Aerospace and Defense

Aerospace & defense industry is broadly categorized into general aviation & commercial aircrafts, military aircrafts, space & missiles, ground defense, shipbuilding and satellites, electronics & communications. Industry portfolio encapsulates the broad portfolio including the commercial planes, jet fighters, private planes, traffic helicopters, space shuttles, mission control software, radar systems, rocket guidance systems, missiles, submarines, aircraft carriers, tanks, satellites, flight simulators, munitions and countless small electronic devices.

Growth factors

Increasing number of air travelers, over the past few years, have led to exponential growth of commercial aviation industry., Growing safety concerns  has led to increased investments in providing high end security to passengers for commercial applications. Therefore, this segment creates lucrative revenue opportunities for participants offering passenger security solutions.

The spending in defense industry has significantly declined in 2017, as compared the past couple of years.  However, geopolitical issues existing across several international and national boundaries are projected to provide significant growth through 2024. For instance, conflicts existing between Syria & Iraq, tension between the U.S. and Mexico, Russia intervention in Ukraine, border disputes in South East Asia, among many others are likely to substantially influence increased defense budgets in 2017.

Trends such as utilization of man-portable military electronics for military force modernization programs, X band radar systems for pinpointing, averting and ceasing threats from enemy attacks, C4ISR systems and many other advanced technologies are expected to present considerable demands. Such systems enable advanced awareness and in turn lead to minimum fatality rates. Countries that include China, India, Korea, Saudi Arabia, Russia, France, are projected to increasingly invest in such advanced technologies to enhance their defense forces capability.

Growth inhibitors

Existing geopolitical issues existing across international borders are likely to present considerable growth challenge to the commercial aerospace industry. Moreover, increasing competition in the commercial aviation industry has led to lower average revenue passenger kilometers and narrow profit margins for industry participants. Major industry entry barriers that include high initial capital and incessant approval requirements are projected to present significant growth barrier to the industry growth,

Small and medium suppliers are increasingly opting out of the business segments owing to the conflicts over intellectual property licensing, trade control regulations, and technology transfer requirements and other political risks. Increasing regulatory stringency limiting the utilization of materials used for manufacturing (such as lead), increasing fuel prices, and tightening military expenditures  in major economies such as the U.S., UK, Italy, and Japan are expected to hamper the aerospace & defense market over the forecast timeframe. Moreover, intervention of defense departments in the strategic initiatives of the major country partnering companies will also hinder the overall growth. For instance, Lockheed Martin’s proposition for acquisition of Northrop Grumman, in 1998, and General Dynamics’ merger proposal with Newport News shipbuilding, in 1999, was ceased by the U.S. Defense Department.

Growth Opportunity

Commercial aviation is projected to offer better growth prospects in relation to defense, as our study forecasts predict around 3% growth in the defense segment, with commercial aviation registering gains at over 5% year-on-year till 2020. This can be attributed to mega infrastructure investments in emerging economies and exponential growth in global passenger traffic. According to International Air Transport Association (IATA), international air passenger traffic witnessed 6.7% increase in comparison to the 2015 statistics with highest revenue passenger kilometers (RPK) reported in the Middle East.

Industry competitors are striving to provide portfolio with faster speeds, high end designs, increased carrying capacity, and sustainable fuel technologies to strengthen their foothold in the aerospace and defense market segment. For instance, in May 2017, China Russia Commercial Aircraft International Corporation (CRAIC) announced plans to build next generation jumbo jets that can seat up to 280 passengers. The announcement plan is to be followed by the investment of over US$ 33 billion jointly in the project. Furthermore, incorporating utilization of 3-D printing technologies in manufacturing & product designing will provide the flexibility and opportunity to enhance the profit margins.

Regional Overview

U.S held the largest overall aerospace & defense market share in 2016 is expected to continue its dominance through the forecast timeframe of 2016 to 2024. Annual defense expenditure accounting for around 35% of the global share. Additionally, three of the world’s largest companies are based in the U.S., which cater to national and international businesses. North America was followed by Asia Pacific that includes emerging economies such as China, India, Singapore, Malaysia, Philippines and Vietnam. According to Boeing’s forecast, China is projected to invest around US$ 340 billion in the next two decades and will enhance its position to be the largest market for commercial aircrafts outside U.S,

Owing to significant increase in oil prices in the 2009 to 2014 timeframe, revenue of the Middle East countries witnessed exponential increase. Strong cash positions of the economies that are part of the Gulf Cooperation Council, undertook multibillion dollar program to upgrade their aerospace and defense equipment. Geopolitical conflicts such as Saudi Arabia’s involvement in the Syria and Yemen, and UAE’s requirement of advanced surveillance, naval and missile products are expected to drive the industry demands. Europe aerospace and defense equipment market is likely to witness flat growth trend owing to flat defense spending. Moreover, players in the region are increasingly focusing on opportunities in China, Middle East, India, and Russia.

Industry Overview

Boeing, Airbus, Lockheed Martin, United Technologies, General Electric, Northrop Grumman, Raytheon, Safran, Finmeccanica, Rolls-Royce, BAE Systems, Honeywell, Bombardier, and General Dynamics are among the few major players in the global industry landscape. In electronics, satellites, and communications segment, Litton, Raytheon, and Honeywell are among the top contenders. Mergers & acquisition are among the major strategies adopted to strengthen the global positioning in the industry segment. For instance, in April 2017, Rockwell Collins completed the acquisition of B/E Aerospace to strengthen its global positioning in the aerospace & defense market and widen its portfolio. It also helped in improving its positioning as cockpit and cabin interior solution provider. Industry will also exhibit development of innovative IoT solutions, incorporation of smart technologies, and collaborations to provide upgraded products to enhance user experience.

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