Airbus announced on October 7th that it received a $9.5 billion order from Japan Airlines for 31 of its wide-body A350 jets, allowing the European firm to significantly divert market share traditionally dominated by Boeing.
As the U.S. government entered into a shut down this week, the reverberations were felt through the aerospace and defense industry. According to the National Association of Government Contractors, 58% of government contractors said the shutdown would have a negative effect on their business.
Faced with steep budget cuts that could cut billions of dollars in planned spending over the next decade, the U.S. Air Force is considering eliminating its entire fleet of KC-10 tankers and A-10 attack jets in an effort to keep existing procurement initiatives on track.
This week, German airline Lufthansa announced a large order for wide-body jets. The German flag carrier said it is ordering 34 new 777-9X jets from Boeing and 25 A350-900 jets from European rival Airbus as it updates its long-haul fleet to make it more fuel efficient and lower costs.
As we noted in our Summer 2013 MarketView, 2013 has been a relatively slow year in terms of M&A activity. Looking back at 2012 deal activity, there were several market dynamics that drove a heightened number of transactions, including tax changes, looming uncertainty leading up to the deadline for Sequestration, and the continuing resolution which provided near-term funding through March of 2013.
With Congress currently focused on the Syrian conflict, many experts expect the House and Senate to approve a temporary government-wide continuing resolution (“CR”) this month, which would fund Federal departments at 2013 levels.
As in 2013, Congress is not expected to pass a defense budget by the end of the government fiscal year on September 30, but instead enact a temporary continuing resolution (“CR”) to fund the entire government at spending levels comparable to the previous fiscal year.
With defense contractors facing uncertain defense budgets in both the United States and Europe, companies are increasingly looking to international military sales for growth. The Middle East has been an especially active market as oil-rich countries look to upgrade their defense capabilities.