Thursday, May 18, 2017

Global aerospace sector flies high on surging jet deliveries

Accelerating deliveries of large commercial airplanes, such as Airbus' A320 and A350 and Boeing's B737, combined with some recovery in global defence spending will drive steady profit growth and underpin the positive outlook for the global aerospace and defence industry into 2018, said a report by a top rating agency.

Airliner deliveries will grow by around seven per cent in 2017 before accelerating to just over 10 per cent growth next year, stated Moody's Investor Services in its latest report titled "Aerospace and Defense - Global: Rising Commercial Aircraft Deliveries and Defense Spending Sustain Positive Outlook."

"The positive outlook on the global aerospace and defense sector reflects our expectation of aggregate operating profit growth of around three to five per cent through 2018 as commercial aircraft deliveries ramp-up, global defense spending recovers, revenue from lucrative service fees rises and cost cuts bear fruit," remarked Jeanine Arnold, the VP and senior credit officer at Moody's.

Despite the still positive industry outlook, Moody's has today revised its operating profit growth expectations for the sector down from four to six per cent due to protracted pressure on aerospace margins as companies transition to next generation aircraft from more mature, profitable ones.

The current order backlog of about eight years means that fewer commercial aircraft orders than deliveries do not present a risk to aerospace firms, at least for the time being.

Nonetheless, Moody's expects large commercial airplane deliveries to increase between seven and nine per cent through 2018 as the airframers increase future production rates to meet demand and help support the development of their new aircraft programmes.

According to Moodys, the increased geopolitical tensions, growing cyber threats and the need to replace aging equipment will fuel a three to five per cent rise in global defence spending over the next 12 to 18 months.

US defense spending, which typically represent around 35 to 40 per cent of total global spending, will increase by just over three per cent in 2017 to just over $598 billion and rise by a further six per cent in 2018 to over $630 billion based on Moody's assumptions.

However, the 2017 US budget bill only committed to half of the increase sought by the Trump administration in its initial base defence funding request, signalling some continuing budget pressures in the world's largest defense market.-TradeArabia News Service

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