The global military aircraft and aerospace manufacturing industry has been growing over the past five years due to increased demand for military aircraft and missile systems, especially from the North America and Europe regions, according to IBISWorld.

“Growth in military aerospace equipment was backed by the Iraq War, the war on terrorism and homeland security,” said Antonio Danova, industry analyst. Because of heavy military activity and increased defense funding across various regions, the industry is expected to grow at an annualized rate of 1.6% to roughly $166.4 billion over the five years to 2013, with an expected increase of 0.7% during 2013.

IBISWorld estimates that there are 1,745 establishments and 1,385 enterprises in the industry in 2013. “The number of establishments is expected to increase at an annualized rate of 0.2% per year over the five years to 2013 due to the emergence of new players in the Asia-Pacific region,” Danova said. The increase in establishment numbers in this region has outpaced the consolidation of players in Europe and North America. The industry has also experienced an increase in collaborations between enterprises to reduce risks and costs.

Over the past five years, profitability within the industry has been hampered by rising prices in key inputs. For example, IBISWorld estimates that steel, the main input in the manufacture of industry products, has been growing at an annualized rate of 2.8% over the past five years. As a result, the average industry profit margin, as defined by earnings before interest and taxes (EBIT), has fallen to 11.5% of revenue in 2013 from about 13.1% in 2008. Nonetheless, some profitability has been salvaged due to technological advancements that have increased efficiency in the manufacturing process, as well as training grants and tax breaks from government clients.

The industry is expected to continue to grow over the next five years, but at a moderate pace as modest spending in defense budgets occurs across the globe, particularly in Western and developed nations. However, strong GDP growth in newly industrialized nations such as China and India will buoy demand for military equipment and air superiority. In addition, new technology in aerospace equipment and military parts will boost demand as clients look to update their existing products. As a result, industry revenue is expected to grow an average 1.8% per year over the five years to 2018 to roughly $182 billion.

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