The U.S. aerospace and defense industry's overall health continues to improve according to The Teal Group's Mid-Year Market Briefs Report, released today during the opening of the 45th Farnborough International Airshow.
Revenues are continuing to increase, up 8% in 2005. Although the lowest increase in three years, it remains a healthy growth rate.
Backlog bodes particularly well for future sales. It increased by approximately $43 billion total, a 13% increase for the 15 companies included in the report. The backlog increase resulted entirely from Boeing's $51 billion boost in its backlog to $160 million. "That rise in Boeing's backlog from commercial airliner orders promises to maintain growth in U.S. aerospace even if defense spending stalls over the next several years," said Philip Finnegan, Teal's Director of Corporate Analysis.
Profitability for 15 leading defense and aerospace companies is increasing. Operating income from the group increased by 25% to $20.8 billion. Operating income in 2004 was also up by 30% to $16.7 billion.
Operating profit margins for the group have been steadily increasing from 5.8% in 2003 to 6.7% in 2004; they reached 7.7% in 2005.
Debt Reduction has emerged as another benefit. With the rise in profitability, aerospace and defense companies have been steadily reducing their debt. After peaking at $52.5 billion for the group in 2003, it fell to $45 billion in 2004. In 2005, it further fell to $41.5 billion.
Debt-to-equity levels have also improved. The fall in debt and rise in shareholder equity from the increased profitability of the group has led to a decline in the debt-to-equity levels. The decline has been fairly rapid from a peak of 76.l% in 2002 to 43.1% in 2005.
Company-funded research and development is growing although it is holding steady as a percentage of sales. The 15 companies spent $7.5 billion on company-funded research and development in 2005, up 11% from the previous year. As a percentage of sales it increased slightly to 2.8% in 2005 from 2.7% the two previous years.