Soaring airplane demand to boost aerospace, defense sector: Moody’s

Moody’s expects large commercial airplane deliveries to increase between 7 and 9 percent through 2018 as the airframers increase future production rates to meet demand. (Reuters)
Updated 20 May 2017
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Soaring airplane demand to boost aerospace, defense sector: Moody’s

JEDDAH: Airliner deliveries are expected to grow by around 7 percent in 2017 before accelerating to just over 10 percent growth in 2018, said a report issued by Moody’s Investor Services.
The report said that accelerating deliveries of large commercial airplanes, such as Airbus’ A320 and A350 and Boeing’s B737, combined with some recovery in global defense spending will drive steady profit growth and underpin the positive outlook for the global aerospace and defense industry into 2018.
“The positive outlook on the global aerospace and defense sector reflects our expectation of aggregate operating profit growth of around 3 to 5 percent through 2018 as commercial aircraft deliveries ramp-up, global defense spending recovers, revenue from lucrative service fees rises and cost cuts bear fruit,” said Jeanine Arnold, a vice president and senior credit officer at Moody’s.
Despite the still positive industry outlook, Moody’s revised its operating profit growth expectations for the sector down from 4-6 percent due to protracted pressure on aerospace margins as companies transition to next-generation aircraft from more mature, profitable ones.
The report said that the current order backlog of about eight years means that fewer commercial aircraft orders than deliveries do not present a risk to aerospace firms, at least for the time being. The combined book-to-bill rates for Boeing (A2 stable) and Airbus SE (A2 stable) fell below 1.0x in 2016 for the first time since 2009, indicating a slowdown in new orders for large commercial aircraft, especially higher-margin wide-body planes.
Moody’s expects large commercial airplane deliveries to increase between 7 and 9 percent through 2018 as the airframers increase future production rates to meet demand and help support the development of their new aircraft programs.
According to the report, increased geopolitical tensions, growing cyber threats and the need to replace aging equipment will fuel a 3-5 percent rise in global defense spending over the next 12 to 18 months.
“US defense spending, which typically represents around 35-40 percent of the total global spending, will increase by just over 3 percent in 2017 to just over $598 billion and rise by a further 6 percent in 2018 to over $630 billion,” the report said.
However, the 2017 US budget bill only committed to half of the increase sought by the Trump administration in its initial base defense funding request, signaling some continuing budget pressures in the world’s largest defense market.


Shell, Exxon not to seek compensation for end of Dutch gas field production

Updated 25 June 2018
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Shell, Exxon not to seek compensation for end of Dutch gas field production

AMSTERDAM: Energy companies Royal Dutch Shell and Exxon Mobil will not submit a claim for missed revenue due to the Dutch government's decision to halt gas production at the Groningen field by 2030, the Dutch ministry of Economic Affairs said on Monday.
"A lot of gas will be left in the ground," Economy minister Eric Wiebes said at the presentation of his deal with the oil majors responsible for extracting Groningen gas.
"That gas is the property of the oil companies, but they will not submit a claim and the government is not required to compensate them."
The Dutch government in March said it would end gas production at the Groningen field by the end of the next decade, in an effort to stop a string of relatively small, but damaging earthquakes caused by gas extraction.
This will leave around 450 billion cubic meters (bcm) of gas in the ground, Wiebes said, with an estimated value of approximately €70 billion ($81.5 billion).
The decision to halt Groningen production forced the government to broker a new deal with Shell and Exxon Mobil, whose 50-50 joint venture NAM is responsible for the field.
NAM will be required to pump as much gas as the government says is needed in the coming years. In return, it will see its share of the revenue from Groningen rise from 10 to 27 percent, Wiebes said, starting this year.
As part of the deal, NAM will also contribute a total of €500 million to strengthen the economy in the Groningen region.