Aerospace & Defense • February 2, 2017

What Lies Ahead for Aerospace and Defense in 2017?

aerospace and defense industry

In 2017, the Aerospace and Defense industry will see more sweeping change than it has in recent years, because of political shifts in the United States and UK, and general economic growth overall. According to Deloitte’s 2017 aerospace and defense sector outlook, the global A&D sector is likely to experience stronger growth than it has seen in several years.

Some of Deloitte’s important predictions for Aerospace and Defense in 2017:

  • 2% revenue growth in global Aerospace and Defense sector
  • 3.2% growth in the defense subsector as a result of United States’ return to growth in defense budgets
  • 20.6% rise in operating earnings for the commercial aerospace subsector
  • European Aerospace and Defense sector is expected to record a 2.5 percent year-over-year increase in revenue and 9.3 percent growth in operating earnings in 2017
  • For the U.S. A&D sector, revenue is expected to be up 1.7 percent, with a strong spurt of 12.7 percent in operating profits

What are the drivers of growth in Aerospace and Defense in 2017?

  • On the commercial side, “strong global airline passenger traffic and improved global airline profits, primarily on account of lower fuel costs, will likely drive increased large commercial aircraft production and in turn commercial aerospace revenues in 2017 and 2018.” – Deloitte
  • On the defense side, “resurgence of global security threats, expected increases in U.S. defense budgets, as well as higher defense spending from other major regional powers such as Japan and India will likely promote global defense subsector revenue growth in the near future.” – Deloitte

These observations are supported in a column published in Aviation Week by Byron Callan, a director at Capital Alpha Partners, a leading provider of strategic policy research to financial institutions.

What does strategic policy research say about the A&D industry in 2017?

  • “Sell-side defense analysts appear to have settled on a consensus that the Pentagon budget authority could increase at a 3 to 5 percent compound annual growth rate in the next four years.” – Aviation Week
  • “A major defense merger or acquisition deal could be attempted by large defense primes. Current [US Defense] department policy—that mergers among the largest defense companies would be strongly discouraged—may well change under the new administration.” – Aviation Week
  • Major defense acquisition programs could come in the form of infrastructure spending and fiscal stimulus. – Aviation Week

All these opinions suggest that the A&D arrow will point up in 2017, which will not come as a surprise to most observers of the sector, who nonetheless remain cautious as they try to anticipate the global impact of political volatility.

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