With commercial aircrafts industry experiencing a near record year by producing 972 aircrafts in 2010, overall the global aerospace and defense industry produced flat revenues for the second year in a row, according to Deloitte.
Deloitte’s “2010 Global Aerospace and Defense Industry Performance Wrap-up” released on Friday underscored the industry’s second consecutive year of flat financial performance with revenues barely keeping pace with inflation.
The report, which analyzed the financial performance of global aerospace and defense (A&D) industry companies with revenues exceeding $400 million, also shows that the industry experienced comparatively flat to modest increases in core operating profit, with non-recurring charges excluded.
Deloitte’s analysis further revealed that most of the industry did not boost sales orders sufficiently to replace sales revenue billings. Although backlog rebounded from 2009 levels, the industry experienced uneven growth with commercial aircraft orders gaining momentum while defense contractors struggled with a difficult budget environment.
“Flat results are not surprising given the tough economy. Global defense contractors are experiencing new challenges in growing revenues and profits,” said Tom Captain, vice chairman, Deloitte LLP and global aerospace and defense sector leader. “Conversely, the commercial aerospace sector is pointing to higher revenues and profits moving forward, particularly as business and personal travel rates continue to climb, especially in the emerging global economies.”
Industry’s reported operating profit increased by 24.9 percent, thanks primarily to nominal one-time charges of $1.7 billion in 2010 compared to $10.5 billion in 2009. In the absence of such charges operating profit increased by 4.5 percent in 2010.
Core operating margins of 8.9 percent represent an increase of 2.9 percent or 26 basis points (bps) although reported operating margins increased by 23.0 percent or 162 bps thanks to the virtual absence of large non-recurring charges to earnings in 2010 relative to 2009.
US-based A&D companies’ revenues grew faster in 2010 than their European counterparts with US revenues growing 1.9 percent in 2010 vs.0.9 percent growth among European companies.
US companies in this study were also more profitable than European companies with reported operating margins of 10.5 percent compared to 6.0 percent and reflecting the long-term difficulty in rationalizing labor costs due to European labor laws.
On a more positive note, the report added, commercial aircraft experienced a near record year by producing 972 aircrafts in 2010. The sector enjoyed substantial sales order increases with net bookings growing towards pre-recession levels.