Tighter military budgets in the United States and Europe are hitting the world's top arms makers hard and the prospects for the industry are even grimmer.
Only the most diverse companies are prospering, buoyed up by their major airline divisions. Everyone else is watching their revenues and margins flatline or dive.
Those are the conclusions of a survey of the top 20 global aerospace and defence companies (A&D) published this month by the international accountancy firm Deloitte.
Based on mid-year financial results, Deloitte figures show the top weapons makers have "experienced a decline in their global revenues of US$1.3 billion [Dh4.77bn], or a 1 per cent decrease, after a 3.3 per cent decline in 2011".
The top 20 companies, including Boeing, BAE and Lockheed Martin, represent about 71 per cent of total global industry revenue. Overall, the industry posted increased operating earnings of 8.8 per cent to $20bn in the first half this year.
"But [that was] largely due to the beneficial impact of higher deliveries of commercial aircraft, company cost cutting and efficiency initiatives in advance of expected continued declines in defence budgets," the Deloitte report notes.
It added that when taken separately, the defence divisions of the US giants showed flat growth in revenues and margins. And the European defence firms' performance was even worse, with revenue declining 4.5 per cent.
In July, Boeing's first-half results delivered a 3 per cent profit increase that handily beat forecasts from Wall Street analysts, who worried that sales in Boeing's defence division would post a loss. At the time, Boeing said it was reining in costs to prevent any revenue loss in the division that produced Chinook helicopters and F-18 fighter jets.
But the impact of the defence cuts could be seen in the revenue performance of the company's two main divisions, which are about the same size. Defence revenue rose by only 7 per cent, while revenue in the commercial aircraft division jumped 34 per cent.
"Boeing's defence unit is vulnerable to potentially severe military spending cuts in January," say analysts at FactSet Research Systems.
In its outlook to its first-half figures, published in August, BAE Systems said more declines loomed. "The risk of further reductions in US defence budgets remains, including sequestration if it comes into force in January 2013."
BAE's defence revenue had decreased 9.7 per cent due to lower volumes in the land and armaments business primarily reflecting the completed family of medium tactical vehicles programme.
"In the near term, the land and armaments business faces a challenging market environment," the Deloitte report warns. "The business continues to focus on capturing key new domestic programmes and export opportunities, while improving its competitive position through ongoing rationalisation and efficiency programmes."
The slowdown is already hitting share prices, according to Deloitte.
"Due to continued instability in defence spending forecasts for major global economies, share price performance was mostly down, with aggregate market capitalisation decreasing 0.6 per cent in the first six months of 2012," the report says.
"While companies associated with the boom in commercial aircraft production saw stock valuations rise in the first half of 2012, share prices of other companies fell - principally due to lower revenues and the expectations for cuts to various defence programmes.
"Only eight of the top 20 firms posted a gain during the first half of the year. This follows a decline in defence industry shares in 2011, where aggregate market capitalisation fell 6.3 per cent."
Hanging over the global industry is the future US defence budget. More than $50bn will definitely go from next year's budget and last year's US Budget Control Act would trigger in January about $487bn in additional cuts over the next 10 years should congress fail to find reductions elsewhere.
Already, leaders in the US defence industry are ringing alarm bells.
"In the absence of resources to modernise and refurbish fleets, the nation will witness a long-term decline in defence capability," says Lawrence Farrell, the president and chief executive of the National Defence Industrial Association.
"We need to recognise and account for the ageing of some of our major platforms."
The Deloitte report suggests that as US and European military budgets decline over the next several years, "there will be revenue growth pressure on major defence contractors as competition" over major programmes intensifies.
"Companies with heavier exposure to the defence sector will compete for a smaller share of total market and thus be challenged to fill the revenue gap," it says.
To try to beat the slowdown, five of the world's biggest arms and aerospace contractors are joining forces to enter the clean energy, environment and climate-change markets.
Finmeccanica, Lockheed Martin, Northrop Grumman, Raytheon and Saab have agreed to cooperate on "challenges that have proven too complex to be addressed by any individual government, sector, business or agency on an international level", they said in a joint statement.
In advance of next month's E3DS defence markets conference in London, they announced plans to muscle in on sectors from clean energy, environment, climate, transport and logistics, as well as the humanitarian and disaster-relief sectors.
"Our experience in providing innovative mission solutions uniquely positions us to support government and other industry sectors as they endeavour to tackle these complex challenges," the companies said.
The Deloitte report also offers a ray of hope for arms makers.
"Defence budgets in Asia and the Middle East are expected to grow, which represents an opportunity for defence companies to drive growth with foreign military sales," it said.
However, Tom Captain, the head of the aerospace and defence practice at Deloitte, is sceptical about whether the emerging nations would really ride to the rescue of the defence giants.
"US companies in particular are becoming more successful [at foreign military sales]", Mr Captain says. "Especially in those areas of the world where defence budgets are going up, like India, the UAE, Brazil, Singapore, South Korea and Japan. But there are plenty of other companies, western European, Russian and more, all going after that same small pool of customers."
dblack@thenational.ae
10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
German intelligence warnings
- 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
- 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
- 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250
Source: Federal Office for the Protection of the Constitution
Tips for taking the metro
- set out well ahead of time
- make sure you have at least Dh15 on you Nol card, as there could be big queues for top-up machines
- enter the right cabin. The train may be too busy to move between carriages once you're on
- don't carry too much luggage and tuck it under a seat to make room for fellow passengers
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Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
The specs
Engine: 3-litre twin-turbo V6
Power: 400hp
Torque: 475Nm
Transmission: 9-speed automatic
Price: From Dh215,900
On sale: Now
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england euro squad
Goalkeepers: Dean Henderson (Man Utd), Sam Johnstone (West Brom), Jordan Pickford (Everton)
Defenders: John Stones (Man City), Luke Shaw (Man Utd), Harry Maguire (Man Utd), Trent Alexander-Arnold (Liverpool), Kyle Walker (Man City), Tyrone Mings (Aston Villa), Reece James (Chelsea), Conor Coady (Wolves), Ben Chilwell (Chelsea), Kieran Trippier (Atletico Madrid)
Midfielders: Mason Mount (Chelsea), Declan Rice (West Ham), Jordan Henderson (Liverpool), Jude Bellingham (Borussia Dortmund), Kalvin Phillips (Leeds)
Forwards: Harry Kane (Tottenham), Marcus Rashford (Man Utd), Raheem Sterling (Man City), Dominic Calvert-Lewin (Everton), Phil Foden (Man City), Jack Grealish (Aston Villa), Jadon Sancho (Borussia Dortmund), Bukayo Saka (Arsenal)
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
UAE v Gibraltar
What: International friendly
When: 7pm kick off
Where: Rugby Park, Dubai Sports City
Admission: Free
Online: The match will be broadcast live on Dubai Exiles’ Facebook page
UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)
THE SPECS
Engine: 3.5-litre supercharged V6
Power: 416hp at 7,000rpm
Torque: 410Nm at 3,500rpm
Transmission: 6-speed manual
Fuel consumption: 10.2 l/100km
Price: Dh375,000
On sale: now
Sri Lanka-India Test series schedule
1st Test July 26-30 in Galle
2nd Test August 3-7 in Colombo
3rd Test August 12-16 in Pallekele
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
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Results
2.15pm: Maiden (PA) Dh40,000 1,200m
Winner: Maqam, Fabrice Veron (jockey), Eric Lemartinel (trainer).
2.45pm: Maiden (PA) Dh40,000 1,200m
Winner: Mamia Al Reef, Szczepan Mazur, Ibrahim Al Hadhrami.
3.15pm: Handicap (PA) Dh40,000 2,000m
Winner: Jaahiz, Fabrice Veron, Eric Lemartinel.
3.45pm: Handicap (PA) Dh40,000 1,000m
Winner: Qanoon, Szczepan Mazur, Irfan Ellahi.
4.15pm: Sheikh Hamdan bin Rashid Cup Handicap (TB) Dh200,000 1,700m.
Winner: Philosopher, Tadhg O’Shea, Salem bin Ghadayer.
54.45pm: Handicap (PA) Dh40,000 1,700m
Winner: Jap Al Yassoob, Fernando Jara, Irfan Ellahi.
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
MATCH DETAILS
Liverpool 2
Wijnaldum (14), Oxlade-Chamberlain (52)
Genk 1
Samatta (40)
