Pockets of Turbulence: Aerospace & Defense Industry Outlook

Defense: A painful contraction and a shift to the East

The defense sector is experiencing a similar shift from mature Western markets—where cuts in defense budgets have made business far more challenging—to faster-growing regions, in Asia. Global defense spending decreased in 2012 for the first time since 1998, to $1.7 trillion. That includes 3 to 4% cuts in most of the major Western markets (5.8% in the United States, the largest market worldwide). Asian countries outspent European NATO countries for the first time—and will continue to do so.

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Aerospace & DefenseThe Global aerospace & defence (A&D) industry is continuing its growth in the wake of the worldwide financial crisis, yet it remains an extremely dynamic marketplace, in which some sectors are booming and others are experiencing pockets of severe turbulence.

According to theAlixPartners 2013 Aerospace & Defense Industry, an in-depth analysis of sector and company financials and key macro­economic trends, the A&D industry grew by 6.8% in 2012. This was up from 2011’s sales growth of 5.5% but still not at precision growth levels, which hit 10% in 2008. Commercial aerospace companies represent perhaps the strongest segment of the industry: they are expected to deliver more than 1,300 jets worldwide in 2013—a record for the industry— and new orders continue to roll in.

Meanwhile, in contrast to this growth among airlines and commercial aircraft original-equipment manufacturers (OEMs), the defense sector is shrinking. Even though some of the developing-market…

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