Aerospace and Defence Biannual Newsletter – December 2011

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In this issue:

Editorial Overview | Flight International Top 100 Special Report | Mission control Q3 2011 A&D industry M&A analysis | Assessing tax: 2011 tax rate benchmarking study for industrial products and services companies | 2012 Global State of Information Security - A&D Supplement

Editorial Overview

With the 2011 year coming to a close fairly soon, we are pleased to send you our A&D newsletter along with our joyful holidays wishes. We hope that you will enjoy the holiday season with family and friends. Looking back over the year, it was certainly one of change and partial market recovery. We saw record orders at the Paris Airshow for the commercial aerospace industry, leading to more sizable orders in the second half of 2012. These orders however, are creating concern that the global supply chain may face capacity issues in the next few years. All eyes were on the US Defence budget and how the budget cuts will impact the prime contractors and their suppliers. Merger and acquisition picked up during the third quarter, including the largest deal announcement in history for the acquisition of Goodrich Corporation by United Technologies Corporation.

We saw several successful events in the Canadian aerospace community - the AQA Annual Conference, the first AIAC Aerospace Summit, the AeroMontreal Innovation Forum - which offered excellent networking and business development opportunities. We feel the excitement for growth opportunities for our A&D industry. At PwC, we also grew by the acquisition of PRTM Management Consulting in September, adding strong A&D expertise in operational improvement, supply chain management, product innovation and customer service consulting. The team, all with A&D industry backgrounds, have worked though out the A&D supply chain bringing quick and measurable results.

Looking forward to the new year, we expect growth to return as demand increases for commercial and business jets, both in North America and in emerging markets. We also expect the merger and acquisition market to remain solid as companies continue to put their large cash balances to work. On the PwC side, we are starting the interview and research phase for our global A&D Insights 2012. We want to find out from industry leaders what the next generation of programmes will look like and how they will be managed more effectively and profitably globally. We look forward to sharing our thoughts with you when we publish the report in early June.

In closing, we wish you and your loved ones all the best wishes for the holiday season. Happy new year and see you in 2012!


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

Flight International Top 100 Special Report

PwC has analyzed the data for this year's report titled Growing Season and finds that 2010 was a year of buoyant rebound for Aerospace with industry revenue growth of 2% and profits up 16%. At the top, Boeing holds onto the crown it regained from Airbus parent EADS in 2009, though EADS closed the revenue gap. However, growth is well below historic levels, particularly in Defence Aerospace as the sector faces spending pressure.

Read the report to find out:

  • Which are the sector’s top performers (by operating margin and revenue growth)
  • Rankings in sub-sectors – including commercial aircraft, defence aerospace and aero engines
  • Detailed profiles of key new entrants and growth companies in the sector

Check our website to download the report and explore the data online: Top 100 report and data charts.

Mission control Q3 2011 A&D industry M&A analysis

Mission control is a quarterly analysis of global merger and acquisition (M&A) activity in the aerospace & defense (A&D) industry. Each edition includes a review of overall deal activity for the quarter and year-to-date as well as a summary of large deals. Here are the key themes from the Q3 M&A report:

  • The number of M&A transactions announced in the third quarter decreased slightly. But there was a major jump in announced deal values, largely driven by United Technologies’ $16 billion acquisition of Goodrich Corp. The Goodrich acquisition, if completed, will be the largest in A&D history.
  • Sector constituents continue to improve their cash positions, a trend that’s significant in light of the concerns of some A&D executives regarding the seemingly high valuations of potential targets.
  • The increase in US participation in the deal market in 2011 compared to longer-term averages was driven in part by local-market consolidation, although inbound deals were also numerous.
  • Overall deal value is expected to approach the record levels of 2007 and our sector is now ahead of that pace. Deal sizes are expected to be high as the market shifts to larger transactions.

Assessing tax: 2011 tax rate benchmarking study for industrial products and services companies

Welcome to the 2011 edition of Assessing tax. As with previous issues, this report provides a detailed analysis of tax rate metrics and outlines what drives these ratios for some of the world’s largest companies across the industrial products and services industries. Tax executives today face increased scrutiny from both internal and external stakeholders, along with expectations for them to generate greater value from their tax departments. Tax rate benchmarking can be an enormously valuable tool for executives determined to meet these challenges. It not only provides meaningful insight into sector trends and peer group comparisons, it highlights areas for improvement in planning and shaping the tax function.

In addition to our analysis of tax ratios, this year’s edition includes a special report on corporate tax reform. The article focuses on efforts by President Obama and Congress to grapple with reform, and shares the perspectives of several industry executives who are closely monitoring the issue and its potential impact on their companies.

2012 Global State of Information Security - A&D Supplement

We recently announced the results of the 9th annual Global State of Information Security Survey 2012, a worldwide study by PwC, CIO magazine and CSO magazine. The survey – the largest of its kind – represents responses of over 9,600 IT, security and business executives in 138 countries across all industries.

As the global economy stalls again – and cyber crime and other threats to information security cloud the horizon – many see sunshine overhead. But across global markets and industries, some clouds still linger over revenue, growth, and margin performance. And visibility into when and how the next cyber threat to information will emerge is poor, at best.

There is an A&D sector-specific report highlighting key findings for the industry that can be accessed from the website. Click here to Access the report and explore the data.