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.


Global carmakers show off SUVs, electrics as China promises reforms

Updated 3 min 37 sec ago
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Global carmakers show off SUVs, electrics as China promises reforms

BEIJING: Global carmakers touted their latest electric and SUV models in Beijing on Wednesday, as China promises a more level playing field in the world’s largest auto market where domestic vehicles are making major inroads.
Industry behemoths like Volkswagen, Daimler, Toyota, Nissan, Ford and others are displaying more than 1,000 models and dozens of concept cars at the Beijing auto show.
Thousands of Chinese auto enthusiasts are expected to wander the halls of the mega exhibition center this week, with electric cars and gas-guzzling sport-utility vehicles grabbing the spotlight.
Nissan presented its first Made in China electric car produced for Chinese consumers, the four-door Sylphy Zero Emission, with a drive range of 338 kilometers.
“The new Sylphy Zero Emission is the next step in our electrification strategy for China,” said Jose Munoz, Nissan’s chief performance officer, adding that the company will unveil 20 electrified models over the next five years.
Auto executives may have their minds on the boiling trade war between Beijing and Washington, with every twist and turn fanning fears that it could bring their plans for China to a screeching halt.
But last week Beijing announced it will liberalize foreign ownership limits in the sector, a move seen as a possible olive branch to President Donald Trump, who has railed against China’s policies in the sector.
China currently restricts foreign auto firms to a maximum 50 percent ownership of joint ventures with local companies.
The changes will end shareholding limits for new energy vehicle firms as soon as this year, followed by commercial vehicles in 2020 and passenger cars in 2022.
Foreign automakers who account for more than half of vehicle sales in China have cautiously welcomed the changes, with VW saying it has “strong” local partners in their joint ventures.
“This will have no impact on our JVs. But the overreaching principle is important. Hopefully, liberalization will as well help for fair competition, and having a level playing field,” Jochem Heizmann, CEO of Volkswagen Group China, told reporters.
The show comes as China’s market hits a transition period — the explosive growth in car sales seen over the last decade slowed last year and data from early this year point to a continued slump for many vehicle types.
Chinese consumers are following their American peers toward SUVs while policymakers in Beijing push an all-electric future.
Ride-sharing is also on the up. On Tuesday Didi — China’s answer to Uber — announced it had joined forces with some 30 partners, including Renault and Volkswagen, to develop vehicles and products specifically tailored for ride-sharing.
Accounting for some 28.9 million car sales last year, the Chinese market could soon match those of the European Union and United States combined.
General Motors sold over four million cars here last year, more than in the US. Volkswagen sold more than three million, roughly six times its home market.
But domestic firms are outselling foreign firms in the SUV segment.
In the electric car market the figures are even more lopsided, as Beijing has heaped money on projects to dominate what it sees as the future.
At the auto show, the domestic upstarts have a separate exhibition hall mostly to themselves — 124 of the 174 electric car models on display are homegrown.
Government subsidies help consumers purchase the green cars, while policymakers are planning a quota system to force producers to build electric vehicles, with plans to one day phase out gas vehicles altogether.
Volkswagen announced Tuesday investments of €15 billion in electric and autonomous vehicles in China by 2022.
“China is our second home,” recently installed chief executive Herbert Diess said at a Beijing press conference, with its market set to be “the biggest” worldwide for electric cars.