2017 US Aerospace Defense Industry International Expansion

Aerospace and defense cross-border joint ventures

Cross-border A&D JVs continue to be an important vehicle for international expansion.

According to the analysis by Deloitte, Many nations are investing in science and technology and proudly tout their aerospace and defense progress. As a result, A&D companies focusing on international expansion are doing so through cross-border joint ventures (JVs) to create value.

With the US and European A&D sectors maturing, companies from these regions are increasing their focus on international growth opportunities in markets such as India, China, and the Middle East.

Over the last 10 years, commercial and military aerospace businesses in India remained the leading segments, within aerospace or defense, to establish cross-border JVs.

Similarly, China has seen cross-border JVs in the commercial aerospace segment, followed by commercial avionics.

The Middle East has experienced large numbers of JVs in commercial aerospace, as well as weapons-related JV formations. Going forward, India, China, and the Middle East will likely lead the way in attracting JV activity, with other geographical regions following (Eastern Europe, Southeast Asia, etc.).

With India relaxing its defense sub-sector foreign direct investment (FDI) rules, entering into its A&D market is now easier. This change in policy positions the world’s biggest defense importer to become a key aerospace and defense manufacturing hub.

In the Middle East, oil price volatility, regional tensions, and the recognition of the multiplier effect of an A&D sector base are collectively expected to drive JV formation activities. China continues to make impressive progress in building a formidable A&D industrial base.

However, A&D companies and their executives need to keep key issues in mind while entering into international JVs, including geopolitical alliances, end markets, supply chains, and regulatory compliance and structure.

Report highlights include:

  • Lists of cross-border joint ventures in aerospace and defense, by region
  • Public policy developments and emerging trends
  • Offset frameworks and intellectual property rights rules by market
  • India and China lead the pack, followed by the Middle East, in cross-border joint venture activity
  • Cross-border joint venture activity trends by A&D segment: Commercial and military aerospace remain focus areas
  • How can joint ventures plan for complexity and success?

You can find the full report here below.

Source: Aerospace and defense cross-border joint ventures


The New Era of Innovative Disruption in Aerospace and Defense

Why do so many aerospace and defense (A&D) companies “stay the course”?

Why do so many aerospace and defense (A&D) companies “stay the course” when faced with disruption, sticking with strategies and business models designed for a different era? New Deloitte research found that A&D companies that adapted their strategies and business models significantly outperformed those that didn’t.

 Shifts in demand trigger new eras

Why should A&D company executives who have traditionally “stayed the course” consider changing strategies and business models now? Because today’s convergence of disruptive factors will fundamentally change the way the A&D industry is structured, operates, and performs. Sticking with the status quo—or just making small adjustments—won’t be enough to maintain market leadership in the next era of A&D.

To outperform the industry, A&D company executives should take bold steps. In our experience, many companies hesitate to launch new strategies because they lack a systematic set of defined alternatives. This report outlines alternatives to consider, ranging from the most passive (e.g., stay the course) to the more active (e.g., restructure portfolio). Our findings suggest that companies choose a strategy that actively creates value.

Business Strategy in Aerospace and Defense

Time to outperform the industry

The bottom line is that the inevitable march of commoditization has finally arrived on portions of the A&D market’s doorstep. It’s changing the fundamental basis of competition in the industry and shaking the foundation on which many companies have based their strategies. Staying the course isn’t an option.

Companies that embrace the fundamental disruption in the market have an opportunity to gain market leadership. By rethinking their strategies and business models, they can improve financial performance and outperform the A&D industry over the next decade.

2017 Global Aerospace and Defense Industry Outlook

The 2017 Global aerospace and defense outlook by reviews the industry’s financial performance in 2016 and expectations for 2017

2017 Global Aerospace and Defense Operating Earnings and Margin and

The analysis by Deloitte outlines a long-term forecast for aircraft production, as well as an analysis of global defense spending. It also provides perspectives on defense contractor expectations, growth in travel demand driven by wealth creation in Asia and the Middle East, and observations on what travel demand means for the commercial aerospace sub-sector.

This year’s outlook finds global aerospace and defense industry revenues expected to resume growth, driven by higher defense spending.

Trends forecast a return to growth
Global Aircraft Production by 2035
Global Aircraft Production by 2035

The global aerospace and defense industry is likely to experience stronger growth in 2017. Following multiple years of positive but a subdued rate of growth, the report forecasts the sector revenues will likely grow by about 2.0 percent in 2017.

The global A&D sector revenue rebound is attributed to a number of factors in both the commercial aerospace sub-sector and the defense sub-sector. Key findings are as follows:

Commercial aerospace sub-sector analysis
  • Stable global gross domestic product (GDP) growth, relatively lower commodity prices including crude oil, and strong passenger travel demand, especially in the Middle East and Asia Pacific regions, will likely drive the commercial aerospace sub-sector growth.
  • Despite an expected increase of 96 additional large commercial aircraft being produced in 2017, continued pricing pressure and product mix changes by airline operators will likely result in only a marginal increase of 0.3 percent in commercial aerospace sub-sector revenues.
Defense sub-sector analysis
  • Defense sub-sector revenues are likely to grow at a much faster 3.2 percent in 2017 as defense spending in the US has returned to growth after multi-year declines in defense budgets, and future growth many be driven by the new US administration’s increased focus on strengthening the US military.
Top 25 Military Spending Nations
Top 25 Military Spending Nations
  • Rising global tensions have led to increasing demand for defense and military products in the Middle East, Eastern Europe, North Korea, and the East and South China Seas. This is in turn resulting in increased defense spending globally, especially in the United Arab Emirates (UAE), Saudi Arabia, South Korea, Japan, India, China, Russia.

You can reach the full report here below.


Source: 2017 Global Aerospace and Defense Industry Outlook

2017 US Aerospace and Defense Export and Labor Market

US aerospace and defense export growth faces global competition

US aerospace and defense industry export and labor market study by Deloitte

The US aerospace and defense (A&D) industry has been a significant contributor to America’s net exports, a top employer, taxpayer, and major contributor to the nation’s gross domestic product. However, recently we are seeing a slowdown in the industry.

A strong US dollar, increasing global competition, and decreasing export financing are causing US aerospace and defense (A&D) industry export growth to decline. At the same time, employment in the US aerospace and defense sector has declined significantly over the last five years, much of it due to budget sequestration. What can the industry do to change course?

Our latest aerospace and defense industry study includes developments and trends from two important focus areas in the US aerospace and defense industry: employment and exports.

Last year, we developed two separate reports that highlighted industry trends in both of these areas. This year, readers who download the report will experience the same beneficial information tied together in one comprehensive report.

Report findings include:

  • Export growth slowed at 1.7 percent in 2016
  • Exports directly supported 1.42 million jobs in 2016
  • Net commercial exports rose sharply in 2016 by $9 billion or 12 percent
  • US Foreign Military Sales declined by $13 billion or 28 percent in 2016
  • Total employment in the US A&D sector decreased in 2016 by 0.3 percent
  • Direct and indirect jobs lost in the defense subsector between 2011 and 2016 totaled 165,044


Source: 2017 US aerospace and defense industry export and labor market study

Trends in Aerospace and Defense Mergers and Acquisitions

A healthy Aerospace and Defense M&A market

The evolving focus of Aerospace and Defense M&A

According to the study by Deloitte ,in the aerospace and defense industry, mergers and acquisitions (M&A) as we know them have recently changed. Instead of megamergers for the purpose of cost savings and synergies, current aerospace and defense M&A activity focuses on acquisitions that deliver new products and offer expansion into markets such as Asia, the Middle East, and beyond.

Key Findings.

  • Near-term aerospace and defense M&A is likely to focus on growth.
  • Megamergers are likely to decrease in frequency while acquisitions of smaller targets could increase.
  • Acquisitions will be used to gain new capabilities, access emerging technologies, and geographic expansion.
  • Joint ventures and partnerships could replace outright mergers and acquisitions in some instances.

Source: Trends in aerospace and defense mergers and acquisitions

2017 Global Aerospace and Defense Financial Performance Overview

Defense subsector expands, while Commercial Aerospace growth slows down

According to Deloitte Aerospace & Defense  Financial performance study:

Global aerospace and defense (A&D) sector revenues grew by 2.4 percent to US$674.4 billion in 2016, slightly above the estimated global domestic product (GDP) growth of 2.3 percent.

The top 100 companies analyzed added US$15.7 billion in revenues, with growth primarily driven by the European commercial and US defense subsectors. In terms of incremental revenue growth by segment, the original equipment manufacturers (OEMs) and electronics segments were the top contributors, adding US$3.4 billion and US$3.7 billion respectively.

Here below you can find key insights

  • Global aerospace and defense sector revenue growth is slowing, marginally outpacing global GDP growth
  • European A&D sector revenue growth continues to outperform the US sector
  • The global defense subsector continued to recover as global defense spending increased, especially in the United States
  • Global commercial aerospace revenue growth slowed from 6.3 percent in 2015 to 2.7 percent in 2016
  • The OEMs and electronics segment experienced incremental revenue growths
  • Global defense operating margin growth strengthens as the commercial aerospace margins tighten
  • Propulsion segment was the leader in operating margins. However, Tier two suppliers now rank second
  • Sector productivity experienced a moderate improvement in 2016, led by strong growth in Europe
  • Debt levels continue to rise as companies increase leverage to finance acquisitions, share buybacks, and develop new and innovative products
  • US and European A&D stocks outperformed their respective market indices

Source: Deloitte 2017 A&D Financial Performance Study

Connected Aviation: Digital Transformation in Airline Industry 

  Last year Lufthansa announced that it was bringing broadband to its short-haul flights in partnership with Inmarsat and Deutsche Telekom. The company’s Chairman and CEO, Carsten Spohr descri…

Source: Connected Aviation: Digital Transformation in Airline Industry – Digital Aviation ✈ Digital Aerospace