billion - smartcube · 2019-03-08 · $1 source: general dynamics csra, pwc aerospace defense...
TRANSCRIPT
Aerospace and Defence sector outlookExploring 5 key themes impacting the sector this year
The industry is likely to experience increasing M&A activity even though valuations of A&D companies are high and near pre-financial crisis levels. Specifically, the enterprise multiple (a ratio used to determine the value of a company/industry) rose from 9.9 times in 2015 to 14.2 times in 2018
+
LargestDeal in Q4 2018All-stock merger between
Average deal size
$350.6 Millionin 2018, 73% higher than the ten-year average
2 – Slowdown in order intake
3 – Growing adoption of 3D printing
1 – Accelerated M&AsThe Aerospace & Defence (A&D) sector will witness more deals in 2019 as OEMs look to mitigate supply chain disruptions
Airbus and Boeing will likely continue to increase the production rates of their popular aircraft
Although additive manufacturing is at an early stage, it is likely to have a significant impact on aerospace supply chains in the long term
Aerospace firms have been using 3D printing for a long time to produce prototypes for testing, and for R&D purposes, however adoption of 3D printing to manufacture aircraft/engine parts is still at a nascent stage
Current applications of 3D printing in the aerospace industry include concept modelling and prototyping, tool cavities, low-volume complex aerospace parts and replacement parts
Monthly production rate to increase from
Monthly production rate to increase from
52 to 57 per month during 2019
50 to 60 per month by mid-2019
A320
737
Current state of 3D printing in the A&D industry
Order backlog forcommercial airplanes
Totalling 8 years worth of production
5,901As of March 2018
Order backlog foraircrafts
Totalling 10 years worthof production
7,253As of January 2018
With limited available production capacity in the next five years, and aircraft
order backlogs reaching ~14,000, 2019 is likely to see
the start of a slowdown in new order intake
Aggressive campaigns by Airbus and Boeing to raise the production rate for the
A320neo and 737 aircraftmodels may create open
slots for new customers in 2021/2022
Adoption case
Source: DVB industry review and outlook: Airfinance annual 2018-2019, Airbus and Boeing report March 2018 commercial aircraft orders and deliveries
Large prime defence contractors are expected to consider acquiring small and mid-sized companies to gain access to new technologies and markets. For instance, General Dynamics acquired CSRA – a provider of information technology services – for $9.7 billion in April 2018, to offer next-generation IT solutions and services to the Department of Defence
Geopolitical uncertainties, increasing anti-terrorism activities and focus on emerging technologies such as hypersonic, artificial intelligence, cybersecurity and war simulation will continue to drive deal activities. This will be supported by increasing defence budgets of major economies such as the U.S., China and India
Gain new technology
Increasing defence sector spending
More deals are anticipated in the sector, due to OEMs being likely to backward integrate to mitigate supply chain interruptions, as suppliers are struggling with pressures of production ramp-up and growing order backlogs. PE groups and large contractors are also expected to drive M&As to enhance competitiveness and expand sales
Exert control on supply chain
M&A DRIVERS
8DEALS
BILLION
ABOVE$1
Source: General Dynamics CSRA, PWC aerospace defense industry mergers acquisitions Q4 2018, Deloitte 2019 global aerospace and defense industry outlook
in 2018
Air traffic continues to increase at a faster pace than the historical
average of 5.5% and there isstill demand to replace older
aircraft with new, more fuel-efficient models
The expected entry of Boeing’s new mid-market plane may open up the
market in 2025
Adoption of 3D printing in the A&D industry
3D printing is still in its nascent stage, with companies conducting research to make prototypes and evaluating its potential for mass-scale production; the impact of 3D printing on the aerospace supply chain is likely to be modest in the short term
Major advances in 3D printing technology are exepcted over the next few years, which is likely to have a significant impact on the aerospace supply chain in the long term
Short-term
Long-term
Days Hours MinutesPer unit process speed
Munitions components |
High-volume weapon com
ponents
Engine parts | Complex weapon system parts
Prototypes | Test units
Small spacecraft
Commercial aircraft | Military aircraft
parts
partsparts
HIGH
LOW
Impact
Volu
me
Tens
Hund
reds
Thou
sand
s
Source: Impact of 3D printing, 3D Printing Is Penetrating the Aerospace & Aviation Industry
Today 3–5 years 5–10 years
Brexit may lead to disruption in supply chains and create new trade barriers as the UK would renegotiate trade agreements with the European Union and other major trading nations
5 – Brexit impactBrexit could alter the UK’s role in the EU’s defence strategy and lead to relocation of production
8,433 581Aircraft to be retired Aircraft to be retired
Passenger fleet Cargo fleet
New deliveries
New deliveries33920,346
––
+ +
u Airbus estimates that over the next 20 years, the maintenance, repair and overhaul sector will be worth $120 billion annually
=Size of China'smiddle class
Total U.S.population
4 – MRO and aftermarket shiftsMaintenance repair and overhaul providers (MROs) will expand capability and capacity to cater to increased aftermarket demand
Lower fuel pricesare encouraging airline operators to continue with legacy series aircraft
26,307
11,671
37,9782028 fleet
Net growth
2018 fleet
Aircraft delivery outlook: 2018–2028
Impact on aerospace market
OEMs are eying active partnerships with MRO providers and vice versa to support
aftermarket needs
OEMs and MROs are embracing partnerships to cover the MRO data value chain
Emphasis on health and predictive maintenance to drive demand of e-enabled aircraft fleet
Economicimpact
u The economic impact is clear – if the pound loses ground to the euro and U.S dollar, materials and supply chain costs will rise, causing margins to fall. Further, if there is a hard Brexit, trade disruption will pose a significant near-term risk, the cross-border checks could complicate the already strained supply chain, and the cost of production will increase as manufacturers undertake stockpiling of goods and management. Restriction on the movement of people may also promote shifts in manufacturing footprints
Supply chainimpact
u Though the large manufacturers such as Airbus and Rolls-Royce will be impacted, the smaller suppliers will suffer the most because they lack the scale, resources and liquidity to manage abrupt swings in working capital and relocation of personnel and manufacturing sites. An interesting supply chain situation may arise, wherein a smaller supplier will have to move its production base outside the UK – to maintain proximity to the manufacturer – if any large OEM shifts its manufacturing operations
Change in the UK’s role in EU defence strategy
u The UK is currently the EU’s biggest defence spender and responsible for 40% of the region’s spending on defence R&D. The role of the UK in the EU’s defence strategy is uncertain; although most existing defence contracts will likely not be affected, UK firms may be prevented from bidding on future EU contracts or vice versa
Complicate the already strained supply chain
Smaller suppliers to suffer the most
UK firms may be prevented from bidding
To learn how our supplier risk monitoring tools, commodity and category insights, procurement intelligence and innovation updates could help your business better understand and adapt to the changes in your sector, please contact us at [email protected].
Intelligence. Accelerated
thesmartcube.com
Source: Oliver Wyman global fleet & MRO market forecast commentary, Atkins current and emerging trends in the aerospace sector whitepaper, MRO Americas aviation week: The MRO market & key trends
Source: PWC Brexit monitor: The impact of Brexit on (global) trade, Institute for government: UK–EU defence and security cooperation after Brexit, Financial Times: 5 concerns for UK-EU defence after Brexit
next 20 years
more technicians
548,000 more technicians
640,000
Airbus predicts a need for
Boeing predicts$120Billion
$120Billion
MRO Sector
u Across economies – both developed and developing – increases in GDP and disposable income, as well as expanding middle classes, are producing an unprecedented global demand for passenger air travel and cargo transport
n For instance, in China, the size of the middle class now equals the population of the U.S., and demand for air travel is expected to grow 9.5% annually between 2018 and 2028
Advanced Turboprop Engine (ATP)
Number of parts:dropped from 855 to just 12
Fuel burnlowered 20%
Weightreduced by 5%
Test scheduleshalved to 6 months