NEW YORK, May 9, 2013 /PRNewswire/ --Following the third consecutive year of record revenue and profit in 2012, the aerospace and defense (A&D) industry will likely generate flat results in 2013, according to the PwC US A&D 2012 Year in Review and 2013 Forecast, which provides a comprehensive overview of the industry looking at outlook, key trends and related topics.

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The A&D industry reported its best year ever in 2012 as the strength of a surging commercial aviation market more than offset a soft defense market.In 2012, the top 100 A&D companies reported a record-setting $695 billion in revenue (up four percent from 2011) and $59.8 billion in operating profit (up two percent from 2011). Underpinning the record performance, the industry set a production milestone, delivering 1,189 large aircrafts, beating the previous year's record output by 18 percent. The gains were achieved even as the top global defense companies reported revenue decreases of approximately four percent in 2012, with only three of the top 12 defense companies reporting revenue gains.

"We will likely continue to see a dichotomy in performance across the A&D sector in the year ahead, with commercial aerospace benefiting from healthy demand, while the defense industry struggles in the face of sequestration and continued uncertainty," said Scott Thompson, PwC's U.S. aerospace & defense sector leader. "At the same time, the record output levels in commercial aerospace have created considerable strain on an industry that faces a very complex supply chain and long lead times.In the long-term, demand is expected to increase by 40 percent to 1,700 aircraft annually. To avoid previous supply chain issues while increasing production rates, OEMs and suppliers will need to perform thorough capacity and readiness assessments, with the goal of maximizing the benefits of higher production volume in the months to come."

The report reveals that the commercial aerospace industry is expected to grow four to five percent in 2013, and given the strong demand, aerospace companies continue to be optimistic about the future. The sector will continue to grow faster than the overall economy because of its critical role in the global economic infrastructure, bolstered by economic growth in Asia, the Middle East, Eastern Europe and Latin America, according to PwC's report. Air traffic also remains robust and steady, driving the lucrative aftermarket business."The industry captured more than 2,000 large aircraft orders for the second consecutive year and the third time in history.As a result, there's a record backlogmore than seven years at current production rates and the industry is anticipating another record output in 2013," commented Thompson.

Conversely, defense companies face an uncertain 2013 following declines in 2012. Management teams are bracing for the consequences of sequestration and waiting for details regarding the impact on specific programs.

"Defense companies face more pressure than ever to improve productivity, increase transparency, and respond to complex government regulations and oversight," said Thompson. "Market contraction, coupled with reduced levels of uncertainty about the nature and amount of defense budget cuts and the impact on specific programs may also drive industry consolidation."

Supporting the longer-term outlook, the A&D sector is globalizing. Companies are reporting more foreign direct investment, with the rate more than tripling from a decade ago. The Asia-Pacific region is expected to take more aircraft deliveries, in units and value, during the next 20 years than North America and Europe combined. Developing economies, particularly the BRIC countries, view aviation as a strategic industry.

"Governments, keen to promote aviation, airports and associated infrastructure, own stakes in many national carriers, enabling them to place large orders for aircraft. As a result, our report highlights that aviation is expected to grow about two percentage points faster than global GDP for the foreseeable future," added Thompson. "In addition, U.S. defense export sales authorizations have increased significantly in the past five years. These arms largely are destined for the Middle East and Asia-Pacific. Defense contractors are expected to continue to focus on international markets and develop global footprints."

Commercial aerospace merger & acquisition (M&A) had a solid year, but the defense sector did not generate even one mega deal (transactions worth more than $1 billion) in 2012. There have been no mega transactions in the defense sector since the Budget Control Act was passed in August 2011. When there is more certainty regarding the future of defense budgets and the impact on specific programs, defense M&A is expected to become much more dynamic and could lead to some historic deals.

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PwC US Reports Aerospace & Defense Industry Set Records for Revenue and Profit in 2012