New Deloitte Report: 2010 Aerospace & Defense Industry Outlook

WASHINGTON, Jan. 19 /PRNewswire/ -- After a record year in 2008, Deloitte's latest Aerospace and Defense (A&D) industry outlook report finds that, by comparison, 2009 was both uneven and not nearly as good a year.  In assessing 2010, Deloitte sees continued moderation in the financial performance of the domestic A&D industry, with this year representing the trough of the commercial airplane order cycle, the beginnings of improvement in business jet orders and production and increased earnings pressure for defense programs.

Write-offs on large programs due to cost over runs, declining supplier revenues due to program delays, reductions in orders for large military platforms, program cancellations and falling Maintenance Repair Overhaul (MRO) revenues due to reduced passenger and freight travel all contributed to the uneven year.

"This past year was certainly a challenging year for many companies. For 2010, we have muted optimism for the A&D industry," said Tom Captain, vice chairman and Deloitte's A&D sector leader. "We are mindful that the innovations this industry has produced have enabled widespread and affordable air travel, produced technologies that contribute to global security and enabled some of the most iconic moments in human history from the Wright brothers first flight to efforts in responding to natural disasters around the world.  We are upbeat about the A&D industry in the long term, despite the challenges that we are all well acquainted with."

The recently announced decision to send an additional 30,000 U.S. troops to Afghanistan will also have an impact on the A&D industry, according to the Deloitte report, and provides opportunities for non-active duty personnel from companies that specialize in logistics, transportation, civilian police training, camp building, translation services, border surveillance and other non-military capabilities.

"The A&D industry is likely to see opportunities based on troop increases, from supplying vehicles, generators, transport aircraft and helicopters to providing innovative new solutions to key problems, such as improvised explosive devices (IEDs) and energy use," said General Charles Wald (USAF Ret), director and senior advisor in Deloitte's A&D sector. "Companies that can rapidly develop, test and deploy new technologies will likely be winners in 2010."

According to the Deloitte report, merger and acquisition activity in the A&D sector in 2010 will likely accelerate.  Consolidation among suppliers will result in benefits as they gain scale economies and increase industry asset utilization.  The large prime contractors will be unlikely to merge with one another due to anti-competition laws, concentration of technology and other anti-trust matters.  However, it is likely that large original equipment manufacturers (OEMs) may continue to acquire smaller companies to fill capability gaps in homeland security, defense electronics, intelligence, IT services, command and control, alternative energy and cybersecurity.

To read the full report, please visit www.deloitte.com/us/2010ADoutlook.

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SOURCE Deloitte