2020 GLOBAL AEROSPACE & DEFENSE INDUSTRY OUTLOOK
The ability to capture opportunities in international and emerging markets have proven to be crucial for the growth in the Defense sector
After a strong year in 2018, the global aerospace and defense (A&D) industry has experienced a descent in 2019. While the defense sector has continued to soar, growth in the commercial aerospace sector has slowed. In 2020, the A&D industry is expected to get back to its growth trajectory with the commercial aerospace sector recovering from its decline in 2019.
The defense sector has sustained its growth in 2019 as security threats have intensified, requiring governments worldwide to continue increasing their defense budgets. Defense expenditure
is expected to grow between 3 and 4 percent in 2020 to reach an estimated US$1.9 trillion, as governments worldwide continue to modernise and recapitalize their militaries. Most of the growth will likely be driven by increased defense spending in the United States, as well as in other regions, such as China and India.
The commercial aerospace sector has experienced a decline in deliveries in 2019 due to production- related issues in certain aircraft models. Order backlog of commercial aircraft has also decreased from the 2018 peak levels of about 14,700 aircraft to slightly more than 14,000 at the end of August 2019.2 This was a result of order cancellations and a drop in new orders. However, commercial aerospace sector growth is likely to recuperate from 2020 onward as the long-term demand for commercial aircraft continues to remain robust, with nearly 40,000 units expected to be produced over the next two decades.
Demand for military equipment is on the rise as governments across the globe focus on military modernization, given increasing global security concerns. The uncertainty and sustained complexity of the international security environment worldwide is likely to boost global defense spending over the next five years.Global defense spending is expected to grow at a CAGR of about 3 percent over the 2019–2023 period to reach US$2.1 trillion by 2023.4 While the US administration’s increased focus on strengthening the military is expected to be a key growth driver for defense spending in 2020, other large nations, such as China, Russia, and India, are also likely to embark on higher spending on defense equipment.
US foreign military sales (FMS) also remained steady as global threats persisted, and this is likely to continue to add to the robust performance
of the defense sector. In 2018, US FMS rose 33 percent to reach US$55.7 billion, and in the first nine months of 2019 achieved US$44.2 billion, with
a likelihood of reaching the 2018 total.5 Strong US FMS continues to boost export opportunities for defense contractors in the
United States. However, a strengthening dollar could dampen growth in FMS as some of the European defense exporting nations could become more price competitive.
In Asia, higher defense spending by major regional powers such as India, China, and Japan will likely contribute to global sector growth. In Europe, members of NATO are also increasing defense budgets to reach a defense spending target of 2 percent of GDP.
Apart from this, ongoing geopolitical tensions in the Middle East are creating a strong demand for military equipment.
Increasing global defense spending would continue to create opportunities for defense contractors and their supply chains. To meet the increased demand and improve production yields, defense companies should leverage highly agile production that adapts to changes in demand, including digital technologies. For instance, adopting smart factory initiatives could drive 10–12 percent gains in factory utilization and labor productivity without major capital investment.
sources: Deloitte & Sipri