Business

June 29, 2012

U.S. aerospace, defense execs expect significant merger, acquisition

Armed with significant cash on their balance sheets, and faced with hundreds of billions of dollars in federal defense budgets, U.S. aerospace and defense executives cite strategic acquisitions as the highest-priority investment area to spur company growth, according to a recent survey by KPMG LLP, the audit, tax, and advisory firm.

In the 2012 KPMG A&D Industry Outlook survey, nearly three-quarters (71 percent) of aerospace and defense executives say their companies will be involved in a merger or acquisition in the next two years.

In addition, 64 percent of aerospace and defense executives indicate that their companies have significant cash on their balance sheets, and more than half (53 percent) say they will increase capital spending this year.

Many executives say the highest-priority use for that capital will be strategic acquisitions for their companies (49 percent) – up significantly from 41 percent in KPMG’s 2011 survey. Forty-two percent say they will also aggressively invest in new products and services.

“The way we see it, there’s a day of reckoning coming, and many aerospace and defense executives are telling us that this may spur an industry response similar to what drove major industry consolidation in the 1980s and 1990s, or perhaps an even more dramatic response,” said Martin Phillips, U.S. and global leader of KPMG’s aerospace and defense practice. “They are rethinking their strategies and becoming much more aggressive to drive growth and compete.”

Phillips adds that U.S. government contracts are dwindling, companies are becoming more global, and foreign investors are looking to move into the “non-government” aerospace and defense sector as well. “All of these factors set the stage for much more aggressive mergers and acquistions, product strategies and international growth initiatives.”

In fact, when asked about the biggest drivers of revenue growth over the next three years, executives most frequently cited acquisitions and joint ventures (50 percent) and new product development (50 percent). In addition to continued focus on cost reduction and operational improvement, executives say that the top management initiative for their companies in terms of energy, time and resources will be investigating opportunities for mergers and acquisitions.

“Companies must find a way to break through to new customers and markets, which in many cases will only be possible through partnerships, joint ventures or pure acquisitions,” said Doug Gates, partner in KPMG’s aerospace and defense practice. “In this era of continued belt tightening, we also must not ignore just how attractive some of our domestic assets look to foreign investors, especially as aerospace and defense companies look to divest from underperforming assets.”

With a continually challenged domestic defense sector, executives remain focused on international growth. In fact, the four main strategies to fuel that growth are partnerships/joint ventures (41 percent), foreign military sales (38 percent), international expansion (36 percent) and acquisitions (24 percent). According to the executives surveyed by KPMG, the highest priority foreign markets are Asia (other than China), Europe and the Middle East.

Phillips notes “last year 54 percent of executives identified foreign military sales as the key strategy, but the drop in the results this year appears to indicate a realization that the foreign opportunities these companies are pursuing take several years to materialize. We continue hear about India and Brazil, but look at it realistically and you see that foreign military orders have been minimal to date.”

Despite foreign sales challenges, looking ahead three years, nearly half (43 percent) of executives surveyed by KPMG say that non-U.S. operations or customers will account for more than a quarter of their companies’ revenues, compared with just 35 percent who currently derive more than a quarter of their revenue from foreign operations.

When asked what gives their company a competitive advantage in today’s marketplace, executives most frequently cited innovation and new product development, followed by quality of product and service, customer relationships. The greatest constraints to achieving competitive advantage, according to KPMG survey respondents, are total product costs, innovation and the ability to keep ahead of market trends.

While 62 percent expect modest economic improvement next year, more than half (55 percent) don’t see a full economic recovery until 2014 or later. Likewise, most executives in the KPMG survey expect revenue and employment levels to remain flat or increase only modestly next year. When asked to predict when their company’s U.S. headcount would return to pre-recession levels, 44 percent said 2014 or later, and 14 percent said “never.”




All of this week's top headlines to your email every Friday.


 
 

 

Northrop, Navy celebrate legacy of EA-6B Prowler

Northrop Grumman photograph by Edgar Mills The U.S. Navy’s last operational EA-6B Prowler, designed and built by Northrop Grumman, lifts off from Naval Air Station Whidbey Island, Wash. in a ceremonial fly-away June 27 from its long time operational base. The Navy is retiring the Prowler after nearly 45 years of service.   The U.S....
 
 

Lockheed signs agreements for two full-flight simulators

Lockheed Martin Commercial Flight Training and Airbus have signed a frame contract enabling Airbus to expedite procurement of flight simulation devices for their customers, Airbus training centers and their affiliates worldwide. The frame contract emphasizes the shared intent to partner on future training programs, and combines Airbus’ and Lockheed Martin Commercial Flight Training’s expert...
 
 

Drone Aviation receives order for U.S. Army aerostat system enhancement

Drone Aviation Holding Corp., a developer of specialized lighter-than-air aerostats and tethered drones, announced June 24 that its wholly owned subsidiary, Drone Aviation Corp., has been awarded an order from U.S. Government prime contractor BAE Systems for parts and services related to enhancing and supporting two WASP aerostat systems owned and operated by the U.S....
 

 

Boeing names Muilenburg as chief executive officer

The Boeing board of directors has elected Dennis A. Muilenburg the company’s 10th chief executive, succeeding W. James (Jim) McNerney, Jr., who held the position for the past 10 years. Muilenburg, who has served as Boeing president and chief operating officer since 2013, becomes president and CEO July 1. McNerney, who joined Boeing’s board of...
 
 
boeing-thailand

Boeing, Thai Airways International celebrate 25th direct 777 delivery

  Boeing and Thai Airways International Public Company Limited celebrated the Thailand flag carrier’s 25th direct 777 delivery, a 777-300ER (Extended Range), from the Boeing delivery center in Everett, Wash.  “...
 
 

General Dynamics receives $219 million for U.S. Army’s WIN-T increment 2 systems

General Dynamics received the first full rate production order from the U.S. Army to build additional Warfighter Information Network – Tactical (WIN-T) Increment 2 systems.  The $219 million order includes the production of more than 300 vehicle-based network communication nodes along with related equipment and materials. WIN-T Increment 2 is the Army’s communications backbone providin...
 




0 Comments


Be the first to comment!


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>