CRA publishes Grundman on “Putting Hard Times into Perspective”
Like many sectors of the economy, the aerospace and defense industry marked the end of the first decade of the 21st century as a major inflection point in its post-Cold-War evolution. The global economic recession drove growth in the production of civil aircraft to nil. And the Pentagon’s outlays for its investment in the development and production of new weapon systems, while still growing, were approaching their 20-year peak. Against the backdrop of this pessimistic outlook for sales there also was a dearth of mergers and acquisitions, which for 2009 didn’t exceed $15 billion in total transaction value for the first time in a decade. These trends—and much else, to be sure—were reflected in investors’ valuation of equity in A&D companies, which had stagnated throughout 2009 at the bottom of a precipitous 60 percent decline off its mid-2007 post-Cold-War heights. Consequently, the A&D industry appeared braced for challenges to its value on every front—weak customer demand, stingy investors, expensive credit, and hungry competition.
In this issue of CRA Closer Look that was first published in September 2009, Steve Grundman puts the developments that will culminate over the next 10 years into the context of the past two decades, offering a more sanguine perspective on the complex relationship between value in the A&D industry, underlying movements in customer demand, and corporate strategy.