ME aerospace, defence industry picks pace

 By: ZainabMansoor

 Merger and Acquisition (M&A) deals in the global aerospace and defence (A&D) industry took a beating when financial waters hit shores in 2008 and continued through to 2010. Consumer confidence and overall industrial sentiment teetered on the brink as things got tight and deals dried up. With resuscitating market sentiment and recovering financial sector, M&A activity has picked pace.
According to the PwC report, Mission control 2010: merger and acquisition activity in the global aerospace and defence industry, the merger and acquisition activity in the A&D nearly doubled to $20.2 billion in 2010, rising from 10.9 billion in 2009. PwC's Aerospace & Defence Practice is a global mesh of qualified professionals who provide analytical services in terms of tax and advisory to leading A&D companies across the world.
Merger and acquisition transactions have recovered remarkably from a relatively low point in 2009 at $10.9 billion while number of deals rose 4 percent to 308 in 2010. In the fourth quarter of 2010, there were 17 announced deals worth $50 million with an additional four huge deals of over $1 billion in 2010, compared with two in 2009.
"The Middle East is a hotspot in the global aerospace & defence industry. Faced with declining defence budgets and highly competitive commercial markets, Western suppliers are seeking out growth and investment opportunities across the Middle East. Although it doesn't feature highly in M&A league tables, the level of partnership, investment and offset activity in the region is increasingly rapidly and attracting some of the best talent," said Matt Alabaster, PwC's aerospace and defence leader for the Middle East.
Private Equity fared well in 2010, with five completed PE acquisitions with disclosed values of over $50 million during the year. As financial conditions improve and risk premiums reduce, private equity is expected to increase and return to normal levels. Cross-border deals as part of the total activity within this sector remained stable at 28 percent of the total deal volume. Companies in North America accounted for nearly two-thirds of both acquisition and audience in 2010, up from half in 2009, while companies in Asia accounted for only 15 percent of targets and acquirers in 2010.

Military air budget
According to Frost & Sullivan, the current military air budget for the Middle East taken cumulatively comes to around $64 Billion for 2010. Frost & Sullivan expects this to grow at a rate of 5.8 percent, which is around $68 billion in 2011.
"The increase in Military Air budget has fed off a lot of business in the U.S and the Europe with bulky orders in the pipeline. Frost & Sullivan expects this to influence the materials industries like Thysenkrupp who have established themselves in the super alloys sector," said an Aerospace and Defence analyst, Frost & Sullivan.
He further added, "The military air market in the Middle East has seen resurgence in expenditures instigated by dramatic growth of the economy since 2005 as a result of the price rise in oil and gas - The majority of the military air market opportunities though will exist within the Gulf Cooperation Council (GCC) countries i.e. Saudi Arabia, United Arab Emirates (UAE), Qatar, Kuwait, Oman and Bahrain. Frost & Sullivan estimates GCC countries to spend around $105 billion by 2020 on the latest air platforms and other advanced defence systems due to the need of economic diversification through offsets. There may be a greater impact factor than the fear of potential strikes from nearby sources."
As alliances between armed forces grow, there is a considerable amount of potential for Western companies to export products outside their indigAir Force 1 Mid Flyknit