Profits dip in aerospace, defense sectors
By Venkatesan Sundararajan|December 2016
The Economics Technical Committee analyzes the economic aspects of aerospace programs and technology.
The global aerospace and defense sectors recorded revenue of $699 billion in 2015 compared with $713 billion in 2014, a decline of 2 percent primarily due to the strengthening of the U.S. dollar, according to the “Aerospace & Defense 2015 year in review and 2016 forecast” report published by PricewaterhouseCoopers in January. The two sectors’ operating profits were $65 billion, a decrease of 9 percent from $71 billion in 2014. In constant U.S. dollars, global aerospace and defense sector growth was 3.8 percent in 2015, outperforming global gross domestic product growth of 2.4 percent, according to Deloitte’s “2016 Global aerospace and defense sector performance study,” published in June.
The commercial aerospace subsector revenues grew 6.3 percent, from $306.2 billion in 2014 to $325.5 billion in 2015. Commercial aircraft delivery was at a record high of 1,397 aircraft in 2015. As of August, Boeing had delivered 491 jetliners compared to 400 deliveries by Airbus.
The sector recorded merger and acquisition deals worth $54.6 billion in 2015. During the first half of 2016, $13 billion in merger and acquisition was realized through 18 deals that disclosed each had a value greater than $50 million. In January, Virginia-based Leidos Holdings initiated a $5 billion deal to acquire Lockheed Martin’s Information Systems and Global Solutions business. The largest buyout in the second quarter of 2016 was TransDigm’s acquisition of ILC Holdings for $1 billion.
According to the International Air Transport Association, passenger air traffic increased by 5.9 percent year-on-year in July. The 2016 midyear IATA economic report forecast for the commercial airline industry showed revenue of $709 billion and net profit of $39.4 billion. Airlines and their customers are forecast to generate $118 billion in government tax revenue for all of 2016.
In the general aviation industry, airplane shipments fell 4.5 percent to 970 units for the first half of 2016, and airplane billings declined 11 percent to $9.3 billion, compared to the same period a year ago, according to the General Aviation Manufacturers Association. Global business jet shipments in the first six months of 2016 totaled 292, a decrease of 4.3 percent from the same period in 2015. Rotorcraft shipments decreased from 467 to 392 units, and billings were down an estimated 32.5 percent to $1.4 billion for the first six months of 2016.
In 2015, the global space economy totaled $323 billion worldwide, according to “The Space Report 2016” by the Space Foundation. Commercial space activities made up 76 percent of the global space economy, valued at $246 billion. The U.S. government spent $45 billion on defense and nondefense space efforts in 2015, a 3 percent increase from 2014. The NASA budget for fiscal 2016, which ended Sept. 30, was $19.285 billion, including earlier supplemental appropriations funds, compared to an actual budget of $18.01 billion for fiscal 2015.
NASA awarded a total of $16.63 billion in contracts for fiscal 2015, up 6.5 percent from $15.61 billion a year earlier. Boeing ($1.988 billion), CalTech ($1.864 billion), Lockheed Martin ($1.532 billion), Orbital ATK ($755 million) and SpaceX ($642 million) were the leading contract recipients from NASA. The Russian Space Agency was the largest foreign contractor for NASA, valued at $460 million.
United Launch Alliance and Blue Origin announced their partnership with the U.S. Air Force in February to develop the BE-4 engine to power the Vulcan, ULA’s next-generation rocket. In April the Air Force awarded an $82.7 million contract to SpaceX to launch the service’s next-generation GPS satellite in 2018. In July, SpaceX received the fourth and final guaranteed Commercial Crew Transportation Capability contract from NASA. Boeing received its two orders in May and December 2015, and SpaceX received its first order in November 2015.
In the commercial aerospace sector, growth in travel, primarily in China, India and the Middle East, as well as the need for more fuel efficiency continue to drive demand for new aircraft. International demand for defense and military products is expected to increase due to regional tensions in the Middle East, Eastern Europe, the Korean peninsula, the Indian subcontinent, and the East and South China seas. ★