28/6/10 – Industry Focus: Aerospace and Defence
28 June 2010
Asia-Pacific Market Projected to Grow More than 70% Over the Next 20 Years
Rapid growth of markets outside North America and Europe will drive globalization in the aerospace and defence Industry according to PricewaterhouseCoopers.
A survey of executives in the world’s leading aerospace and defence companies by PricewaterhouseCooper, the most important factor driving globalization in the industry is the rapid growth of markets outside North America and Europe. Aerospace and Defense Insights: Accelerating global growth report by PricewaterhouseCoopers) shows that these growing markets offer new customers, lower costs and access to talent–all of which are in short supply in developed markets. Many companies are investing in new markets to pursue the customers and relationships that will help drive sales growth over the next two decades.
In the next 20 years, aerospace and defence companies predict that they will manufacture approximately 30,000 new commercial aircraft, which represents nearly 50 percent growth over current production levels. Led by India and China, the Asia-Pacific market is projected to grow more than 70 percent, making it the largest market in the world for new aircraft. Asia-Pacific will account for 37 percent of the value of all new aircraft delivered in 2009-2028, nearly as much as North America & Europe combined (43 percent collectively).
For defence companies, military modernization and regional tensions in the Middle East and Asia are driving record levels of defence exports at a time when defence budgets in the U.S. and Europe are flattening.
PricewaterhouseCoopers report says that one strong indication that the aerospace and defence industry is still international but not yet global at this point is the pattern of industry mergers and acquisitions over the last ten years. The majority of deals by volume and value have occurred in and between the United States and Europe. In 2009, 76 percent of the deals valued above $50 million involved targets in North America, the U.K. or the Eurozone. This compares to 19 percent of the deals with targets in Asia and Oceania. Middle East players were involved in only a handful of deals in 2008 and 2009, none of which had publicly disclosed values above $50 million, after an active 2006 and 2007.
"Despite a global market, the aerospace and defence sector remains less global than other technology and knowledge-based industries," said Scott Thompson, U.S. Aerospace & Defence leader at PricewaterhouseCoopers. "While the industry is a leading exporter, when also evaluating the global supply chain and foreign direct investment, the A&D industry is in the middle of the pack compared to other industries. Those companies that are able to more quickly adapt to opportunities and challenges of an accelerating global environment will be best positioned to build and maintain a competitive advantage in the years ahead."
Most A&D companies in the U.S. and abroad agree that they would benefit from increasing the pace of globalization, but a number of challenges are slowing their efforts, including protection of intellectual property, the complexity of export control regulations, maintaining ethics and compliance across cultures, management of an international supply chain and the expansion and increasing complexity of offset requirements.
While the shift towards globalization presents challenges, the report predicts that companies who are able to make the leap from international to global the quickest will accelerate improvements in recruiting, efficiency and R&D. They will also gain leading positions in the growth markets of the future, which lie outside of North America and the EU.
"The A&D industry has an extraordinarily long product life cycle," added Thompson. "Management’s decisions and investments today will shape the industry for the next two decades. The winners of this race will be those that can most effectively adapt, expand and execute global business strategies."