Aerospace & Defence Biannual Newsletter – December 2012

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In this issue:

Aerospace & Defence biannual newsletter December 2012 | A&D Insights – A new intensity: Programmes under pressure | Mission control, Third-quarter 2012 aerospace and defense industry mergers and acquisitions analysis | Aerospace & defence top 100 growing companies in 2012

Aerospace & Defence biannual newsletter December 2012

With 2012 coming to an end, we are happy to send you the Aerospace & Defence newsletter and wish you very happy holidays. We hope that you will be enjoying special moments with your family and friends.

The last six months have been filled with numerous events in the Canadian aerospace sector, including the tabling on November 29th of the Aerospace Review report to the Honourable Christian Paradis by the Review Head, the Honourable David Emerson. PwC is proud to have participated in this report and hopes that the recommendations resulting from the report will help the Canadian aerospace sector to maintain or improve its position on the world stage.

In 2012, the commercial aerospace market continued its rebound while the defence sector is facing prolonged headwind. Although the final results for 2012 are not yet known, companies within the aerospace sector working on recent programs have generally fared better and have greater visibility on the upcoming years than other companies in the aerospace and in the defence sectors. All these companies will however face significant challenges to overcome over the upcoming months and upcoming years. With protectionism on the rise, each country is seeking to maximize regional economic benefits and encouraging manufacturers to use local suppliers for a portion of the contracts. As well, the significant pressure to lower prices is driving manufacturers to look towards producing countries with lower costs. This globalization of the supply chain is forcing certain players to consider investments, strategic alliances and partnerships abroad and to reconsider their strategic options, such as increasing their size with an acquisition or forming an alliance with a larger player. A recent PwC study for Aéro Montréal confirms the trend toward large manufacturers reducing the number of their direct suppliers and the more frequent obligation for our small- and medium-sized companies to work with an integrator as opposed to working directly with the manufacturer.

2013 looks just as exciting on both the operational front, with the initial flight of Bombardier’s CSeries, and the political front, with the federal government’s reactions to the recommendations resulting from the Aerospace Review as well as the replacement of CF-18 fighter jets.

We wish you and your loved ones all the best for the holiday season. Happy new year and see you in 2013!

Regards,

Mario Longpré, CA, CPA
PwC | Partner, Canadian Aerospace & Defence Leader
T : +1 514 205 5065

A&D Insights – A new intensity: Programmes under pressure

Businesses in the aerospace and defence sector are facing more intense rates of programme delivery.

The need to be faster, more efficient and less costly all while managing increasingly more complex programmes is the new normal in the sector. These alone are considerable challenges, that double in intensity due to an unprecedented environment that requires that programmes be delivered as quickly as possible.

Discussions with top management showed that the following aspects are essential to the success of efficient programme management: concentrate on the essentials, put emphasis on co-creation and client intimacy, work with innovation and cost control at the same time, take a serious look at system integration, establish partnerships on solid foundations, develop genuine agility and speed in business processes, become world citizens in relationship management and acquire non-technical competencies in order to adopt a collaborative approach to the detriment of the supply chain.

Mission control, Third-quarter 2012 aerospace and defense industry mergers and acquisitions analysis

This quarter’s analysis revealed:

  • The quarter’s big news was the near merger between EADS and BAE Systems, which would have created a $100 billion revenue company.
  • M&A activity remained restrained during the quarter, with overall deal volume declining. Deal value, however, increased.
  • Deal activity in the United States increased, with acquirers focused on a variety of targets.
  • Most M&As continue to take place in the aerospace sector, with defense transactions restrained by uncertainty about the “fiscal cliff” and the future of defense spending.

Aerospace & defence top 100 growing companies in 2012

Produced jointly by PwC and Flight International, the 15th annual Aerospace Top 100 report outlines the trends in the industry and ranks the top 100 Aerospace companies by revenues and profitability.

The main sector trend we’ve noticed this year is the beginning of a sharp difference in the outlook for companies supplying civil programmes and those reliant on military sales.

While commercial manufacturers have strong order books, the industry needs to recognize that the current round of military spending cuts is not a cyclical budget squeeze that will be reversed in the future. To offset reductions in defence spending, many companies are moving into the cyber security market, typically by buying specialist companies in the sector.