Following three years of declining revenue in the global aerospace and defense business, the sector is expected to return to growth this year, according to a forecast released Tuesday by Deloitte Touche Tohmatsu.
The 3 percent revenue gain in the aerospace and defense sector in 2016 will be driven by increasing security threats globally and growing defense budgets in a number of countries, said the forecast, “2016 Global Aerospace and Defense Sector Outlook: Poised for a Rebound.”
“Defense budgets in the U.S., United Kingdom, France, Japan, several Middle Eastern countries, and other nations are increasing at a time when national security threats are being heightened,” Tom Captain, Deloitte’s global leader of aerospace and defense, said in a news release that accompanied the forecast. “Global revenues in the defense subsector are expected to return to growth in 2016, as governments equip their armed forces with modern defense weapons platforms and next-generation technologies, including cyber, intelligence gathering, defense electronics, and precision strike capabilities.”
Growth rates in defense sector revenue began trending lower starting in 2012, from a rate of 5.8 percent to 1.9 percent in 2014. In the forecast, Deloitte expects the revenue growth rate to drop 0.5 percent in 2015.
The decline was largely from less defense spending globally, the forecast said, but for the U.S. aerospace and defense industry, it also was caused partially and more recently by a stronger U.S. dollar.
All the while, however, industry revenue from commercial aerospace continued to grow, bolstered by improving revenue for airlines, lower oil prices and rising demand for passenger air travel.
Strong increases year over year of global revenue passenger kilometers are leading to an unprecedented level of aircraft production rates, which in 2015 were about twice the levels experienced 10 years ago.
Tom Captain, global leader of aerospace and defense for Deloitte Touche Tohmatsu
“Strong increases year over year of global revenue passenger kilometers are leading to an unprecedented level of aircraft production rates, which in 2015 were about twice the levels experienced 10 years ago,” Captain said.
The climb in commercial aerospace revenue rates should continue.
“Stable growth in global gross domestic product, lower commodity prices especially crude oil, and strong passenger travel demand portend continued growth in the commercial aerospace subsector,” the forecast said.
That’s particularly good news for Spirit AeroSystems, which manufactures structures for all Boeing commercial airplanes as well as for some Airbus airliners.
The forecast said in 2016 alone, an estimated 1,420 large commercial aircraft will be produced, which would be 40 percent more than what was produced five years ago.