Report: Forecast bright for commercial aviation, but cuts being felt in defense spending

05/06/2013 1:37 PM

08/08/2014 10:16 AM

The outlook for the aerospace market remains favorable, while budget pressures within defense are “facing headwinds,” a report by Sterne Agee analyst Peter Arment said Monday.

The Sterne Agee report forecasts 1,254 aircraft deliveries – planes with more than 100 passenger seats and freighters – in 2013, up 5 percent compared to last year.

The forecast assumes 61 deliveries of Boeing’s 787 Dreamliners this year.

It predicts deliveries peaking in 2014 at 1,408 planes, which assumes 787 production increases to 12 per month.

And it expects airlines to continue to accelerate the retirement of older airliners at about 3 percent of the fleet this year, rising to 3.5 percent in 2014. That’s roughly 1,100 aircraft in the two-year period, and it also represents 41 percent of deliveries, up from an historical average of 30 percent of the new deliveries, the report said.

The defense industry is creating a “Hunger Games” on pricing, however, the report said.

“It’s a pricing war,” the report said.

Defense services grew rapidly over the past 10 years, but the spending cycle came to an end 24 months ago.

The Budget Control Act, commonly called sequestration, was approved by Congress and the president in mid-2011, but it was delayed several times until this year.

“Politically it was largely thought a deal would repeal it,” the report said. “However, seeing the writing on the wall Department of Defense has become more aggressive on pricing service contracts.”

Sequestration means pressure on pricing because of lower budgets and moving funds to high priority programs, it said.

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