Aerospace & Defense

Concerns about less air travel, flatter defense spending and technological challenges of the new generation of super, wide-bodied jets will have a direct impact on M&A deals in 2009. Companies and investors will be reluctant to make acquisitions until economic clarity is restored.

The expectations for 2009 are a result of poor M&A activity in 2008 when the aerospace industry closed on 167 deals, down from 214 a year earlier. The deal value in 2008 ($14.3 billion) was less than half of the 2007 figure of $32.9 billion, according to a report from PricewaterhouseCoopers.

The number of private-equity deals in 2008 dropped by about 50 percent compared to 2007. The total value of private equity deals plummeted from $16 billion in 2007 to $2.4 billion in 2008.

Less demand for air travel and high fuel costs have created problems for airlines and airplane manufacturers such as Boeing and Airbus – both of which are considering production cuts for this year and 2010.

In addition, airlines are reducing the number of flights. For example, Singapore Airlines announced it would cut capacity by 11 percent while decommissioning 17 of its 102 passenger jets. Singapore Airlines is the world’s largest carrier by market value.

Meanwhile, global defense spending is at the mercy of politicians in Washington, D.C. and Europe, where France and England are considering changes in their defense strategies. In the U.S., defense contractors are waiting on the new president and Congress to decide on the level of spending that will be authorized.

Continued fighting in Afghanistan will support demand for spares, overhauls and retrofits while withdrawal from Iraq will ease pressure on the U.S. defense budget.

The outlook for the defense industry appears solid for 2009, but there will likely be a shift in focus across different programs in the U.S. and Europe.

Sources
PricewaterhouseCoopers Aerospace and Defense Deals 2008 Annual Review
Acquisition Advisors