Lee Fang / The Intercept & Deloitte – 2016-01-11 14:58:11
Defense Industry Revenue Forecast Gushes Over Global Turmoil
Defense Industry Revenue Forecast Gushes Over Global Turmoil
Lee Fang / The Intercept
(January 9 2016) — The global aerospace and defense industry is out of its doldrums. According to a new report by the accounting firm Deloitte, “the resurgence of global security threats” promises a lucrative “rebound” in defense spending.
The report alerts investors that “revenue growth” is “expected to take a positive turn” due to the terrorism and war in the Middle East and the tensions in Eastern Europe and the South China Sea.
Many analysts predicted declining revenue for the weapons industry as the US scaled down military involvement in Iraq and Afghanistan. After all, as this chart from the Deloitte report shows, no other country even comes close to spending as much as the US does.
But now governments around the world have moved swiftly to hike defense budgets to “combat terrorism and address sovereign security matters.”
The Deloitte report is almost giddy:
2015 was a pivotal year that saw heightened tensions between China, its neighbors and the US over “island building” in the South and East China Seas, and the related claims of sovereign ocean territory rights by China. In addition, Russia and the Ukraine are at odds related to Russia’s takeover of Crimea and their military actions in Eastern Ukraine.
North Korea continues to threaten its neighbors with its nuclear ambitions and aggressive rocket launches. The Islamic State (ISIS) has become a key threat in Syria, Iraq, and Afghanistan and is involved in exporting terrorism to Europe, Africa, and elsewhere. The recent tragic bombings in Paris, Beirut, Mali, the Sinai Peninsula, and other places have emboldened nations to join in the fight against terrorism.
Several governments affected by these threats are increasing their defense budgets to combat terrorism and address sovereign security matters, including cyber-threats. For defense contractors, this represents an opportunity to sell more equipment and military weapons systems.
Products, which are expected to experience renewed interest from buyers, include armored ground vehicles, ground attack munitions, light air support aircraft, intelligence, surveillance and reconnaissance electronic sensors, cyber protections, maritime patrol ships and aircraft, as well as provision for equipment maintenance and sustainment, as the military operations tempo is likely to increase and more missions are executed.
It is expected that a return to growth for defense subsector companies will likely occur, due to the increased interest by several involved nations as described above.
In addition, many large, mainly US DoD defense programs representing billions of US dollars, are likely to start soon, enter the engineering manufacturing design phase, and reach low-rate or full-scale production over the next few years. These programs include Ohio Class Submarine replacement, F-35 fighter jet, KC-46A aerial refueling tanker, Long Range Strike Bomber, USAF T-X trainer, and Rafale fighter programs.
As for factors that might slow the global arms race, the report says little about diplomacy or peace movements. It does note that the fall in oil prices might eventually blunt the weapons-buying trend in the Persian Gulf, although not anytime soon.
In the US, as we’ve reported, defense contractors have bragged about pushing candidates toward adopting more militaristic policies. The libertarian trend in the Republican Party, for instance, has largely reversed itself and most candidates have adopted increasingly hawkish views.
2016 Global Aerospace and Defense Sector
Outlook Poised for a Rebound
Deloitte
Summary
After several years of revenue expansion, but with a declining trend—5.8 percent in 2012, 3.2 percent in 2013, and 1.9 percent growth in 2014respectively, the overall global aerospace and defense (A&D) sector revenues are expected to decline a minus 0.5 percent in 2015.
This trend of declines in the global sector revenue growth rates was largely driven by decreased revenues in the defense subsector, which suffered from cuts in global military expenditure, mainly from the United States (US).
Program cancellations and delays in major weapons programs affected the revenues of the major defense contractors. Moreover, the stronger US dollar adversely affected the revenues of the A&D companies headquartered outside of the US.
However, revenue growth for the global A&D sector is expected to take a positive turn. Stable growth in global gross domestic product (GDP), lower commodity prices especially crude oil, and strong passenger travel demand portend continued growth in the commercial aerospace subsector.
Moreover, the resurgence of global security threats and growth in defense budgets in many countries are all likely to promote global defense subsector revenue growth over the next few years.
Consequently, total global A&D sector revenues are estimated to grow 3.0 percent in 2016
Defense Contractors Laud Themselves
For Steering Candidates Toward Militarism
Lee Fang / The Intercept
(December 11 2015) — A group formed this year by executives and lobbyists for the defense contracting industry is taking credit for “driving the national debate on foreign policy during the 2016 presidential election,” and in particular for getting Republican presidential candidates to call for escalating military action in Syria.
In an email to supporters over the weekend, Mike Rogers, the founder of Americans for Peace, Prosperity, and Security, hailed the group for “pushing candidates on national security.”
He illustrated the group’s impact with “highlights from many of our Iowa, South Carolina, and New Hampshire forums showcasing the candidates’ views on defeating ISIS.”
From Ben Carson at an APPS forum in Dubuque, Iowa: “We also need to decide, in terms of these radical jihadists, what do we want to do? Do we want to contain them or do we want to destroy them? I vote for the latter, because you know they want to destroy us and there is no such thing as containing people like that.”
From Sen. Lindsey Graham, R-S.C., at an APPS forum in Charleston: “I am sick and tired of hearing people on my side avoid the idea of an American ground component.”
Mike Huckabee told an APPS forum in Greenville: “We should have been running hundreds, if not thousands, of A-10 Warthogs busting every time a truck with supplies was on its way to ISIS soldiers.”
The email also highlighted a quote from Jeb Bush at an APPS forum calling for the US to be prepared for a “long haul” war on ISIS, and a similar comment from Sen. Marco Rubio, R-Fla., who said the US should engage ISIS as it had against the Taliban in Afghanistan.
As we’ve previously reported, APPS was formed by current and former officials from Raytheon, BAE Systems, SAIC, and other major defense contractors. Lobbyists who represent the defense industry are also involved. Rogers, the former House Intelligence Committee chairman who retired from Congress last year, also represents private clients, though he has refused to disclose them.
To “help elect a president who supports American engagement and a strong foreign policy,” the group spends money on public events in primary states and encourages presidential candidates to take hawkish positions.
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