Flying High: Commercial Aerospace

Aerospace giant Boeing’s Q1 results saw its order backlog rise to a record $380bn, including $42bn of new orders. To put that in context, total sales in FY11 were $68.7bn. Profit margins are also growing, powered by the first deliveries of GEnx-powered 787’s and the 747-8 intercontinental VIP. Interestingly, $308bn of the orderbook, representing more than 4,000 planes, is on the civil side of the business.

Similarly, Airbus’ Commercial orderbook rose to 4,396 units (+28%) by the end of Q1, with revenues up 12% on the same quarter last year (although this includes FX movement).

Commercial aerospace is increasingly seen as a safe-haven industry and a spate of new platforms and developments in engines and composites is spurring a wave of M&A driven consolidation in the supply chain.

An obvious example is UTC’s $18.4bn acquisition of Goodrich, a deal which adds a leadership position in landing gear and brakes to UTC’s existing Pratt & Witney engines business. Similarly, Precision Castparts’ acquisition of Centra Industries, with its key position on the A380 and several Boeing platforms, further consolidates the civil aerostructures market.

In the UK, Senior concluded the £54m acquisition of Weston, and the smaller acquisition of Damar, in 2011 giving it further precision machining capability for Airbus and Boeing’s key programmes respectively.

With the further strengthening of orderbooks in Q1 and an increasingly strong return on capital, we expect the sustained strength of civil aerospace to drive further consolidation.

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