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“Our analysis shows that despite the industry’s challenges with aircraft order financing difficulties, the global credit crisis, weapons affordability challenges and problems in large-scale programs, the companies in our study surpassed their combined revenue performance of 2007,” says Tom Captain, vice chairman, Deloitte LLP. “This is an excellent indication that the global A&D industry, as a whole, is still well-positioned for the current economic downturn, with these companies having paid down debt, achieved economies of scale, improved productivity and generated significant free cash flows.”
The Deloitte study also showed a change in rank of the top A&D industry revenue producer. EADS, the multi-country European aerospace company, edged out Boeing as the largest A&D industry company in terms of revenue due, in large part, to the strike at Boeing Commercial Airplanes.
Overall the European companies in the Deloitte study grew significantly faster-at 9.56% in revenue-than the U.S. firms, which grew at 6.3%. The study illustrated that operating margins of 10.17% for the U.S. companies were higher than the operating margins of 7.55% for the European companies, a reflection of the long-term difficulty in cutting labor costs and rationalizing facilities for the industry in countries where there are higher government intervention and job protection schemes.
Deloitte’s report identifies six components necessary for these companies to be successful in 2009 and beyond:
“The next two years will be a true test of resilience for global A&D manufacturers, as the credit crisis is expected to bottom out,” says Captain. “The industry is in the midst of game-changing challenges and those who adapt and innovate will prevail.”