NEW YORK, June 10, 2013 (GLOBE NEWSWIRE) -- The global aerospace and defense (A &D) industry appears set to continue the drama for the foreseeable future. Some sectors, such as commercial aerospace, are booming, while others, such as defense in most Western countries, are declining. That's according to a new study, released on the eve of the industry's all-important Paris Air Show, from AlixPartners, the global business-advisory firm. Furthermore, says the study, continuous traffic growth is driving an overall industry profit pool increase, and the battle for the profit pool is expected to intensify across the board. AlixPartners concludes that in order to survive and thrive in the current industry cycle companies in the A &D industry must become more efficient, especially in the face of challenging commercial-aircraft ramp-ups, and diversify into new, more promising geographic defense markets. <\/p>\n
The AlixPartners Global Aerospace & Defense Industry Outlook, a comprehensive analysis of sector and company financials as well as key industry trends, reveals much about the current state of the A &D industry and its future outlook. The overall industry grew by 6.8% in 2012, and showed improvement over the previous year's sales growth of 5.5%, but fell short of pre-financial-crisis growth levels (e.g., 10% in 2008). Digging deeper, however, the AlixPartners study reveals a mixed bag among sectors, with some clear winners and losers. Driving overall industry growth is commercial aerospace, which has been boosted by new orders and a 5% increase in airline and cargo traffic globally. However, the defense sector slowed significantly in the West, due to budget cuts. <\/p>\n
While lower-tier suppliers have traditionally outperformed OEMs, the winds have changed. OEM revenue growth accelerated (from 1.6% in 2011 to 6.7% in 2012), while lower-tier supplier growth slowed (from 10.2% in 2011 to 6.6% in 2012). And, as frequent front-page headlines over the past year have noted, the airline industry has seen further consolidation, and near-consolidations, as it continued its struggle for profits. <\/p>\n
\"Right now, almost every part of the aerospace and defense business is having another look at costs, searching for efficiencies and struggling to stay ahead of the changing environments in which they do business,\" said Eric Bernardini, managing director at AlixPartners and head of the firm's global Aerospace & Defense Practice. \"With the huge number of changes happening all at once -- whether in defense or commercial aviation -- identifying and keeping ahead of trends is what will generate long-term success.\" <\/p>\n
Defense -- Cutting Costs and Capturing Emerging-Market Growth <\/p>\n
The war on cost is heating up in the defense sector as companies are simultaneously chasing fewer revenue opportunities in Western nations and facing stiffer competition for a slice of the addressable emerging-market pie, says the study. Driven by retrenchment in the U.S. and Europe, global defense spending fell in 2012 for the first time since the 1998 spending drop, to $1.7 trillion in 2012. At the same time, the proportion of global spending by China and Russia is increasing, and, according to the study, by 2016 those two countries will make up almost a third (32%) of global spending by the \"top 5\" spenders (vs. just 17% in 2011). <\/p>\n
With China and Russia being largely inaccessible to Western defense companies, this phenomenon is further squeezing the addressable market for Western companies. This will drive intense competition to capture export business in accessible emerging markets, such as Brazil and India, says AlixPartners. <\/p>\n
\"The rules are rapidly changing in defense,\" said Dave Fitzpatrick, managing director at AlixPartners and leader of the firm's Aerospace & Defense Practice in North America. \"Traditional selling strategies are coming under great pressure and competitions in export markets -- particularly for combat aircraft -- are increasingly becoming 'winner-takes-all' deals.\" <\/p>\n
Those with more balanced portfolios, such as lower-tier suppliers, will more easily be able to tackle the challenges of this new environment than will most OEMs, many of whom today are 80% reliant on defense and 75% dependent on U.S. and European markets. Moreover, finds the study, the cyber security market -- viewed by many as the \"saving grace\" of Western defense companies -- will likely not grow enough to compensate for declining defense spending. <\/p>\n
To compete and thrive in this environment, according to AlixPartners, the key for defense firms will be to focus on cost reduction, improving both domestic programs' affordability and competitiveness in emerging markets. Aside from defense growth in emerging markets, the homeland security market globally, projected by the study to grow to $281 billion by 2022, represents another potential new path to profitability, according to AlixPartners. Defense companies that can leverage their program management, integration experience and government-contracting skills will be most able to take advantage of this opportunity, says the study. <\/p>\n
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'Tale of Two Cycles' in Aerospace & Defense, According to AlixPartners Study<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" NEW YORK, June 10, 2013 (GLOBE NEWSWIRE) -- The global aerospace and defense (A &D) industry appears set to continue the drama for the foreseeable future. Some sectors, such as commercial aerospace, are booming, while others, such as defense in most Western countries, are declining. That's according to a new study, released on the eve of the industry's all-important Paris Air Show, from AlixPartners, the global business-advisory firm. Continue reading