Many Happy Returns
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COVER STORY Special report AEROSPACE COMPANIES Lin Ning/RBI Many happy returns For the aerospace industry’s largest companies, 2017 was another year of significant earnings growth – despite modest revenue increases – according to our annual survey MURDO MORRISON LONDON tinuing to ratchet up the profits, despite only Top 100 improve their operating profits by modest revenue growth in the most recent 17% over the 2015 reporting year on near- here used to be a saying in aviation financial year. static revenues, but continues what appears that becoming a millionaire was Research carried out exclusively for Flight- to be a trend of healthy profitability. easy; you simply started with a bil- Global for our annual Top 100 ranking shows Rising commercial aircraft production rates lion. If that maxim is less true in to- that operating profits for the 2017 reporting and a defence market showing signs of life Tday’s somewhat more financially disciplined year increased by an average of 14.1% com- after a near decade of stagnation will have airline world, it certainly does not apply to pared with the previous 12 months, against helped boost profitability. However, the im- those responsible for building aircraft. The an uptick in turnover of just 3%. That was a pressive performance across the industry is in biggest 100 businesses in aerospace are con- slight drop on the 2017 survey, which saw the the face of intense pressure from Airbus, Boe- 28 | Flight International | 4-10 September 2018 flightglobal.com TOP 100 Special report ing and other aircraft manufacturers to cut Top 20 share of Top 100 profits Top 20 share of Top 100 sales their costs by squeezing their suppliers. This may be partly why, after a dismal 2016 financial year, the big two airframers in par- ticular have seen spectacular bounces in their profits, with Boeing 76% ahead of the previous 82.2% 75.9% year, and Airbus recording an improvement of 51% – performances that have no doubt helped drive up the industry average. What is more impressive is that both companies had a 17.8% 24.1% modest reduction in revenues. STRENGTHENED As a result, operating margins at Airbus and Boeing have strengthened over the 2016 fig- Top 20 The rest Top 20 The rest ures, with the US manufacturer notching up a solid 11% return in its 2017 results – com- pared with 5.2% last time. Its European rival, cern. The latter includes corporations such as airframes, engines and cabin systems; Nordam, meanwhile, recorded a margin of 5.1%, a hike General Electric and Honeywell. a private US company, produces aircraft na- on the 3.4% in the 2016 financial year. Where the company concerned has a clear- celles, transparencies and business jet interiors; The biggest 20 companies have also im- ly defined aerospace unit – the likes of GE and Precision Castparts is owned by private in- proved on their share of overall profits, indi- Aviation – we have only taken that entity into vestment vehicle Berkshire Hathaway. In each cating that, in aerospace at least, bigger does account. Otherwise, using the companies’ case, we have used our own industry knowl- mean better. Last time, the largest fifth ac- own financial reports and other material, we edge to make an estimate. counted for 78% of profits, and 76.2% of have attempted to estimate what proportion We define aerospace as the manufacturing sales. This time, the top 20 were responsible of its revenues each firm derives from aero- of aircraft or aircraft structures, components, for 82.2% of profits, even though their share space. Sometimes these sales span several di- systems or other technologies. We do not in- of revenues – 75.9% – barely changed from visions of the company. Occasionally too, clude service providers such as those in the last survey. these predominantly aerospace divisions may maintenance, repair and overhaul. However, Our Top 100 – again compiled for us by in- contain revenues from non-aerospace activi- aerospace manufacturers’ own aftermarket dependent consultancy Counterpoint Market ties, such as naval or communications. In revenues are included, as are MRO compa- Intelligence – ranks companies that derive all these instances, it is difficult to separate the nies that carry out highly specialised con- or the vast majority of their business from non-aerospace contribution. tracts, deploying their own, engineered prod- commercial and military aerospace, such as In three cases in the Top 100, there is little fi- ucts, such as the UK’s Marshall Aerospace. Airbus and Boeing as well as specialist manu- nancial information in the public domain about As is often the case, and as a result of the facturers such as Heroux-Devtek, alongside the companies’ aerospace activities. Hutchin- long-term nature of aircraft programmes and those who have significant aerospace inter- son is a subsidiary of French oil company Total contracts as well as high entry barriers, the Top ests as part of a much larger industrial con- and is a significant supplier of equipment across 100 has a familiar feel with many positions relatively unchanged and only a small number of new entrants, mostly in the bottom reaches of the ranking. Likewise, only a few companies have departed because of merger and acquisi- tion activity or financial performance. The top end of the ranking is little altered, with the first nine companies remaining in place. Further down, Rolls-Royce, Textron, General Dynamics, Precision Castparts, Spirit AeroSystems and Rockwell Collins have nudged up, at the expense of Leonardo, L3 Technologies, Bombardier, United Aircraft and Embraer, which have slipped slightly. NEW ENTRANTS There are five new entrants in this year’s Top 100: AIDC (ranked 70), Astronics (84), Kaiser Aluminium (85), Lord (98) and Russian Heli- copters (32). Lord has moved up from a posi- tion just outside the Top 100 last year. The others are in the ranking because they have either grown significantly in recent years, or we have altered our criteria for inclusion. On that basis, we have downgraded our es- Airbus timate for Mitsubishi (22), after the Japanese Airbus recorded an increase in profits of 51% year on year, with operating margins at 5.1% company changed the way it reports its num- ❯❯ flightglobal.com 4-10 September 2018 | Flight International | 29 TOP 100 Special report Lockheed Martin Significant uplift in F-35 production and deliveries was major contributor to strong 2017 that saw revenue increase for Lockheed Martin ❯❯ bers. This year, we have included figures Other mergers and acquisitions were either ment it remains ranked 28th in the latest Top for its new Aerospace, Defence & Space divi- too late for inclusion in this survey, or are still 100, with sales of $4.76 billion. sion. Last time, the corporation’s trains and in train. Rockwell Collins’ own absorption Spirit AeroSystems’ takeover of ASCO, an- ground transportation business was bundled into United Technologies was awaiting final nounced earlier this year, is less significant. with its commercial aviation activities, and regulatory approval at time of going to press. The Belgian aerostructures firm is placed 93 there was no easy way of stripping it out. We The coming together will create a $37 billion in the Top 100 and its $412 million revenues have also changed our numbers for AVIC (30), aerospace business within the US industrial in 2017 will have a modest impact on the using AVIC Aircraft rather than AVIC Interna- group with the combination of engine maker standing of the former Boeing business, tional as we believe this gives a better repre- Pratt & Whitney and the new Collins Aero- which is ranked 18th with a turnover just sentation of its aerospace sales. space Systems (which will comprise Rock- short of $7 billion. However, at that part of the Five companies have exited the ranking. well Collins together with United Technolo- table, differences in revenues of less than $1 Spain’s Indra has had a similar adjustment to gies Aerospace Systems). billion separate many of the companies. Mitsubishi, falling just outside the Top 100 The size of the billion-dollar club – Top 100 because we have revised our estimates for its COMBINED REVENUES companies with revenues exceeding that figure aerospace sales. Ejection seat specialist Mar- Meanwhile, Safran’s long-running acquisition – stays the same. Last year, 64th placed RUAG tin-Baker – 99 last year – has also slipped out of fellow French manufacturer Zodiac was was the lowest-placed business to hit the bil- based on its latest annual turnover. completed earlier this year, but Zodiac’s latest lion-dollar mark. This time, the same number of Three companies have disappeared be- financial figures are, for the last time in the companies surpass a $1 billion turnover, with cause they were acquired by other businesses 2018 survey, reported separately, with the in- Cytec Solvay the last to make the cut. in the Top 100 just before the 2017 financial teriors specialist ranked 24th. The combined For the purposes of the survey, we measure year. US interiors specialist B/E Aerospace revenues, creating a business with sales nudg- companies’ year-on-year performance based became part of Rockwell Collins, Rolls-Royce ing $24 billion, could see the enlarged Safran on the currency in which they report. This swallowed up ITP, and LMI Aerospace was – ranked number eight – nudge closer to sev- mitigates the distorting effect of fluctuating ex- taken over by Belgium’s Sonaca. enth placed Raytheon in next year’s listing. change rates against the dollar, and creates, we Similarly, Northrop Grumman’s acquisi- feel, a more accurate reflection of each busi- Three companies have tion of space and defence specialist Orbital ness’s activity in the financial year.