NEW YORK, April 1, 2011 /PRNewswire/ -- The aerospace and defense (A&D) industry achieved record financial results in 2010, as the top 100 companies in the sector reported a combined $646 billion in revenue and $58 billion in operating profit, according to the PwC US Aerospace & Defense 2010 year in review and 2011 forecast.  While revenues in 2010 showed a modest increase of 2 percent compared to the previous year, operating profit experienced an uptick of 19 percent over 2009 levels.

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The A&D sector's high performance and record results in 2010 are attributed in large part to a steep reduction in large program charges and impairments that had mitigated the industry's performance in recent years as well as the strong rebound in commercial aviation.  

"The A&D industry has helped stabilize a struggling economy through disciplined management during the up cycle and better preparation for both the economic downturn and inevitable decline in defense spending," said Scott Thompson, U.S. aerospace and defense leader at PwC.  "The steady growth and increased earnings among the majority of the top 100 A&D companies should be viewed as a barometer for the resiliency of the industry has a whole."

While the commercial aviation industry remains full of optimism, some economic signals are mixed.  The rate of growth for this segment is expected to slow in 2011 compared to the previous year.  Additionally, a reduction in profitability for airlines is projected for 2011, but this is not expected to have any significant impact on demand in the short term.  In fact, aircraft orders and backlogs are expected to increase significantly from 2010 to new record levels in 2011.  The industry has already reported a February transaction that represents the largest order in aviation history.  Furthermore, growth in the commercial aftermarket is also projected to continue in 2011 for at least three quarters, as airlines catch up on deferred maintenance and refurbish planes grounded during the recession.  

The long-term forecast for commercial OEM aircraft reflects approximately 30,000 new planes over the next 20 years.  This forecast includes approximately 1,500 aircraft deliveries per year, representing nearly a 50 percent increase above current production levels.  Based on these projections, growth will clearly be substantial in the long term.  

Despite the turnaround in commercial aviation, the business jet rebound continues to lag behind.  While business jet cycles were up 13 percent in 2010, this segment needs another year of nearly 10 percent growth to get back to pre-recession levels.  The growth in business jet cycles is forecasted to continue at a decelerated rate in 2011, but will end the year near pre-recession levels.  The long term outlook for this segment is positive, as there continues to be strong growth prospects for the business jet market, particularly in the Middle East and Asia.

In the defense sector, global budgets continue to shrink and the immense pressure on defense contractors to improve productivity is growing.  Despite budgetary constraints, the defense sector reported another strong year in 2010, capping a solid decade of performance.  Industry backlogs in the defense segment have been resilient despite many program terminations, showing only modest erosion.  In 2011, defense revenues are expected to be fairly consistent with 2010 levels.  However, profits are anticipated to be modestly higher, as companies reap the benefits of productivity improvement initiatives, deferred spending and lower pension costs.

The defense industry also experienced robust merger and acquisition (M&A) activity in 2010.  For the year, the industry reported approximately $20 billion worth of deals, representing a 50 percent increase over the $10 billion reported in 2009.  Looking ahead, the rapid growth in M&A activity within the defense industry is a trend that will likely accelerate in 2011.  Additionally, spinoffs and divestitures have become more prevalent among A&D companies in recent years.  This emerging trend is expected to continue, as companies focus on rebalancing their portfolios during a period of slower organic growth.  

"Though the short term outlook is relatively stable, it's nearly impossible to predict the overall health of the defense industry beyond a few years down the road," added Thompson.  "Challenges and uncertainty related to the U.S. military's role in world affairs, recent instability in the Middle East, a tightening Pentagon budget and the continuing threat of terrorism are just a few factors that will influence the long-term picture.  Despite all these unknowns, we expect in 2011 and subsequent years that defense contractors will face the reality of flat to declining spending."

For information on the A&D 2010 year in review and 2011 forecast report, visit: http://www.pwc.com/us/industrialproducts.

About PwC's Global Aerospace & Defense Practice

PwC's Aerospace & Defense practice is a global network of professionals who provide industry-focused assurance, tax and advisory services to leading Aerospace & Defense companies around the world. This Aerospace & Defense expertise and experience is enhanced by that of our Public Services practice with professionals focused on assisting federal, state and local governments, international agencies and healthcare entities.

About the PwC Network

PwC network firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

© 2011 PwC.  All rights reserved. "PwC" and "PwC US" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate and independent legal entity.  This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

SOURCE PwC