in the global A&D sector will need to be more efficient and keep a tight lid on costs as the sector is expected to experience pricing pressure this year.

This article was first published on January 7, 2016.
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