Global defence industry's slide continued in first half of 2012

Last Updated: Tue, Oct 09, 2012 15:20 hrs

New Delhi, Oct 9 (IANS) The global defence and aerospace (A&D) industry recorded a one percent decrease in its revenues in the first half of 2012 on top of a 3.3 percent revenue decline in 2011, a study by consultancy firm Deloitte has concluded.

Deloitte also noted that domestic budget pressures in traditional economies such as the US and Europe were resulting in lower defence budgets this year.

The 'Mid-year 2012 Top 20 Global A&D Company Financial Performance Analysis' said: 'Defence contractors in the top global A&D companies experienced a one percent decrease amounting to $1.3 billion in global revenues in first half of 2012, on top of the 3.3 percent decline in revenues in 2011.'

'Continuation of domestic budget pressures in traditional economies, particularly in the US and Europe, are resulting in lower defence budgets,' according to Deloitte Touche Tohmatsu Limited Global A&D Sector Leader Tom Captain.

'Defence contractors are responding with stepped up cost cutting, acquisition activity, growth in adjacent markets, and a focus on cyber-security, intelligence, surveillance, and reconnaissance technologies,' he added.

However, this situation presented an opportunity to the A&D companies in India, which is on a buying spree of military hardware, according to Deloitte Touche Tohmatsu India Private Limited Director Nidhi Goyal.

'With decreasing defence budget cycle in US and Europe, their industry could look to expand their business in India due to burgeoning requirement of aircraft, weapons, other security equipment. This is also attractive for those industries to take advantage of manpower and cost reduction by production and assembly in India,' she said.

On the other hand, commercial aerospace grew at 14.9 percent in the first half of 2012, resulting from record production of new fuel efficient aircraft.

This significant increase in revenues for this segment helped the global A&D industry enjoy a 5.5 percent increase in total revenues compared to the first half of 2011, more than making up for the decrease in defence revenues.

Overall, the global A&D industry posted increased operating earnings of 8.8 percent to $20 billion in first half of 2012, largely due to the positive impact caused by delivery of commercial aircraft, company cost cutting, and efficiency initiatives in advance of expected continued declines in defence budgets, and the virtual absence of one time charges.

Due to these reasons, operating margins increased three percent in first half of 2012 to 8.4 percent. Commercial aerospace companies enjoyed a significant jump of 29.2 percent in earnings, while the defence segment stayed flat at a nominal increase of 1.5 percent in earnings.

Similarly, commercial aerospace operating margins increased 12.4 percent, while defence companies increased 2.6 percent in this important financial metric, the report said.

The report was compiled by comparing and contrasting the performance of the top 20 global A&D companies' commercial and defence segments on the metrics of revenue, operating earnings and operating margins.

These companies represent approximately 71 percent of total global industry revenue.

The report used the latest unaudited data through June 30, 2012 for each company.

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