Arms companies resistant to effects of global downturn

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The Independent Online

The world's aerospace and defence industry was all but immune from the credit crunch with its revenues actually rising in 2009, a report to be published today will reveal.

A study of the financial performance of the 91 global companies with revenues exceeding $500m (£345m), revealed that global A&D revenues in 2009 rose by 1.3 per cent to $635bn. However, operating earnings decreased 15.3 per cent to $47.9bn while operating margins also fell, by 16.4 per cent, to 7.5 per cent.

Pauline Biddle, the UK head of aerospace and defence at Deloitte, the business advisory firm that conducted the study, said companies were protected by long-term contracts. She added that continuing global instability had helped keep revenues pouring in. "The growing need for global defence, security and humanitarian aid have helped the industry through recent economic challenges."

However, Ms Biddle warned that the need to cut budgets in much of the Western world could act to constrain the sector's performance in the future as defence spending starts to feel the effect of the economic squeeze. That will leave the industry looking to the Middle and Far East for any future growth. "As the sector looks to increase revenues and profitability, it is still faced with significant obstacles such as shrinking defence budgets, exchange-rate volatility and financing constraints. Future growth in the A&D industry will vary by global region, with the most significant growth expected to come from the East, with India and the Middle East identified as the key markets," she said.

The study found that US A&D companies were more profitable and grew faster than their European rivals. European companies have faced challenges in rationalising their property, plant and equipment by closing facilities and integrating acquisitions efficiently while labour laws have prevented job cuts.