After a year of negative revenue growth in the global aerospace and defense (A&D) sector, the outlook for 2016 is positive due to expectations of strong revenue and earnings in the commercial aerospace subsector and the likelihood of a new growth cycle beginning in the defense subsector, according to a report released Tuesday by the international consulting firm Deloitte Touche Tohmatsu.

In 2016 revenues in the global A&D sector are estimated to grow 3 percent after declining a half-percent in 2015, says Deloitte’s report, 2016 Global aerospace and defense sector outlook: Poised for a rebound.

Lockheed Martin's F-35 is one of a number of U.S. programs expected to contribute to help the global defense subsector return to growth.
Lockheed Martin’s F-35 is one of a number of U.S. programs expected to contribute to help the global defense subsector return to growth.

“Stable growth in global gross domestic product, lower commodity prices especially crude oil, and strong passenger travel demand portend continued growth in the commercial aerospace subsector,” Deloitte says. “Moreover, the resurgence of global security threats and growth in defense budgets in many countries are all likely to promote global defense subsector growth over the next few years.”

In the three years before 2015, global A&D revenues grew each year although at declining rates, the report says, with sales up 5.8 percent in 2012, 3.2 percent in 2013, and 1.9 percent in 2014. The declining rates of increase were due to cuts in global military spending, largely driven by the United States, and by a stronger U.S. dollar that hindered sales at A&D companies based outside of the U.S., Deloitte says.

Led by U.S. defense spending, Deloitte forecasts a 2.7 percent rise in revenue for the global defense sector in 2016. The report notes that U.S. defense spending is pegged to increase $13 billion in FY ’16 but cautions that “future budget increases will depend on continued bipartisan agreement to reduce or eliminate the effects of sequestration.”

The report also highlights the emergence of “global companies” that are developing defense-related technologies on their own dime “outside of the traditional DoD weapons systems acquisition process” and are likely to find commercial success beginning this year.

Growth in the commercial aerospace subsector in 2016 will be paced by record production, which is being driven by continued demand for next-generation aircraft and increasing passenger traffic, Deloitte says. Areas of the world driving this growth include China, India, the Middle East, and other Asia-Pacific region countries due to “wealth creation,” the report says.

Even as economic growth in China slows, that country is “expected to continue to be one of the largest markets for commercial aircraft delivery over the next 20 years,” Deloitte says. The report says that lower oil prices, business and leisure travel demand, and government support for the industry will keep the cost of flying down and more than offset the economic slowdown in China.