JEDDAH: Suppliers operating in the global aerospace and defense sector are set to experience significant consolidation as the industry attempts to benefit from increased cost efficiencies, according to a new report produced by Deloitte's Global Manufacturing Industry Group entitled "2011 mid-year outlook for the global aerospace and defense sector." Passenger and freight traffic is expected to grow faster than global GDP for the next 20 years, with maturing economies of China, India, and the Middle East expected to take a higher percentage of commercial aircraft sales and deliveries. In addition, the introduction of single-aisle aircraft manufacturers, as well as next generation twin-aisle commercial aircraft products, suppliers worldwide is expected to increase production. Pauline Biddle, Aerospace & Defense partner at Deloitte, said: "Despite increased cost-cutting pressures, we have seen a significant amount of consolidation in the global aerospace and defense industry, as the industry attempts to gain concentration, scale economies, and cost efficiencies, resulting in better value to the end customer. Stringent antitrust laws and potential EU and US restrictions may prevent further mega-deals from happening. However, hundreds of companies involved as suppliers to the top companies could gain scale and cost efficiencies by merging." Morover, "this group of smaller companies has seen a significant uptick in M&A activity in the last year, and we expect continued consolidation among tier one, two, and three suppliers in 2011 and beyond." The industry enjoys high-cash levels and investors seek greater returns on these balances. Supplier consolidation should lead to cost efficiencies, resulting in lower pricing to customers. Also, consolidation will likely continue the trend toward innovative process technologies that reduce the labor content in products – resulting in more competitively priced products. "Given the significance of overseas revenues, UK companies should be looking to leverage many of the global opportunities highlighted in the report, while also at the same time being aware of, and managing the impact of the challenges that lie ahead in many of the western markets." Global governments face increasing pressure to reduce defense budgets, however, according to Tom Captain, Deloitte Global Aerospace & Defense sector leader, there is a bright side for the global defense segment, with some markets showing promise. "Emerging defense markets notably in India, Saudi Arabia, Brazil and the United Arab Emirates (UAE), are markets that present significant opportunities, with announced acquisition deals or ongoing procurement selection processes," he noted. India in particular represents a near-term opportunity for global defense contractors. "With increasing security requirements for more sophisticated weapons systems, overseas players could leverage programs within the Indian aerospace, defense, and security industries to gain a cost advantage. Also, the indigenous industry is set to grow and will look at building capabilities," Captain added. In another development, hundreds of airplane enthusiasts have hoisted binoculars to the skies to watch the Boeing 787 Dreamliner make its first landing at Warsaw's Frederic Chopin airport. The airplane arrived directly from its showcase at the Paris Air Show. Warsaw is the first commercial airport in Europe to host it. Poland's LOT was Europe's first airline to purchase the Dreamliner, with the first of eight on order to arrive mid-April. The 787 is the first mid-size plane capable of flying long-range routes, which will allow airlines to open new, non-stop flights. Boeing literature says the 787 is fuel- and cost-efficient thanks to the use of advanced aerodynamics, modern engines, composite materials and highly electric systems. Japan's All Nippon Airways will be the first to put the airline to commercial use – this summer.
