The 2023 edition of PwC’s Global Aerospace and Defense: Annual Industry Performance and Outlook shares key performance metrics, notable developments, and future prospects for the global commercial aerospace and defense (A&D) industry. We drew our data from financial reports on fiscal year 2022 and include financial results for the largest 100 A&D companies by revenue.
in revenue, up 3% from 2021
industry operating margin, up by 40 bps
in deal value – just 25% of previous year
Modest uptick in industry revenues. The aerospace and defense industry reported revenues of $741 billion in 2022 (up just 3% from 2021) and $67 billion in operating profit (up 8%), according to PwC analysis. The modest improvement in revenue fell short of expectations as surging demand in end markets ran into production constraints due to supply chain and labor challenges.
The commercial aftermarket leads a continuing industry recovery. The best-performing companies in 2022 were generally those with significant commercial aftermarket exposure. Despite surging demand, overall industry revenue results (+3%) were less than might be expected because of production constraints caused by supply chain disruptions and labor shortages. Raytheon Technologies became the industry’s largest company at $67 billion in revenue, surpassing Lockheed Martin, which reported a 1.6% dip.
Lockheed Martin remained the most profitable company despite an 8.3% decline, reporting $8.3 billion in profit. This performance was nearly 50% above that of the second-most profitable company, Airbus, with $5.6 billion in profits. GE Aerospace reported the best profit improvement — a 66% increase to $4.8 billion.
Overall, defense profits were down significantly despite strong demand in end markets. Boeing Defense, Space and Security reported a loss of $3.5 billion (-330%), resulting from charges on multiple fixed-price development programs. Raytheon’s Missiles and Defense and Intelligence and Space segments’ aggregate profits were down by $976 million (-25%), owing to program mix and nonrecurring adjustments. Airbus Defence and Space reported a loss of $124 million. Lockheed Martin reported a profit decline of $775 million (-8.5%). In general, industry results were due mostly to program performance issues. Furthermore, production and efficiency were constrained by supply chain and labor challenges.
Demand for aviation has never been more evident. While the pandemic revealed that remote work can be highly productive, it also revealed limitations, such as challenges to working in complex teams, mentoring and development and, most importantly, building relationships with customers and clients. Restrictions on travel have revealed that businesses depend on the ability to move human capital through a globalized economy. Furthermore, consumer demand for aviation confirms that it is now much more inelastic than it was a decade or two ago. Consumers continue to prioritize experiences over goods. Air travel has become a middle-class standard, and consumers are willing to pay higher prices for it if they must.
By the end of 2023, aviation should return to pre-pandemic levels and resume a growth trajectory nearly double that of GDP. In the short term, the principal risks are persistent supply chain disruptions and labor challenges, including staff shortages and rising labor costs. In the longer term, the principal risks are threats to the industry’s ability to achieve sustainability. Aviation’s net zero carbon emissions by 2050 plan relies primarily on sustainable aviation fuel (SAF). The ability to scale SAF production at a reasonable cost is key to maintaining growth. Otherwise, myriad potential constraints loom, including regulatory volume limits, carbon taxes and negative consumer sentiment.
The defense industry should experience a year of significant growth in 2023. Given currently elevated geopolitical risks, global defense spending is setting new records each year. With defense budgets up by double digits in many countries, we can expect to see high single-digit growth in 2023. Supply chain and labor issues that all significantly affected defense production in 2022 should continue to improve in 2023.
Furthermore, the space industry continues to expand at a rapid pace, as we continue to transition to a space-based economy, which will ultimately impact nearly all products and services. Given that 2022’s overall industry revenue was just 4% below its previous record, expect the industry to set a new sales record in 2023. Although operating profits aren’t likely to surpass the record level of 2018, which was 18% above 2022, they have the potential to grow by double digits in 2023.