Aerospace and defense market growth from global tensions

Rising tensions of global attacks and threats against the nation have caused growth as well as mergers for many aerospace and defense companies. The Trump administration has also made it known that the increase for defense is needed. Events such as these, benefit contractor companies that supply the military as well consumers with high tech weaponry, defense systems, and means of transportation.

According to PWC.com, the top 100 aerospace and defense companies accounted for $709 billion in revenue, resulting in $69 billion in profits for 2016, nearly a 3 percent revenue growth rate year over year, and an increase from $689 billion in revenue and $64 billion in profits compared with 2015.

Stocks in the Zacks Aerospace sector alone rallied 29.1 percent in the last year, outperforming the S&P 500 index's 13.6 percent gain, according to Nasdaq.

Revenue for the two sectors combined industry is still down from the 2014 records, but the two industries combined is still expected to grow substantially in 2017. According to Deloitte, it is expected for the market revenue to grow roughly 2 percent in 2017.

Although the aerospace market had a huge rally, Deloitte says that aerospace market is expected to grow very minimally, even though there has been an increase of nearly 100 aircraft carriers.

The defense sector is expected to grow at a faster rate of 3.2 percent in 2017. Defense spending was down from a few years ago, but through the Trump administration and global tensions, it is expected to rise from 2016’s expenses.

In March, President Trump revealed the Pentagon’s fiscal year 2018 budget. The budget showed an increase of $54 billion from the 2017 budget. The budget was totaled at $639 billion, with a base budget of $574 billion. Congress has since passed another bill to increase the budget even more to nearly $700 billion.

Companies such as Arconic Inc. (NYSE:ARNC), Boeing Co. (NYSE:BA), Raytheon Co. (NYSE:RTN), Honeywell International Inc. (NYSE:HON), Oshkosh Corp. (NYSE:OSK), Spirit Aerosystems Holdings Inc. (NYSE:SPR), Triumph Group Inc. (NYSE:TGI), AeroVironment Inc. (NASDAQ:AVAV), Huntington Ingalls Industries Inc. (NYSE:HII) dominate the aerospace and defense sector and supply government agencies with the appropriate tools.

Among these companies include mergers from giants within the sector. Some of the notable mergers come from competition to develop technologically advanced systems and aircraft carriers. Companies like Orbital ATK (NYSE:OA), that formed as a merger between Orbital Sciences and Alliant Techsystems. Now, Orbital ATK has announced its acquisition by Northrop Grumman (NYSE:NOC) to develop superior technology and enhance current products in the recent events of North Korea. Other notable mergers include companies such as United Technologies (NYSE:UTX) acquisition of Rockwell Collins (NYSE:COL) earlier in September.

Most of the companies in the sector reported strong growth for the 2016 fiscal year and expect to grow even more in the 2017 fiscal year.

These companies have shown significant growth in their respective fiscal years. Companies like Rockwell Collins have increased almost 30 percent year to date, Orbital ATK jumping 33 percent year to date, Boeing showing a 37 percent growth year to date, AeroVironment with an increase of 44 percent year to date.

In 2016, key spendings increase from when national security threats are being heightened with governments equipping their armed forces with modern defense weapons platforms and next-generation technologies, including cyber, intelligence gathering, defense electronics, and precision strike capabilities, according to Deloitte.

In 2016, aerospace growth was very minimal, but is expected to grow even more due to high traveler demand. Defense contractors also affect the growth rate of the aerospace market as aerospace manufacturers require mechanical parts.

Tensions are high currently as threats from North Korea and other terrorists organizations cause the U.S. to spend more in defense, along with other countries such as United Arab Emirates, Saudi Arabia, South Korea, Japan, and China.

In a survey conducted by McKinsey, it had asked executives of top aerospace/defense companies, and all but one said their companies are expected to show growth over the next one to three years.

The U.S. is the largest supplier of advanced weaponry and defense systems and it’ll be no surprise that the aerospace and defense markets will grow heavily. Many countries globally will close contracts with aerospace and defense companies to increase their defense against these threats. Countries will have to think long term for their respective countries to optimally prevent threats.

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