Flying planes is an rotten business, as any airline investor will tell you. But building them has never been more lucrative, despite the economic uncertainties. Huge demand for more fuel-efficient aircraft, particularly from wealthy Asian carriers, meant the global aerospace and defence industry made more money last year than ever before - and 2012 could be even better.
Revenue generated by the top 100 aerospace and defence (A&D) companies grew 5 per cent to $677bn (£421bn) in 2011, according to experts at PricewaterhouseCoopers, with operating profit up 2 per cent to $60bn. And there's an air of optimism among industry leaders, according to PwC. Steady growth in air traffic is driving high-margin aftermarket business, deliveries are running at record levels and the order book stretches out more than eight years. Between them, Boeing and Airbus rolled an unprecedented number of planes out of the hangar in 2011, over 1,000, and launching new narrow-body jets - the A320neo and 737max - doubled new orders. Almost 8,500 planes are now waiting to be built.
That could prove a useful buffer given the eurozone teeters, once again, on the precipice, and high oil prices and lack of aircraft financing, particularly from the French banks, already threaten cancellations and deferrals. There was no sign of that during the first quarter, though, and PwC's A&D sector leader Neil Hampson is confident: "Current backlog levels provide ample cushion between demand and production rates, likely absorbing any reasonable softening in demand near term," he says.
Of course, handling that volume will be tricky. While the big two are tipped to deliver almost 600 planes each this year, Boeing alone is expected to book about 1,000 net orders. Putting suppliers under so much pressure carries huge risk, and PWC has found that a fifth are already struggling. Importantly, our tips - Senior, Cobham and Ultra Electronics - are not among them. Neither are old favourites Rolls-Royce and GKN. For these high-class suppliers, commercial aerospace will be a reliable income stream for years.
