A record year in commercial aircraft deliveries lifted the aerospace and defense sector to higher sales in 2012, but slowing defense spending drove the sector’s operating earnings down last year, according to a new report by the audit and consulting firm Deloitte.
Overall sector sales increased nearly 6 percent to $354.7 billion, while operating earnings slipped 2 percent to $36 billion, says the report, U.S. Aerospace and Defense Sector Financial Performance Analysis. The report looked at the Top 20 U.S. aerospace defense companies and divisions.
Commercial aerospace sales increased 18 percent to $141.3 billion, driven by 1,189 aircraft deliveries by Boeing [BA] and Airbus combined. Longer term, Deloitte sees commercial aircraft production increasing as passenger travel demand rises, particularly in Asia and the Middle East. Operating income in the commercial aerospace subsector grew 13 percent to $13.1 billion.
Sales in the defense subsector dipped nearly 2 percent to $204.8 billion as defense spending contracts and the outlook remains weak due to already agreed upon long-term budget reductions coupled with the potential for further cuts from budget sequestration, Deloitte says. Operating income fell more than 7 percent to $204.8 billion.
“With U.S. defense budgets being cut, defense contractors are likely to experience continued revenue declines and, in some cases, accelerated revenue declines,” Tom Captain, vice chairman of Deloitte and aerospace and defense sector leader, said in a statement. “It’s expected that U.S defense contractors will aggressively address this revenue shortfall with foreign military sales, acquisitions, new product introductions and growth in adjacent markets.”