Growth of Aerospace & Defense Industry in the Global Market
The global aerospace and defense industry continues to grow at a steady clip, due primarily to the growth in the commercial aerospace market. Though the growth rate of the defense industry has slowed down from previous years as countries continue to curtail their defense expenditure, the high growth from the commercial sector has outweighed this decline. The number of orders for fuel-efficient carriers from around the world has provided the commercial aerospace companies such as Airbus and Boeing with a large backorder to fill. The average profitability of companies in the sector is at its highest level.
Overall, the growth rate for the combined Aerospace & Defense sector is expected to be approximately 3% in 2015, in line with the previous years in the decade. The commercial aviation sector is leading the field with nearly an 8% growth rate, offsetting the slowdown in the defense market which continues to decline by around 1.3%. This is in line with the sector’s 1.3-2.5% negative growth rate seen in the period of 2011-2014.
The slowdown in the defense market was expected with the reduction in the war effort in Iraq and Afghanistan, though the brewing crisis in Syria may trigger a fresh demand. This continued reduction in growth is due to the simple fact that the US is the largest consumer of defense products (nearly 40% of the global figure) and any reduction in their budget hits the numbers hard. The decline in the US defense budget over the last few years and in the future is expected to continue putting pressure on defense companies and revenue growth is likely to stay on its downward trajectory.
However, there are pockets of defense spending around the world that continue to rise. Countries such as UAE, Saudi Arabia, India, China, Russia, South Korea, Brazil and Japan are looking to bolster their armed forces with better firepower. Companies are also likely to see a demand for better products from these countries as they try to get the most advanced weapons to arm themselves.
On the positive side, the commercial sector is witnessing a new boom period. The number of air travelers is at the highest-ever levels in the history of aviation and this figure is likely to improve further. The globalization of the economy, increased trade and commerce, and more importantly the emergence of the new economies have given birth to a new generation of travelers who see air travel as a part of everyday life. The numbers of these travelers are booming since the beginning of this decade and are expected to continue their growth at the same rate. The launch of fuel-efficient aircrafts, better passenger optimization, and increased revenue per passenger are all good signs for a better world. In fact, the optimization of operations has resulted in a better growth for the revenue-per-passenger numbers than for the number of travelers.
The commercial aircraft majors have also stepped up production capacities to meet the new demand. There has also been a step-up in R&D, design and testing as newer planes such the Airbus A330neo, Boeing 737 MAX are expected to give aviation companies an edge and increase their bottom-line numbers. With the advent of better aircrafts, more travel and consequently more growth in the trade and tourism sectors, the slow growth in the overall Aerospace & Defense market is unlikely to cause any dent in the growth of the world economy.
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