The document summarizes the performance of the top 100 aerospace and defense companies in 2012. Key points include: - Commercial aerospace performed strongly, driving overall revenue growth of 4% and record orders despite declines in defense spending. - Boeing had the largest revenue increase at $13 billion due to strong commercial aircraft sales. - Sequestration cuts impacted defense spending in 2013, and companies face pressure to improve productivity and transparency. - Commercial aerospace is expected to see continued growth in 2013 with over 600 new aircraft deliveries, while defense revenues decline 4-5%.

1. www.pwc.com/us/aerospaceanddefense
Aerospace & defense
2012 year in review
and 2013 forecast
How are aerospace
and defense companies
performing today?
What challenges
and opportunities do
they face?
PwC takes a look.

3. Aerospace and defense year in review 1
Commercial aerospace 7
Defense 15
Trends 20
Mergers and acquisitions 31
In summary 33
Top 100 list 34
Contents

4. 2012 data for the largest 100 aero-
space and defense (A&D) companies,
by revenue, with publicly available
Consequently, several companies
were not included because they
had not reported results by the
A&D companies include those that
generate the majority of their revenue
from aerospace and defense activities
Methodology
reportable segments that derive a
majority of revenue from aerospace
currencies are translated at average
exchange rates for the years ending
December 31, 2012 and December
Our report also offers PwC’s point of
Our viewpoints have been developed
based on our interactions with our
clients and other industry leaders

5. A&D 2012 year in review and 2013 forecast 1
reported its best year ever in 2012,
uptick came on the strength of a
surging commercial aviation market
that more than offset a soft defense
A&D companies reported a record-
setting $695 billion in revenue and
Revenue was up 4 percent compared
margin decreased 17 basis points to
results, so these statistics slightly
understate the strength of commer-
cial aviation earnings as a result of
the acquisitions of Goodrich and
half of Goodrich’s annual revenue,
meaning that the year over year
statistics do not take into account
more than $4 billion of revenue
acquired by GE Aviation at the end of
the year, so the year over year statis-
tics do not include about $3 billion of
types of anomalies occur every year,
they were particularly pronounced
Commercial aerospace companies
continue to be optimistic about
and steady, driving the lucrative
increased large commercial aircraft
new record, and captured more
Aerospace and defense industry
delivers a third consecutive year
Summary table (US$ billions) 2012 2011 Change
Revenue $695 $666 4%
Operating profit $59.8 $58.4 2%
Operating margin 8.60% 8.77% -17bps
Source: PwC analysis

6. PwC2
Aerospace and defense industry delivers a third consecutive year
than 2,000 large aircraft orders for
the second consecutive year and
there’s a record backlog—more than
seven years at current production
In the wake of modest revenue
declines reported for 2012, defense
Despite efforts by the industry and
others, sequestration went into
-
nies now are bracing for the conse-
quences and waiting for details
more pressure than ever to improve
productivity, increase transparency,
and respond to increasingly complex
government regulations and over-
challenges associated with tighter
schedules, and generally higher
threats, the Iranian and North
Korean nuclear threats, and
geopolitical instability underscore
the need for increased global
security and could rapidly affect
has enjoyed steady growth in defense
spending and, simultaneously, the
longest up cycle in commercial
well managed the growth and
achieving record results, now must
Despite efforts by the industry and
others, sequestration went into effect on
March 1, 2013. Companies now are
bracing for the consequences and waiting
for details regarding the impact on
Defense companies face more pressure than ever
to improve productivity, increase transparency,
and respond to increasingly complex government
regulations and oversight.

7. A&D 2012 year in review and 2013 forecast 3
Aerospace and defense industry delivers a third consecutive year
Some highlights from our analysis of 2012 results
Largest increase in revenue (dollars) Boeing $12,963 M
Largest increase in revenue (percentage) AVIC Aircraft Company 82%
Largest increase in operating profit (dollars) Finmeccanica $2,731 M
Largest increase in profit (percentage) Dyncorp 700%
Highest operating margin Transdigm 41.2%
Largest increase in top 100 list AVIC Aircraft Company +19 to 51
Largest decrease in revenue (dollars) BAE Systems -$2,482 M
Largest decrease in revenue (percentage) ThyssenKrupp Marine -27%
Largest decrease in profit (dollars) General Dynamics -$2,993 M
Largest decrease in profit (percentage) Engility -458%
Largest decrease in top 100 list ThyssenKrupp -12 to 68
Deleted from the 2011 list
Goodrich Acquired by United Technologies
Avio Acquired by GE Aviation
Barnes Group Segment reporting change
Loral Space & Communications Acquired by MacDonald Detwiler
Titanium Metals Acquired by Precision Castparts
Volvo Aero Acquired by GKN
Indra Security & Defense 16% decline in revenue
Added to the 2012 list
#66 Engility Spun off from L-3 Communications
#72 Korea Aerospace Did not make reported date cutoff in 2011
#77 Cytec Engineered Materials and Umeco Business combination
#80 Kratos Defense Acquisitions
#92 Nabtesco Aircraft and Hydraulic Equipment
#93 Wesco Aircraft Holdings
#99 Sumitomo Precision Products
Source: PwC analysis

8. PwC4
Aerospace and defense industry delivers a third consecutive year
Companies with operating margin > 20%
#19 Precision Castparts 25.1%
#46 Hindustan Aeronautics Limited 23.7%
#49 Meggitt 24.5%
#64 Transdigm 41.2%
#69 FLIR Systems 21.65%
#93 Wesco Aircraft Holdings 20.5%
#97 Crane Aerospace & Electronics 22.3%
Source: PwC analysis
Another year of record
deliveries and backlog for
commercial aerospace
Boeing again was the industry’s
in revenue, a 19 percent increase,
on the strength of commercial
the largest revenue growth,
of revenue that Boeing added in
2012 would be equivalent to the
increased revenue by 15 percent,
(6% when translated into US
-
cial aerospace companies generally
Honeywell Aerospace all reported
Precision Castparts, Spirit, Babcock,
AVIC Aircraft Company reported
the largest revenue percentage
the largest jump on the list, advancing
reported the largest revenue decline
but improved operating income
through a 100 basis point increase in
operating margin, the largest of any
Boeing was also the industry’s most
billion—due to the absence of large
program charges recognized in
The amount of revenue that Boeing
added in 2012 would be equivalent to
the 15th largest A&D company.

9. A&D 2012 year in review and 2013 forecast 5
Aerospace and defense industry delivers a third consecutive year
the industry as a whole continues to
be eluded by double-digit operating
-
Globalization
are reporting more foreign direct
investment, with the rate more
investments in manufacturing, China
strength of its market size and capa-
which has developed an aerospace
top target for R&D investments, while
China came in seventh, presumably
because of concerns over intellectual
States was the second most popular
target for aerospace and defense
0
5
10
15
20
25
30
35
40
2012201120102009200820072006200520042003200220012000
24
21
12
1813
7
7
6
3
69
5
7
2 2 1
3 2 3
7
9
6
4
9 10
6
R&D Manufacturing
Investments by top 50 global A&D companies in international markets
Source: Company reports

10. PwC6
Aerospace and defense industry delivers a third consecutive year
2013 forecast and risks
third consecutive year of record
in commercial aviation more than
offset a soft defense market and
multi-billion dollar impairment
charges at large defense contrac-
2013 performance are familiar, and
sequestration is certain to have a
negative impact on defense industry
in the US defense market, it is
growth is expected to slow to a
rate of between 4 percent and
5 percent, which is approximately
the percentage defense revenue is
industry revenue is expected to be
industry avoids the large impair-
there is a risk of some impairments
resulting from the decline in US
defense spending, the magnitude
of those charges is likely to be less
in commercial aerospace should
approximately offset declines in
-
tial for improvement in the absence
While there is a risk of some impairments
resulting from the decline in US defense
spending, the magnitude of those charges is
likely to be less than in recent years.

11. A&D 2012 year in review and 2013 forecast 7
In 2011, the industry set a record,
than 1,000 large aircraft; in 2012,
the industry beat the previous year’s
-
601 aircraft in 2012, the second best
in its history and close to its record
Airbus recorded 294 deliveries, less
than half of Boeing’s tally the same
aircraft, exactly double its output of
1999, its eleventh consecutive year
time Boeing delivered more aircraft
2012 was also the third best year for
-
tions, surpassing the 2,000 mark
for the second consecutive year and
pushing backlog to another record of
more than 9,000 aircraft, or approxi-
mately seven-and-a-half years at
In 2012, Boeing aircraft programs
company booked 1,124 orders for the
737, the most for any Boeing model
in a single year, bringing cumulative
program orders above the 10,000
1,000 cumulative orders for the 737
program milestone, exceeding 1,000
Commercial aerospace

12. PwC8
Commercial aerospace
Boeing’s backlog is at a record $319 billion, and Airbus’ backlog is at
IATA statistics 2012 2011 2010
Revenue passenger miles 5.30% 5.90% 8.20%
Load 79.10% 78.10% 78.40%
Cargo freight ton miles -1.50% -0.70% 20.60%
Load 45.20% 45.90% 53.80%
Source: IATA
Backlog (US$ billions) 12/31/12 12/31/11 12/31/10 12/31/09
Boeing $319 $293 $256 $250
Airbus* $638 $679 $480 $459
*At list price
Aircraft backlog (units) Boeing Airbus Total
Backlog at December 31, 2011 3,771 4,437 8,208
Net orders 1,203 833 2,036
Deliveries 601 588 1,189
Backlog at December 31, 2012 4,373 4,682 9,055
Source: Boeing annual report; Airbus annual report
reported revenue passenger growth
well for the 20-year forecast of
approximately 34,000 new planes

13. A&D 2012 year in review and 2013 forecast 9
Commercial aerospace
Order activity continued to be
driven in large part by the new
single-aisle aircraft, 737MAX
re-engined versions of the existing
models, offering at least a 15 percent
engines have achieved a 49 percent
Consequently, a 15 percent improve-
ment in one generation constitutes a
Some larger orders from 2012, with approximate value
Lion Air, 230 737 MAXs and 737-900ERs $22 billion
Norwegian, 222 narrow-body split between Boeing and Airbus $22 billion
United, 150 737 MAXs and -900s $15 billion
Pegasus, 100 A320neos not disclosed
GECAS, 100 737 MAXs and -800s $7 billion
Air Lease, 75 737 MAXs $7 billion
To put this in perspective, aircraft engines
of the jet era, or about 1 percentage point
annually.
Consequently, a 15 percent improvement

14. PwC10
Commercial aerospace
Regional aircraft
Mitsubishi reported its largest
order yet for the MRJ in 2012 from
than doubled Mitsubishi’s backlog
to 165 aircraft, pulling ahead of
Bombardier, which has received
will formally launch its second-
Among the improvements will be
Pratt & Whitney PW1700G and PW
1900G geared turbo fan engines,
complete turnabout in the regional
engine market, Pratt & Whitney,
once absent from the regional jet
space, now dominates new produc-
tion platforms, with engines on the
Bombardier C-Series and Mitsubishi
Aviation deliveries 2011 2012
Global business jet deliveries 696 672
Global turboprop deliveries 526 580
Global piston aircraft deliveries 898 881
Source: General Aviation Manufacturers Association
MRJ, and its recent selection for
Business jets
Business jet deliveries and cycles
more than 10% below the pre-
are roughly the same as a decade
favorable for the long term, with
strong growth in the international
markets, as well as improvement
in the United States, driven by an
improving economy and growing
During 2012 the number of
business jets in China increased
exceed 2,000, according to the

15. A&D 2012 year in review and 2013 forecast 11
Commercial aerospace
Source: FAA and UBS estimates
0
50,000
100,000
150,000
200,000
250,000
Seasonally adjusted business jet monthly cycles
00 01 02 03 04 05 06 07 08 09 10 11 12
Total orders Total deliveries
Sources: Actual deliveries from GAMA. Orders estimated from competitive intelligence, OEM guidance.
Excludes Very Light Jet and Large corporate airliners segments.
2011201020092008200720062005200420032002-1,000
-800
-600
-400
-200
-0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Industry orders and deliveries—Units, 2002–2011
All graphs represent business jet data

16. PwC12
Commercial aerospace
Commercial aerospace
2013 forecast
between 635 and 645 deliveries,
a 6 percent to 7 percent increase,
and Airbus is expected to achieve
another year of record deliveries
of 600 to 610 units, a 2 percent to
While these growth rates are more
in original equipment manufac-
turer (OEM) deliveries in 2012, the
industry continues to establish new
output levels create considerable
strain on an industry that arguably
has the most complex supply chain
and the one with the longest lead
previous supply chain issues while
industry previously has faced raw
materials shortages, late deliveries,
out-of-sequence work, overtime,
and rush shipments throughout the
supply chain, all of which erode the
-
lenges in 2013, and in the longer
term, as capacity constraints bump
and suppliers are encouraged to
perform thorough supplier capacity
it is unlikely that orders will main-
tain the manic pace of 2011 and
of 2013, Airbus booked 431 orders
and Boeing recorded 220 orders, a
combined rate of 2,600 orders annu-
Ryan Air ordered 175 737s, Lufthansa
not expect this pace to continue or for
orders to exceed 2,000 for the third
orders to exceed the approximately
1,250 deliveries predicted for 2013,
pushing backlog to another new high

17. A&D 2012 year in review and 2013 forecast 13
grown to represent about half of
leasing companies have about
16 percent of the current backlog,
become even more important as
their more stable business models,
-
tively higher grade ratings ease
Economic risks include the potential
for slowing global growth, resulting
in part from government spending
sovereign debt crisis has the poten-
may be mitigated through increases
in our recent report, “Aviation
as global risks are re-priced, the
aircraft may intensify, and the cost
the industry as a whole to be able to
attract funding, but new sources of
Export Credit Agency (ECA)
has become the funding source of
the new Aircraft Sector Under-
standing (ASU), which governs
effect in 2013, resulting in consid-
erable premium increases for this
Overall, modest growth in commer-
Space
Space-related initiatives are
missions to the International Space
Station (ISS) and Orbital Sciences
with the ISS under the Commercial
research and development continues
under the Commercial Crew Devel-
SpaceX, United Launch Alliance, and
Sierra Nevada are among the compa-
nies receiving NASA funding for
on these and other space programs
Long-term forecast
-
cial OEM aircraft is about 34,000
-
some observers have questioned
whether these forecasts are overly
optimistic, they are nevertheless
based on well-founded assumptions
about global economic growth and
-
erate the demand for replacement
more than 1,500 aircraft per year
and current production rates at
Commercial aerospace
about 1,200 per year, the industry
can look to future growth and a
lot of cushion between forecasted
demand and current production to
Perhaps a key competitive advan-
tage will go to the company that can
effectively raise production rates
At the same time, new competi-
tors are trying to take advantage
-
cial Aircraft Corporation of China
(COMAC) has launched its C919
more than 2,000 planes, capturing
In addition, Irkut of Russia has
launched a narrow-body aircraft,
and Bombardier is marketing its
launch its next-generation E-Jet
in 2013, but it has not announced
any plans to compete in the narrow-

18. PwC14
Commercial aerospace
Growth in business jets
elusive and slower than was
expected at the beginning of the
still more than 10 percent below
Companies are reporting that
business jet backlogs have been
cut approximately in half since the
in business jets is expected to align
with the overall Western economic
recovery, which continues to be
for aircraft remain challenged,
given the lack of demand, leaving
many owners, operators, and their
business jets should expect another
medium to long term, business jets
driven by economic growth and
adapting regulations in Asia and the
The business jet rebound remains
elusive and slower than was expected
at the beginning of the year.
Companies are reporting that business jet
backlogs have been cut approximately in half
since the start of the recession.

19. A&D 2012 year in review and 2013 forecast 15
-
nies reported revenue decreases of
about 4 percent, and an increase in
-
tics exclude the results of General
reported large impairment charges
3 of the top 12 companies reported
revenue increases, with Boeing up
3 percent, Lockheed Martin up 1
-
Martin, 10 percent; BAE Systems, 2
Northrop Grumman reported the best
double-digit operating margins
improvements in operating margin
were reported by BAE Systems, at 100
However, some investors are asking
whether the margin improvements
are sustainable or are a temporary
result of cost reduction preceding a
Sequestration went into effect on
-
-
that include reduction and furlough
Defense
Defense contractors brace for sequestration

20. PwC16
Defense
of civilian staff and cutbacks in base
remains about the impact of seques-
but the defense industry should
During 2012, European defense
ministries began responding to the
consequences of budgetary reduc-
programs and reducing platform
-
cant uncertainty in the supply
base as companies struggle to
manage both the impact of known
reductions and the risk of uncer-
to preserve capability at the same
or lower cost have burgeoned in
Germany, Sweden, Norway, the UK,
growing appetite for capability and
cost-sharing between nations—
initiatives that remain at the discus-
seeks to achieve this for the Alliance,
and bilateral arrangements such
encourage collaboration in a range
of activity, from military opera-
Backlog (US$ billions) 12/31/2012 12/31/2011
EADS Defense $64 $73
Lockheed Martin $82 $81
Finmeccanica $57 $64
BAE Systems $67 $58
Boeing Defense, Space & Security $71 $60
Thales $32 $33
Northrop Grumman $41 $40
General Dynamics (exc. Gulfstream) $36 $40
Raytheon $36 $35
L-3 $11 $10
Total $497 $494
Source: Company reports
-
lighted the importance of having the
capability to respond to unexpected
events—the “return to contin-
European capabilities able to be
the Libyan operation was relatively
and surveillance systems) that
European defense companies are
responding to declines in their
traditional markets and are simul-
taneously pursuing opportunities
in growth markets, including the
-
in those regions are strong competi-
Exports
has led to a record backlog of $327
in excess of 13,000 active cases
with more than 165 countries and
$327 billion, said Vice Admiral Bill
1
1 Bloomberg, Gopal Ratnam, “Pentagon
Has $327 Billion Export Backlog, Sees
Drone Demand,” June 10, 2011.

21. A&D 2012 year in review and 2013 forecast 17
Defense
US defense export authorizations
spiked at $264 billion in 2011, the
most recent year for which data
and a 394% increase compared with
was disclosed at $327 billion at
mid-year 2011, is now estimated at
growth in defense exports should
help soften the impact of US defense
this period has been in Asia, due
to concerns about China’s growing
military power and tensions between
North Korea and South Korea, and
in the Middle East, due to concerns
the United States is not the only
countries, Israel, South Korea, and
Russia are all gaining from increased
US foreign military sales (FMS) agreements and direct commercial sales authorizations2,3
USD Billions
0
50
100
150
200
250
300
2011201020092008200720062005200420032002200120001999
238
154
123
107
89
67
52
676253525547
11 11 12 12 13 13 18 18 29 30 24 26
9
Foreign military sales (FMS) agreements Direct commercial sales authorizations
On March 7, 2013, the White House
sent its export control reform
categories on the US Munitions List
(USML), with oversight responsi-
bility for some categories moving
from the State Department to the
reforms, which have been supported
by industry, are designed to simplify
and streamline the export process
and may lead to further increases in
2 US Department of Defense, “Fiscal Year Series,” http://www.dsca.mil/programs/biz-ops/factsbook/
Fiscal%20Year%20Series%20-%2030%20September%202011.pdf, Sept. 30, 2011.
3 US Department of State, “Section 655 Annual Military Assistance Reports,”
http://www.pmddtc.state.gov/reports/655_intro.html

22. PwC18
Defense
Defense forecast
Due to sequestration, the initial
effects of which will be felt during
2013, our expectation is that defense
revenue will decline by about 5
percent, based on our calculation
of the defense portion of seques-
tration for about seven to eight
may be mitigated, because as the
industry contracts, many of the
costs to reduce capacity and restruc-
ture or terminate programs will be
in margins in 2012, despite modest
our estimates, the industry will
before considering potential impair-
expectations are that some compa-
nies will be susceptible to impair-
ment charges, similar in nature,
although not necessarily magni-
tude, to those reported by General
Market contraction, coupled with
increasing certainty about the
nature and amount of defense
budget cuts and the impact on
-
been toward spin-offs and divesti-
-
tions have included the Huntington-
Ingals split from Northrop
scheduled to complete a spin-off
of spin-offs looks to be nearing its
end, to be followed by a period of
industry is already highly concen-
trated, resulting from consolidation
Market contraction, coupled with increasing certainty
about the nature and amount of defense budget cuts and

23. A&D 2012 year in review and 2013 forecast 19
Defense
Defense Department has opposed
any further consolidation among
major prime contractors, but that
position could soften, depending
whether the major prime contractors
consolidate further, expectations are
Contractors may also continue
to respond to market conditions
remains on affordability, and the
Defense Department now lists
affordability among its procurement
focused on improving productivity,
as the industry is beginning a period
time, there is a need to recapitalize
shift from new platforms to plat-
Electronics and C4ISR, including
unmanned aerial vehicles and
cybersecurity, will likely be among
Many companies are exploring
commercial applications for their
-
tors, and their investors, have
approached commercial markets
cautiously because of mixed experi-
ences, weighted toward the nega-
-
rience, though, is dated; defense
contractors have had ample opportu-
nities in their core markets for more
the industry’s largest commercial
markets have their roots in defense
and space technologies, such as
computers, computer networking,
forward, defense contractors are
expected to seek commercial appli-
cations for their technologies, even
if it means licensing or supplying
in North Korea’s and Iran’s nuclear
weapons programs, instability in
the Middle East, and other factors
could bring rapid changes in defense
During 2013, the European defense
markets will likely begin to stabi-
lize as defense ministries address
the budget cuts initiated two years
expected until 2015, and it may
be necessary to pare some defense
budgets, still further if the Euro-
zone’s austerity measures need
has announced plans to roll out a
program will provide clarity for
OEMs after some years of uncer-
-
will likely start to manifest itself in
rationalizing in-theater equipment
and logistic support and an increase
in logistic movement as military
the next few years will likely bring
an acceleration of equipment refur-
bishment, although the extent and
its effect on the industry has yet to
European nations will likely continue
various transformation programs
aimed at preserving capability at
lower cost and will import many of
the ideas and concepts pioneered
in the United Kingdom a few years
ago; expectations also are for an
increase in availability contracting
for land, sea, and air platforms, plus
an increasing appetite for industry-
led solutions in the provision of
training, infrastructure, and back-
industry will likely take on more
complex and broader roles, and
the United Kingdom’s Advanced
Materials strategy may prove to be a
exports will also likely continue and
global defense industry competes in
So while the traditional, platform,
and equipment-based defense
markets in Europe remain under
intense pressure, opportunities exist
for industry to more broadly deliver
service-based capabilities in many
the whole of the defense support
services market is projected to be
worth an estimated £16 billion per
year by 2020, or approximately 75
percent of total MoD spend with
industry; these trends will accelerate

24. PwC20
1 Strategy
While strategy is continually evolving,
-
sion making is expected to accelerate
due to a rapidly changing environ-
in US defense spending, companies
will likely make strategic decisions
regarding prioritization of markets
defense spending is expected to
• Lifetime affordability
•
• Upgrades and sustainability of
existing platforms
• Command, control, computers,
communication, intelligence,
surveillance and reconnaissance
(C4ISR)
•
Many strategic decisions have
been made in anticipation of these
changes; many actions have been
in the form of spin-offs and dives-
to shift toward industry consolida-
failed merger between EADS and
BAE Systems might be viewed as a
the governments involved will allow
mergers among any of the major
prime contractors may depend on
Regardless of whether major primes
Trends
Eight trends to watch in A&D for 2013
and beyond

25. A&D 2012 year in review and 2013 forecast 21
Trends
In addition, companies are expected
to have a greater focus on inter-
national markets, in order to help
compensate for the decline in US
However, companies will increas-
ingly focus on international strate-
gies, which may include a more
control reforms proposed by the
-
nies will likely focus on adjacent
many organizations are expected
to approach commercial markets
cautiously, they are expressing
greater interest in commercializa-
2 Innovation
Innovation is another area that
companies, innovation is the single
most important success factor, as
than 20 executives from leading
A&D companies, who collectively
ranked innovation as the highest
Innovation, therefore, is a major risk
to be addressed when examining
compliance risks, when a failure to
Perhaps innovation is not under-
stood as a risk because companies
-
cial and compliance risks, including
opportunity cost and the effective-
ness of research and development
reduced government funding for
research and development, defense
companies look to be making greater
investments in independent research
challenge for the defense and space
industry is to become more commer-
Commercial aerospace is enjoying
only is demand of the end markets
strong, but successful innovations
with dramatic improvements to
-
lenge lies in gaining the resources,
both human and economic, to keep
up with the accelerating pace of
innovation and product develop-
described it, “We have more oppor-
tunities with good business cases
Commercial aerospace and defense
companies should gain greater
productivity from research and devel-
opment activities as well as prioritize
partly on viewing innovation as a
about PwC’s perspective on achieving
innovation excellence, please visit
www.pwc.com/us/gainingaltitude.

26. PwC22
Trends
3 Talent management
Demographics
senior personnel and the need to
-
ment levels for 2011 remained low,
retirement eligibility—double-digit
in most job categories—is growing
by one to two percent annually and
small decreases, as well as possible
declines among the youngest
workers, more than 45 percent of
workers under 35 plan to switch
With defense spending cuts on the
way, expectations are for declines
faces a challenge similar to that
faced by companies during the post-
avoid losing the next generation of
A&D talent?4
A skilled work force
-
nology, engineering, and mathematics
the pool of scientists and design engi-
neers are particularly pronounced,
with demand expected to show
-
more, a majority of industry jobs are
in defense and security, where US
citizenship is required, further
According to the Aerospace Indus-
tries Association, only 44,000 of the
70,000 engineers that graduate each
year in the United States are quali-
suggesting the need for stronger
partnerships between universities
and A&D in order to identify the skills
companies also face competition from
organizations and other industries
is mirrored in other developed
playing an increasingly strategic role
programs and training initiatives,
designed to help retain key knowl-
edge and skills, are growing in
talent, and recruiting partnerships
are being developed to deliberately
management are knowledge capture
management programs are increas-
ingly critical in minimizing the effects
attention to the organizational design
elements that compromise project
execution and cross-functional collab-
oration, which may be particularly
4 Aviation Week, Carole Rickard Hedden,
“Aviation Week Workforce Study”,
Aug. 13, 2012.

27. A&D 2012 year in review and 2013 forecast 23
Trends
Engineering talent and
US citizenship
In Europe, for example, only about
10,000 graduates from technical
universities choose to work within
A&D, while the industry needs at
5
Global/US citizenship
US companies to focus increasingly
have historically attracted engi-
neering talent from countries such as
India and Russia, several forces have
slowed the promise of an interna-
for A&D has resulted in increased
competition from countries like China
the US government’s restrictions on
the number of H-1B visas, a special
-
-
ally, US talent is typically preferred
in organizations like the US Defense
Department, where security clear-
ance requirements rule out inter-
national talent, while laws such as
technical data and knowledge with
5 Aviation Week, Carole Rickard Hedden,
“Aviation Week Workforce Study”,
Aug. 13, 2012.
-
cant, making immigration reform
According to a 2007 study by the
Woodrow Wilson School of Public
and International Affairs at Princeton,
two countries in particular, India
and China, with their vast, educated,
low-wage workforces, attracted more
than 100,000 H-1B visa holders in
controls may serve to constrict this
management, please visit us online at
www.pwc.com/us/peopleandchange.
The growth of international markets
for A&D has resulted in increased
competition from countries like China
for skilled labor.

28. PwC24
Trends
4 Productivity and
affordability
affordability, including it as a
Accordingly, defense contractors
have strategized to reduce costs and
defense companies with companies
in the Dow Jones Industrial Average
(DJIA) on the basis of revenue
per employee, using data from
company earnings statements and
that revenue per employee is an
imperfect measure and that a better
measure would be value added per
employee, but since that data is not
available, we have used revenue per
employee as a reasonable surro-
that defense contracts are about
believe there are some valid reasons
why defense companies have lower
• Much
of defense revenue is under
cost-reimbursable, or cost-
• Development of leading technolo-
Defense contractors are
frequently developing cutting-
edge technologies, which are
inherently manually intensive
and involve some degree of trial
• Many
defense contracts are for single
units or quantities measured
in the dozens or hundreds,
compared with commercial
enterprises that typically measure
-
ally intensive manufacturing and
assembly and low absorption of
•
regulated, which can increase
compliance costs, including
compliance with federal acqui-
accounting standards (CAS), and
The industry is highly regulated,
which can increase compliance costs.

29. A&D 2012 year in review and 2013 forecast 25
Trends
Despite these inherent limitations,
the industry recognizes there is
room for improvement in produc-
taking action to reduce overhead
costs, including workforce reduc-
tions, early retirements, and facili-
We believe the following areas offer
• Program management/short-
ened development cycle
• Supply chain management
• Information technology
• Knowledge management
Improving the speed and effective-
ness of program development typi-
cally produces the biggest gains
are the biggest factor in budget
pride in their program manage-
ment abilities, the industry should
seek continuous improvement,
including unbiased, independent
-
more of the total value of production
is rooted in a technically complex,
-
ingly, any productivity improvement
initiative should address suppliers,
longer accept long lead times and
marginal supplier performance as
challenge itself to get much closer to
might consider adopting leading-edge
risk management practices to regain
visibility into the supply chain that
Information technology represents
one of the biggest areas for discre-
tionary spending at most companies,
companies have invested millions in
systems implementations but haven’t
yet realized the full capabilities and
productivity enhancements that these
-
tions are still spending most of their
time in legacy system maintenance
should unlock the full capabilities of
from costly maintenance toward
strategic initiatives and competitive
management will likely become
a factor due to demographics, has
been accelerated by early retirements
-
nies should identify the key people
and knowledge in their organiza-
tions and capture that information
Organizations should also create a
knowledge management culture that
promotes and rewards the effective

30. PwC26
Trends
5 Supply chain
In 2013, two major trends are
Commercial aircraft
production rate ramp-up
• Previously, we discussed the
commercial aircraft production
rate ramp-up of historic propor-
increase over the prior year,
long term, demand is projected
to be about 1,700 aircraft
annually, meaning that annual
production rates may continue to
production levels will likely
strain a supply chain that can
be considered to have the most
complex and longest lead time
Defense spending reductions
•
defense spending cuts will drive
Some of these suppliers may be
sole source or produce unique
supply chain could be left with
a shortage of critical parts and
long lead times to qualify new
Both commercial aerospace and
defense contractors should reeval-
uate supply chain strategy and
-
tive on the supply chain, please visit
www.pwc.com/us/gainingaltitude.
6 Globalization
Globalization is driving the boom
more aircraft deliveries, in units
and value, over the next 20 years
than North America and Europe
• Developing economies, particu-
larly in the BRIC countries
(Brazil, Russia, India, and China)
are growing faster than devel-
is becoming more knowledge
based, with businesses increas-
ingly relying on the global
deployment of human capital,
a requirement for operating a
strong demand for aviation,
as well as resiliency for the
hyper-cyclical industry, overre-
that dynamic has fundamen-
tally changed, as demonstrated
While aviation demand did take
an extreme downturn during the

31. A&D 2012 year in review and 2013 forecast 27
Trends
recession, demand rebounded
faster than the overall economy
and more quickly than in
previous economic cycles,
rapidly returning to pre-reces-
sion levels and demonstrating
that aviation demand has
become much less elastic than
• Consumer air travel once
was largely a privilege of the
air travel has declined, it has
become highly accessible to the
middle class and not readily
relinquished, even during a
will likely continue to be driven
by the growing middle class in
• Aviation is viewed as a strategic
industry in emerging market
promote aviation, airports, and
the associated infrastructure, own
direct or indirect stakes in many
national carriers, enabling them to
As a result, aviation is expected to
grow about 2 percentage points
faster than global GDP for the fore-
is creating tremendous growth and
opportunity for the industry, it is
also driving challenges that require
•
industry and lure of high tech-
nology in aerospace is attracting
such new competitors as Comac
of China, Irkut of Russia, and
regional jet makers are increasing
the size and range of their jets,
competing at the smaller end of
• Globalization of customers and
suppliers is driving numerous
industry once was principally
a domestic industry relying on
base and supply chain have
-
nies increasingly are operating
While globalization is creating tremendous
growth and opportunity for the industry,
it is also driving challenges that require
new strategies.
internationally in order to drive
intimacy with customers and
suppliers, improve responsive-
ness and service, satisfy offset
and industrial participation
requirements, and, in some
cases, take advantage of interna-
Globalization, not limited to
commercial aerospace companies,
authorizations (for future deliveries)
have increased more than four-fold
since 2005, from $61 billion to $264
billion in 2011, as seen in the chart
destined for the Middle East and
are expected to continue to focus on
international markets and develop
In a recent PwC study, aerospace
and defense companies cited the
following as the greatest obstacles
• Safeguarding intellectual
property
• Export control compliance
• Creating ethical cultures
•
• Managing offset and industrial
participation requirements
to address globalization opportuni-
ties and risks, please refer to A&D
Insights: Accelerating global growth.

32. PwC28
Trends
7 Cybersecurity
Given their role in developing
cutting-edge technologies with
military applications, A&D compa-
nies have long faced heightened
and interconnected information
every phase of the A&D industry,
companies face complex challenges
to the security and integrity of
their operations and reputation,
including ongoing efforts to steal
intellectual property and other
sensitive business data, as well
as attempts to sabotage opera-
tions and tarnish reputations by
Economic espionage.
A&D remains the industrial sector
most targeted by economic espio-
nage conducted by nation-states’
supporting unmanned aerial vehi-
cles (drones) may get particular
attention from economic spies
because of their highly publicized
use for intelligence gathering and
Intrusions into A&D companies’
-
atically stolen hundreds of terabytes
from at least 141 organizations…
been created by hackers linked to a
appear to have been designed to
networks, where they are typically
6
• It is likely that every company in
the A&D sector has been targeted
• Many US A&D companies have
Cyber Security/Information
Assurance Program, under
the aegis of the Department of
Defense (DoD) and Homeland
Security (DHS), is a forum
letting A&D companies volun-
tarily report cyberintrusions and
letting federal authorities share
• Cybertools are not the only
means of conducting economic
of disgruntled or corrupted
Chung, who worked on the
B-1 bomber, space shuttle, and
other A&D projects for nearly 30
years, was convicted in 2010 of
economic espionage on behalf of
in the A&D sector, with compa-
nies increasingly relying on joint
ventures, partnerships, and manu-
facturing and R&D facilities in
expanding markets—potentially
opening new points of access for
intruders—adds to the challenge of
6 Mandiant, “APT1: Exposing One of
China’s Cyber Espionage Units”,
www.mandiant.com, Feb. 19, 2013.

33. A&D 2012 year in review and 2013 forecast 29
Trends
Disruption and sabotage.
companies attractive to spies also
make them targets for cyberdisrup-
tion campaigns by terrorists, rogue
Hacktivists, who have already
companies, could conduct distrib-
uted denial of service campaigns
publicizing sensitive data about
Similarly, kinetic strikes using a
particular weapons system against a
rogue state or terrorist group could
lead to retaliatory cyberattacks
designed to disable or disrupt the
computer networks of the weapon’s
Unique and evolving
regulatory environment.
Because most of the largest A&D
military-related projects, many of
their processes for handling sensitive
information are subject to unusually
companies should be prepared for
regulatory changes, which are in the
a White House executive order (EO),
“Improving Critical Infrastructure’s
of a framework to reduce cyber-risk
to critical infrastructure, as well as
provisions letting federal agencies
share more threat information with
calls on the secretary of Homeland
Security to identify “critical infra-
-
cant military contracts—and to let
the owners of such organizations
of the details of the order will be
In addition, the Cyber Intelligence-
Sharing and Protection Act has
been reintroduced in the House
of Representatives, and this year’s
draft is expected to receive White
necessary for the complete imple-
One particular concern of many
companies is to obtain protection
from legal liability that could result
from voluntary information-sharing
including most major A&D compa-
nies, must soon develop insider threat
programs and enhance their capa-
bilities to detect and prevent these
threats, in accordance with Executive
and establishing a national policy and
minimum standards for insider threat
mitigation programs across federal
Looking ahead.
Over the next decade, the A&D
industry will likely remain a high-
priority target of threat actors due
to economic factors as well as mili-
-
ments is to be determined, but two
smartphones, tablets, and other
devices that can connect to the
Internet are becoming ubiquitous
and, with the move to a cloud
computing paradigm, will likely
drive opportunities for theft and
manipulation of companies’ sensi-
individual stakeholders can expect
ever greater access to companies’
personal devices and from locations
New threat factors are also likely to
• Governments seeking to jump-
could be tempted to sponsor
cyber-intrusions and other
efforts to pilfer the intellectual
property and know-how of
• Similarly, the nature of criminal
hacking may evolve, with social
networking tools potentially
facilitating a new black market
creating powerful incentives for
newcomers to attack corporate
-
rity, please visit PwC’s Information
security, privacy, and risk

34. PwC30
Trends
8 The regulatory
environment
is a key challenge facing the defense
Several reforms may help improve
the environment for defense
Acquisition reform
Attempts to improve the current
defense acquisition process have
that reforms have sought to place
ever-increasing regulations on the
how Congress funds long-term
programs on a short-term basis, and
the manner in which the customer
-
•
stability of requirements
• Establishing realistic budgets
and funding based on the
inherent risks of developing
advanced technologies
• -
vation in the bid and proposal
process
• Using contract structures
appropriate to risk
• Promoting international
cooperation and cost sharing
The Defense Contract
Audit Agency
Audit Agency (DCAA) is to protect
the government and taxpayers from
are some considerations that could
improve the effectiveness and
• Benchmark
the audit approach against
commercial practices, such as
those regulations established
under the American Institute
(AICPA) and Public Company
Accounting Oversight Board
• Establish mate-
widely accepted in commercial
practice that it is impractical and
cost-prohibitive to build a control
• Third-party reliance
standards allow for reliance on
DCAA could consider establishing
standards for third-party reliance
that promote such use where the
third party is objective and compe-
-
Export control reform
Many observers believe current export
control regulations are outdated and
drive a competitive disadvantage for
technologies that are broadly used
in commercial application are still
On March 7, 2013, the White House
sent its proposal for export reform to
be effective in promoting US exports
and preserving key skills in the indus-

35. A&D 2012 year in review and 2013 forecast 31
15 percent below the preceding
Based on our methodology,
the 2012 statistics include the
announcement that Hawker
Beechcraft would be purchased by
Superior Aviation Beijing; however,
the deal subsequently was aban-
Overall, commercial aerospace
the defense sector did not generate
even one mega deal (above $1
billion) in 2012, while 2011 brought
four mega deals in defense, totaling
In 2012, the defense sector faced
potential US sequestration and
uncertainty in defense spending,
there is more certainty—or at
least less uncertainty—regarding
the future of defense budgets and
the defense industry will be able
to value companies and better
this period begins, defense M&A
is expected to become much more
dynamic and could lead to some
Defense M&A is facing a “perfect
balance sheets and cash positions,
and, most importantly, the neces-
sity to consolidate in response to
Mergers and acquisitions

36. PwC32
Mergers and acquisitions
the attempted merger between
EADS and BAE Systems in 2012
as a harbinger of further defense
defense prime contractors will
continue to be challenging, due
to concerns by government stake-
holders, some transformative M&A
transactions are expected in defense
once the cloud of uncertainty is
Looking ahead, four trends are
likely to affect M&A activity in the
• Increasing consolidation in
response to a contracting defense
market and cost pressures
While mergers among global defense prime
contractors will continue to be challenging…
some transformative M&A transactions
are expected in defense once the cloud of
uncertainty is lifted in the United States.
•
chains by big manufacturers, in
both civil and military segments,
as they seek to gain better
control of their large program
pipelines
• Continuing growth in the secu-
rity, surveillance, and homeland
security sector
• Greater investment in and
competition from fast-growing
markets, most notably China
We believe these trends will
provide the context for growth in

37. A&D 2012 year in review and 2013 forecast 33
companies is a barometer for the health
disciplined management over the past
Aviation has become a critical part of
cannot operate effectively without
Aviation is increasingly inelastic, and
it demonstrated its resiliency during
dwarfed by sea and land freight, an
increasingly larger portion of the global
the impact of sequestration in the United
is still not clear how defense budget cuts
dynamic and could rapidly change
must respond to the affordability chal-
for commercial aerospace is optimistic,
faster than the overall economy because
of its critical role in the global economic
infrastructure, bolstered by economic
growth in Asia, the Middle East,
Defense faces challenges, including an
extended period of budget battles and
another strong year for the industry, and
possibly another record year, as avia-
tion growth continues to offset a weaker
In summary

38. PwC34
In summary
Revenue
(US$ millions)
Operating Profit
(US$ millions)
# Company 2012 2011 Change 2012 2011 Change
1 Boeing 81,698 68,735 19% 6,311 5,844 8%
2 EADS 72,587 68,328 6% 2,809 2,359 19%
3 Lockheed Martin 47,182 46,499 1% 4,434 4,020 10%
4 General Dynamics 31,513 32,677 -4% 833 3,826 -78%
5 United Technologies 29,089 24,826 17% 3,245 3,466 -6%
6 BAE Systems 28,263 30,745 -8% 2,599 2,536 2%
7 Northrop Grumman 25,218 26,412 -5% 3,130 3,276 -4%
8 Raytheon 24,414 24,791 -2% 2,989 2,830 6%
9 Finmeccanica 22,128 24,086 -8% (587) (3,318) 82%
10 GE Aviation 19,994 18,859 6% 3,747 3,512 7%
11 Rolls Royce 19,273 17,856 8% 2,176 1,904 14%
12 Thales 18,196 18,120 0% 1,191 1,010 18%
13 Safran 17,427 16,214 7% 1,826 1,613 13%
14 L-3 Communications 13,146 13,158 0% 1,351 1,442 -6%
15 Honeywell Aerospace 12,040 11,475 5% 2,279 2,023 13%
16 SAIC 10,587 10,921 -3% 311 947 -67%
17 Textron 9,122 8,387 9% 853 722 18%
18 Bombardier Aerospace 8,628 8,594 0% 382 502 -24%
19 Precision Castparts Corp. 7,215 6,220 16% 1,817 1,503 21%
20 Huntington Ingals 6,708 6,575 2% 358 100 258%
21 Mitsubishi Aerospace 6,216 5,923 5% (137) (43) -220%
22 Embraer 6,178 5,803 6% 612 318 92%
23 CSC North American Public Sector 5,703 6,002 -5% 132 528 -75%
24 Exelis 5,522 5,839 -5% 561 535 5%
25 Harris Corp 5,451 5,418 1% 559 600 -7%
26 Spirit AeroSystems 5,398 4,864 11% 92 356 -74%
27 Serco UK & Europe and Americas 5,252 5,559 -6% 396 380 4%
28 Singapore Technologies 5,108 4,755 7% 527 483 9%
29 Dassault Aviation 5,065 4,597 10% 703 524 34%
30 Babcock International Group 4,865 4,339 12% 521 442 18%
31 Rockwell Collins 4,726 4,806 -2% 859 846 2%
32 Alliant Techsystems 4,618 4,842 -5% 496 526 -6%
33 Zodiac 4,422 3,804 16% 610 512 19%
34 MTU Aero Engines 4,343 4,078 6% 481 456 5%
35 Delta Tucker Holdings / DynCorp International 4,044 3,719 9% 96 12 700%
36 Oshkosh Defense 3,951 4,365 -9% 237 543 -56%
37 CACI 3,774 3,578 5% 300 251 20%
38 IHI Aero Engines and Space Operations 3,752 3,438 9% 75 73 3%
39 Saab 3,547 3,615 -2% 300 452 -34%
40 Triumph Group 3,408 2,905 17% 515 314 64%
41 Israeli Aerospace Industries 3,300 3,436 -4% 78 133 -41%
42 Hindustan Aeronautics Limited (HAL) 3,126 3,279 -5% 622 604 3%
43 BE Aerospace 3,085 2,500 23% 540 428 26%
44 Rheinmetall Defence 3,001 2,978 1% 224 310 -28%
45 Elbit Systems 2,889 2,817 3% 203 116 75%
46 GKN Aerospace 2,813 2,377 18% 269 266 1%
47 Cobham 2,772 2,977 -7% 374 420 -11%
48 Kawasaki Aerospace 2,588 2,472 5% 98 38 160%
49 ManTech International 2,582 2,870 -10% 171 227 -25%
50 Meggitt 2,545 2,335 9% 625 578 8%

39. A&D 2012 year in review and 2013 forecast 35
In summary
Revenue
(US$ millions)
Operating Profit
(US$ millions)
# Company 2012 2011 Change 2012 2011 Change
51 AVIC Aircraft Company 2,474 1,361 82% 34 19 79%
52 MOOG 2,470 2,331 6% 243 219 11%
53 QinetiQ 2,329 2,731 -15% 256 233 10%
54
Allegheny Technologies High Performance
Metals
2,191 1,956 12% 372 365 2%
55 BBA Aviation 2,179 2,137 2% 163 181 -10%
56 Teledyne Technologies 2,173 1,942 12% 243 227 7%
57 Parker Hannifin Aerospace 2,103 1,922 9% 290 247 17%
58 Curtiss-Wright 2,098 2,017 4% 161 187 -14%
59 AAR 2,064 1,805 14% 131 134 -2%
60 Trimble 2,040 1,644 24% 213 156 37%
61 Esterline Technologies 1,992 1,718 16% 189 198 -5%
62 RUAG 1,856 1,932 -4% 122 124 -2%
63 CAE 1,822 1,649 10% 302 286 6%
64 Eaton Aerospace 1,719 1,648 4% 213 244 -13%
65 TransDigm Group 1,700 1,206 41% 700 487 44%
66 Engility 1,655 2,071 -20% (329) 92 -458%
67 Hexcel 1,578 1,392 13% 249 192 30%
68 ThyssenKrupp Marine Systems 1,526 2,076 -27% (18) 296 -106%
69 Orbital Sciences 1,437 1,346 7% 113 80 41%
70 FLIR Systems 1,405 1,544 -9% 303 313 -3%
71 Cubic Corporation 1,381 1,296 7% 128 114 12%
72 Korea Aerospace Industries 1,367 1,163 18% 112 96 17%
73 Kongsberg Gruppen Defense and Protech 1,294 1,443 -10% 172 178 -3%
74 Ultra Electronics 1,206 1,174 3% 141 159 -12%
75 Chemring Group 1,173 1,162 1% 59 162 -64%
76 Bharat Electronics 1,066 1,164 -8% 201 247 -19%
77 Cytec Engineered Materials & Umeco 1,054 789 34% 166 125 33%
78 Fuji Aerospace 1,006 1,039 -3% 36 27 34%
79 GenCorp 995 918 8% 35 39 -10%
80 Kratos Defense & Security Solutions 969 714 36% (50) 30 -267%
81 SIA Engineering 937 879 7% 104 108 -4%
82 Aselsan 907 899 1% 113 140 -20%
83 Heico Corporation 897 765 17% 163 138 18%
84 Woodward Governor Aerospace 896 843 6% 130 130 0%
85 MacDonald Dettwiler & Associates 880 761 16% 127 117 9%
86 Ball Aerospace 877 785 12% 85 80 6%
87 ViaSat 864 802 8% 2 39 -95%
88 Latecoere 827 801 3% 34 62 -45%
89 Smiths Detection 823 819 0% 109 105 4%
90 Alion Science and Technology 817 787 4% 40 35 14%
91 OHB Technology 813 773 5% 40 38 6%
92 Nabtesco Aircraft and Hydraulic Equipment 805 742 9% 77 70 9%
93 Wesco Aircraft Holdings 776 711 9% 159 162 -2%
94 Ducommun 747 581 29% 55 (34) 262%
95 Senior Aerospace 746 614 21% 108 88 23%
96 Magellan Aerospace Corp 705 699 1% 61 60 2%
97 Crane Aerospace & Electronics 701 678 3% 156 146 7%
98 Aeroflex 673 729 -8% (21) 53 -140%
99 Sumitomo Precision Products 655 706 -7% 53 63 -17%
100 Jamco Corp 624 539 16% 13 25 -45%
Total 694,763 665,969 4% 59,752 58,427 2%

40. © 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the
PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only,
and should not be used as a substitute for consultation with professional advisors. NY-13-0466
www.pwc.com
For more information contact:
Scott Thompson
US Aerospace & Defense Leader
Charles Marx
US Aerospace and Defense Advisory Leader
James Grow