Aerospace Global Report 2011 – a Clearwater Industrials team report.
- Aerospace industry to be a strong contributor to UK economy, expected to sustain 250,000 jobs and generate £20 billion in sales in 2011
- UK M&A market sector worth US$505 million
- Global growth in aerospace sector to reach compound annual growth rate of 5.3 per cent over next 5 years
- US leader in transaction value whilst Europe is leader in number of M&A transactions
Mergers and acquisitions in the aerospace and defence sector are set to take off in 2011 as the sector benefits from a stabilising global economy and the improving health of airlines, according to the latest Aerospace Global Report by Clearwater Corporate Finance LLP.
The aerospace & defence sector, valued at US$920.6 billion globally, is expected to achieve a compound annual growth rate (CAGR) of 5.3 per cent over the next five years and, with improving order books and profitability, the report predicts that this sector will continue to attract significant interest from corporates and private equity in 2011 and beyond.
In 2010 the UK accounted for nine per cent of global transactions by number, with 15 of the aerospace and defence sector’s 173 transactions, valuing the UK M&A market in the sector at US$505 million.
Europe was the region to have generated the largest number of transactions; however, the US was the leader in terms of transaction value, with US$8,485m compared to US$1,163m in Europe.
Jon Hustler, Partner and head of industrials at Clearwater Corporate Finance LLP, said: “The performance of the aerospace sector can be correlated closely to global GDP growth and income levels. As the economy stabilises, demand within the sector has increased, boosted by the improving health of the airlines, and the large order backlogs with Boeing and Airbus.
“The UK Market, which is home to world class companies, including BAE Systems and Rolls Royce, is estimated to achieve £20 billion sales per annum in the coming year, supporting over 250,000 jobs, cementing aerospace as a major foundation of the UK economy.”
Aerospace Industry Overview
- Increasing competition as Airbus/Boeing duopoly challenged by new entrants from Russia, China and Japan
- Revenues of global airline industry expected to increase by 16 per cent
- Outsourcing production to Asian countries results in an estimated saving of 20 to 30 per cent on costs
Despite 2009 being a difficult year for the large commercial aircraft manufacturers, the future for this sector looks promising. Competition is set to increase over the next year as the sector’s large aircraft duopoly between Boeing and Airbus, is challenged by emerging Russian, Chinese and Japanese firms. However, Boeing and Airbus have the advantage of seven years’ worth of production backlog, resulting in a predicted annual build rate of around 950 aircraft.
Revenues of the global airline industry are expected to increase by around 16 percent, with airlines in the Asia-Pacific region in much stronger positions. This is partly due to rapidly expanding air service in China, coupled with the spread of low-cost carrier business models throughout the world.
Jon Hustler, Partner and head of industrials at Clearwater Corporate Finance LLP, said: “Globalisation is key to the success of the aerospace industry, enabling companies to increase their speed to market by outsourcing manufacturing, reducing costs and focusing on core business.
“Boeing and Airbus are very aware of this and are already shifting their production to low cost China, India, Malaysia, Singapore and other Asian countries, achieving an estimated saving of around 20 to 30 per cent even after considering transportation and other costs.”
Environmental policy and technology
- Aircraft built with composites to play large role in reducing fuel consumption
- New engine technology to reduce consumption by 26 per cent and noise by 50 per cent
- Investments needed to fund research in bio-fuels to comply with new legislation
- Environmental legislation relating to air quality, emissions and noise levels are spurring the move towards new technologies in the industry
Developments in propulsion technology, alternative fuels and blended wing body design are expected to drive growth within the sector as the industry responds to demand for more fuel efficient and environmentally friendly aircraft.
The report highlights substantial market potential for the supply of composites to the aerospace industry as demand for more fuel-efficient aircraft grows. Composites allow manufacturers to build 20 to 30 per cent lighter aircrafts with a higher strength-to-weight ratio compared to aluminium. This demand is expected to grow at an average annual rate of seven per cent over the next decade.
Engine manufacturers GE, Rolls Royce & Pratt and Whitney are investing in research surrounding Geared Turbofan and Open-Rotor engines. Geared Turbofan technology is expected to provide double-digit improvement in fuel efficiency and generate a 50 per cent noise reduction, whereas Open-Rotor technology has the ability to reduce fuel burn by 26 per cent over conventional engines.
To read the full report please click here.