This Frost & Sullivan research service titled Analysis of Private Equity and Venture Capital Investment Trends in the Aerospace & Defence Industry in Europe provides an insight into private placement transactions across major sectors and regions throughout the world and compares them with the European aerospace and defence (A&D) industry. The research also covers private placements that have taken place in Europe in the A&D industry from January 2006 till December 2011. Sectors and regions that have received the maximum number and value of transactions are highlighted. The outlook for key regions is also presented.

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Market Overview 

High Capital Requirements and Long Gestation, Coupled with Eurozone crisis, Presents a Challenge for Private Equity

The financial profiles of major industrialised countries were significantly weakened by the global economic downturn that started in late 2008. Also, the current Eurozone crisis has affected several European economies. Given the state of the global economy, investors are becoming increasingly cautious and risk averse about their portfolio investments. This translates into a restraint for the aerospace and defence (A&D) industry as it is capital intensive and investors are unwilling to commit sizeable amounts of money to an industry that has a longer gestation period compared to other industries.  

The average deal value of private placements in the European aerospace and defence industry decreased from $191.7 million in 2009 to $51.7 million in 2011. In the 2006-2011 period, around 65 per cent of private placement transactions were in the $1 million to $100 million range suggesting that investors have predominantly gone for lower value deals. However, there may be potential opportunities for investors who are looking for secondary buyouts owing to lower valuation multiples.

Revenue Shares Likely to Migrate towards Emerging and Lower-cost Regions 

Some of the key factors that drive the growth in the industry include aircraft replacement needs faced by mature markets and growth in emerging markets. Airbus expects the global passenger fleet to more than double from the existing 15,000 to 31,500 aircraft by 2030. This is expected to include around 27,800 new deliveries of which 10,500 will be needed for replacing old aircraft. “The increasing percentage of middle class population, especially in countries such as India, China, and Russia, is expected to create demand for the purchase of over 3,500 planes (which is roughly 15 per cent of global demand) over the next two decades,” notes the analyst of this research.  India and China are currently the preferred countries because of lower costs compared to their Western counterparts. By 2030, Asia-Pacific is expected to account for 33 per cent share of passenger traffic, followed by Europe at 23 per cent and North America at 20 per cent.

“Many OEM integrators such as Airbus and Boeing are shifting their production facility to low labour cost countries in Asia-Pacific,” remarks the analyst. “OEMs are also actively seeking ways to reduce manufacturing costs by outsourcing more ‘design-to- build’ packages rather than just ‘build-to-print’ to Tier 1 OEMs.” With increasing cost structures in the European and North American regions, revenue shares may shift towards emerging and lower-cost regions such as Asia- Pacific, South America and Eastern Europe as OEMs shift their supply chain networks. 

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