Big changes are unfolding across the aerospace and defense sector. And that means new approaches to growth — particularly inorganic growth.
All signs suggest that 2017 will be a pivotal year for the aerospace and defense sector. For commercial aerospace players, recent developments indicate that the golden era of year-over- year, record-breaking order backlogs and build rates may be starting to come to a close. Orders are waning for new aircraft. Production rates, particularly in the wide-bodied segment, are declining. And book-to-build ratios are falling (albeit from historic and unsustainable highs).
While commercial aerospace may be moving towards a down cycle, the defense sector seems to be on the cusp of an up cycle. Having weathered the steep budget cuts from sequestration and troop drawdowns earlier in the decade, there are increasing signs that funding and modernization investment are set to rise.
President Trump’s recent proposal suggests that defense spending may see a US$54 billion boost in the FY18 budget, a 10 percent increase over current levels1. The administration is also putting pressure on other governments (particularly the NATO members) to increase their defense budget allocations to the minimum targeted spending levels. In addition, the heightened geopolitical risk environment will likely result in higher defense spending in foreign markets despite fiscal challenges and weak economic growth.
1NYT: New York Times, Trump to Seek $54 Billion Increase in Military Spending, February 27, 2017