Financial performance among the top 20 U.S. aerospace and defense (A&D) firms remained sluggish in 2011 as they posted a nominal 2 percent increase in revenues and a 3.2 percent increase in operating profit over 2010, according to a new Deloitte report. Operating margins were flat at 10.9 percent on a base of $339.2 billion in sales revenues, and market capitalization fell 3.9 percent.

Deloitte’s “2011 Top 20 U.S. Aerospace and Defense Company Financial Performance Analysis” report notes ongoing uncertainty over budget cuts by the Department of Defense (DoD) and other cost cutting and efficiency initiatives as key factors to the industry’s continued sluggish performance. However, the industry continued to benefit from the ramp up in commercial aircraft production. The study is based on sales revenue available from company public filings and press reports of fiscal year-end unaudited financial performance.

“Over the past year we’ve started to see the effects of anticipated cuts in defense spending as outlined in the Budget Control Act, as well as uncertainty over the potential for defense industry funding due to the planned budget sequestration,” said Tom Captain, vice chairman, Deloitte LLP and U.S. aerospace and defense leader.

Despite defense sector uncertainty, commercial aerospace is a bright spot for the industry, the Deloitte report finds. In 2011, the sub-sector’s growth continued to build upon record production of commercial jets, as well as sales orders of more than 2,200 globally.

“Commercial aviation has been a consistent high point for the A&D industry due to increased demand from emerging markets in the Asia-Pacific region, and a push by airline operators to retire older, less fuel efficient airplanes,” said Captain. “As oil prices continue to rise, it’s likely the industry will see an increased need for fuel-efficient aircraft using next generation engine technologies.”

In spite of this growth, the report suggests that companies remain cautious as the DoD enacts $487 billion in budget cuts over the next decade. Additionally, recent industry announcements call for a shift in strategic focus for the sector, bringing new challenges and increased competition to defense contractors, while expanding markets and M&A transactions offer new opportunities for firms.

Deloitte’s A&D sector focuses on the top issues facing the industry. Deloitte A&D practitioners have deep industry experience and are actively involved in various segments of the industry, including: M&A, advanced technology programs, airplane program launches, and acquisition reform and economic assistance packages.
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