Industry sees increased profits, major acquisitions

By Venkatesan Sundararajan|December 2017

The Economics Integration and Outreach Committee analyzes the economic aspects of aerospace programs and technology.

The global aerospace and defense sectors recorded revenue of $709 billion in 2016 compared with $689 billion in 2015, an increase of 3 percent, according to the “Aerospace & Defense 2016 year in review and 2017 forecast” report published by PricewaterhouseCoopers in June. The operating profits for the two sectors were $69 billion, an increase of 7 percent from $64 billion in 2015. The industry’s operating margin improved by 40 basis points to 9.7 percent in 2016 from 9.3 percent in 2015. In constant U.S. dollars, global aerospace and defense sector growth was 2.4 percent in 2016, slightly outperforming global gross domestic product growth of 2.3 percent, according to Deloitte’s “2017 Global aerospace and defense sector performance study,” published in July. This growth was driven primarily by the European commercial and U.S. defense subsectors.

The global commercial aerospace subsector revenue increased from $314.7 billion in 2015 to $323.1 billion in 2016, but the growth slowed from 6.3 percent in 2015 to 2.7 percent in 2016. The European subsector recorded 6.7 percent growth, while U.S. growth was 1.3 percent. The commercial aircraft delivery was at a record high of 1,436 aircraft in 2016 compared to 1,397 in 2015. According to the General Aviation Manufacturers Association, the general aviation industry delivered 995 airplanes at a value of $9 billion during the first half of 2017. Global business jet shipments increased by three units to 295 deliveries over the first six months of 2017. The rotorcraft industry delivered 465 aircraft in the first six months of 2017, an increase of 16.8 percent compared to the same period last year, and the value of the deliveries was $1.9 billion compared to $1.5 billion for the first six months of 2016.

The sector recorded merger and acquisition deals worth $38 billion in 2016. During the first half of 2017, $18 billion in mergers and acquisitions were realized through 25 deals that disclosed each had a value greater than $50 million. In June, shareholders of Safran SA approved the plan to buy Zodiac Aerospace for $7.7 billion after Zodiac accepted a 15 percent cut from the original offer of $9 billion. In September, United Technologies completed a definitive agreement to buy Rockwell Collins for $30 billion.

In 2016, the global space economy totaled $329 billion worldwide, according to “The Space Report 2017” by the Space Foundation. Commercial space activities made up 76 percent of the global space economy, valued at $253 billion. The U.S. government spent $44 billion on defense and nondefense space efforts in 2016, a 3 percent increase from 2015. The NASA budget for fiscal 2017, which ended Sept. 30, was $19.025 billion, compared to an actual budget of $19.285 billion for fiscal 2016. NASA awarded a total of $18.26 billion in contracts for fiscal year 2016, up 10 percent from $16.60 billion a year earlier. The Russian Space Agency was the largest foreign contractor for NASA, valued at $236 million.

In August, the U.S. Air Force awarded Boeing and Northrop Grumman separate contracts to continue work on replacing the Minuteman 3 intercontinental ballistic missile. Northrop Grumman was awarded $328 million and Boeing $349 million over the three-year contract. In January, NASA awarded an additional four crew rotation missions each to commercial partners Boeing and SpaceX to carry astronauts to and from the International Space Station as part of the agency’s Commercial Crew Program.