- Global defense subsector to grow at a rate of 3.0 percent from 2017-2022
- M&A globally drives expansion, with greater than two-fold increase in deal value over the last year
Global aerospace and defense (A&D) industry revenues are expected to experience significant growth in 2018. Revenues are expected to accelerate 4.1 percent—more than doubling last year’s 2.1 percent growth. This is according to Deloitte Global’s 2018 Global aerospace and defense industry outlook, which analyzes the commercial aircraft and defense sectors and identifies key trends ahead.
With the global economic recovery underway and heightened passenger travel demand, the commercial aircraft subsector is expected to grow 4.8 percent, primarily driven by elevated production levels to meet growing demand. In 2017, the Asia-Pacific region fueled passenger travel, and will likely continue to drive such growth in the long-term, due to an expanding middle class in the region.
Global demand for new aircraft production is also projected to rise, with annual production likely to increase by 25 percent over the next decade and 36,780 new aircrafts to be built over the next 20 years.
“After a year of subdued growth in 2017, the commercial aircraft sector is accelerating again, however, key challenges remain that the industry must consider and address,” says Rashid Bashir, Partner and Public Sector Leader at Deloitte Middle East. “Companies need to refocus on strengthening the supply chain, instilling effective program management, and implementing new and advanced technologies to spearhead efficiency.”
Amidst an uncertain future, dominated by fears of security threats and heightened global tensions, global powers are also revisiting their defense postures. In 2018, global defense sector revenues are expected to grow 3.6 percent, with spending to cross US$2 trillion by 2022. Global spending is estimated to rise at a compounded annual growth rate (CAGR) of about 3.0 percent between 2017-2022.
While the US remained the top spending nation in 2016 (accounting for 36 percent of the total global military spending), governments in India, Russia, and China have also devoted more resources to defense, with each country’s spending increasing in 2016 to address current global concerns (8.5 percent, 5.9 percent, and 5.4 percent year-on-year, respectively).
“Across the globe, demand for defense military products is increasing, and with a growing risk of cyber-attacks worldwide, countries are reinforcing their defense mechanisms,” adds Bashir. “Higher defense spending across the United Arab Emirates, Saudi Arabia, India, South Korea, Japan, and other nations is likely to encourage the same by Western countries and NATO, as leaders remain hyperfocused on countering potential threats and remaining competitive.”
Additional key trends in the industry include:
- M&A continues to gain momentum. M&A deal value in the global A&D industry reached US$51.5 billion in 2017, despite the number of transactions declining slightly from 2016. Ultimately, pricing pressures from aircraft original equipment manufacturers (OEMs) and expansion of high-margin aftermarket services are pushing suppliers to consolidate for scale and cost efficiencies. M&A activity is likely to remain strong. In the US in particular, increased defense budgets will provide certainty to military planners.
- Military expenditures vary by region. From 2010 to 2016, military expenditures for the Americas declined 18.9 percent, while Europe’s spending grew 3.3 percent during the same time. On the other hand, spending in Asia-Pacific and the Middle East grew substantially, leading global defense companies to reshift their focus on new markets, including India and the Middle East.
- US A&D exports on the decline. In 2017, US A&D exports experienced a slight decline after a multi-year history of growth. Exports stood at US$144.7 billion, down 1.3 percent over 2016. The decline is accounted for by the strengthening of the US dollar and increased competition from global powers such as Russia and China. While exports will continue to remain important globally, the US administration’s regulatory policies will largely shape its future.
Sunak to use budget to expand apprenticeships in England
LONDON (Reuters) – British finance minister Rishi Sunak will announce more funding for apprenticeships in England when he unveils his budget next week, the government said on Friday.
Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive 3,000 pounds ($4,179) for each apprentice hired, regardless of age – an increase on current grants of between 1,500 and 2,000 pounds depending on age.
The scheme will extended by six months until the end of September, the finance ministry said.
Sunak will also announce an extra 126 million pounds for traineeships for up to 43,000 placements.
Sunak’s March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.
Sunak is also expected to announce a “flexi-job” apprenticeship scheme, whereby apprentices can join an agency and work for multiple employers in one sector, the finance ministry said.
“We know there’s more to do and it’s vital this continues throughout the next stage of our recovery, which is why I’m boosting support for these programmes, helping jobseekers and employers alike,” Sunak said in a statement.
(Reporting by Andy Bruce, editing by David Milliken)
UK seeks G7 consensus on digital competition after Facebook blackout
LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.
Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.
“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.
“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”
Dowden said recent events had strengthened his view that digital markets did not currently function properly.
He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.
“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.
Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.
“Nick strongly agreed with the Secretary of Stateâ€™s (Dowden’s) assertion that the governmentâ€™s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.
Britain will host a meeting of G7 leaders in June.
It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.
The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.
Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.
(Reporting by William James; Editing by Gareth Jones and John Stonestreet)
Britain to offer fast-track visas to bolster fintechs after Brexit
By Huw Jones
LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.
Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.
“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.
Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.
Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.
The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.
It also recommends more flexible listing rules for fintechs to catch up with New York.
“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.
“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)
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