2009 Global Aerospace & Defense Review: More to Come
International consulting firm Alix Partner recently released their 2009 Global Aerospace & Defense Review(SM), which investigated virtually all segments of the global aerospace industry, its key customers, and key issues. Their conclusion? After 5 years of strong, profitable growth, financials for virtually all segments of the aerospace industry globally are deteriorating rapidly – and the situation is likely to worsen in 2010. Extracting cash from operations will be key. Or, as Alix Managing Partner Phillip Toy puts it: “In times like these, cash is king, queen, pilot and co-pilot.”
Alix believes that the ways in which the industry is changing, and underlying business fundamentals for industry firms, are at least as important as the overall trend. Overall, industry financial-distress indicators have deteriorated by 24% since 2008. The debt/capital ratio of North American airlines in particular is a concerning statistic, and the financial state of European supplier firms also bears watching. On the defense front, continued cuts are expected past 2010, with a possible counter-trend in Asia. The biggest change, however, concerns Tier 1 and 2 suppliers, whose EBIT margins have exceeded their customers’ by an average of over 30% over the last 2 years. That power relationship is changing, and the change has important implications for industry firms up and down the supply chain.
DID is working with Alix Partners on a guest article that will discuss some of this research, and flesh out some of the study’s insights and implications for our readers (July 22/09: The article is up).