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European aerospace and defence growth accelerating

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European companies have increased revenue by 5.4 per cent. This is due to the negative revenue performance of the US defence subsector compared to key European commercial aerospace companies.

Additionally, the report projects that above average revenue growth will continue, if not accelerate slightly for the remainder of 2014, due to rate increases for commercial aerospace, new product introductions, and a flattening of government defence spending in both Europe and the US.

The commercial aerospace sector is expected to continue its significant revenue and earnings growth, with record setting production both at the platform level, as well as in the supplier base. In fact, by 2023, commercial annual production levels are estimated to increase by 25 per cent.

The projected increase will be driven by accelerated replacement cycle of abosolete aircrafts with next generation fuel-efficient ones and the continued increase in passenger travel demand.

On the other hand, continued declines in revenue and earnings are expected for the global defense sector.

According to Deloitte Global Manufacturing Industry group’s 2014 Global aerospace and defence sector financial performance study, however, Europe continues to lag behind the US in profit margin performance.

This is because of one-time charges and certain difficulties in rationalising assets and reducing labour costs. The report finds that some level of regional consolidation may be needed in order to gain economies of scale, should that coincide with national employment and defence policies.

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