The aerospace and defense industry will grow 5 percent globally in 2014, despite the budget pressures to the defense sector, according to a new study from Deloitte.
Deloitte’s 2014 outlook says the defense industry will continue its downward trend over the past several years.
The report estimates that revenue will drop 2.5 percent in 2013 and will continue to decline with the end of the wars in Afghanistan and Iraq, as well as cuts to the U.S. Defense budget under sequestration.
But the overall defense and aerospace industry will still grow in 2014, thanks to boosted revenue in the aerospace sector.
“It is likely that 2014 will bring high single to double-digit levels of growth in the commercial aerospace sub-sector, as experienced in 2012 and expected in 2013, given the dramatic production forecasts of the aircraft manufacturers,” Deloitte says.
The 2014 growth in the commercial aerospace industry is being driven by record-setting production levels, due to the accelerated replacement cycle of obsolete aircraft with newer fuel-efficient planes.
The report predicts that by 2023, annual production levels in the commercial aerospace industry will increase by 25 percent.
The Deloitte report also cites increases in passenger demand in places like the Middle East and the Asia-Pacific region.
For the defense industry, the end of the conflicts in Iraq and Afghanistan has driven defense budgets lower. The report says that defense spending is increasing in several areas — the Middle East, China, India, Russia, South Korea, Brazil and Japan — but that isn’t counteracting declines elsewhere.
The U.S. defense budget has a major impact on the global trends, as the United States accounts for 39 percent of global defense spending.
The Pentagon had $37 billion cut from its 2013 budget under sequestration. While the budget deal reached last month provided the Pentagon with $31 billion in sequester relief over the next two years, the new Defense budget cap is still $30 billion lower than the Pentagon’s proposed 2014 budget.
“The government customers of global defense companies continue to be challenged with affordability and competing domestic priorities,” the report says. “Thus, global defense spending is expected to continue to decline.”