global aerospace report 2014 - clearwater...

GLOBAL AEROSPACE REPORT 2014

A CLEARWATER INTERNAT IONAL INDUSTR IAL S T EAM REPORT

Welcome

These are immensely exciting times for the global aerospaceindustry which is set for extraordinary growth over the nextgeneration driven by emerging market demand. That growthwill, of course, be mirrored in the supply chain on the back ofthe huge build schedules at Airbus and Boeing, as well as atother aircraft manufacturers.

But with these opportunities come major challenges forsuppliers looking to exploit new markets, as manufacturersdemand ever greater critical mass within their supply chains andonly want to deal with suppliers which have the necessary scaleand knowledge to invest heavily in technology.

Given the shrinking defence industry budgets in the US andWestern Europe, suppliers particularly need to exploit newcommercial aviation markets – a move which will posechallenges for those whose business models are currently moregeared around the defence industry. Managing this transitionwill be key.

Against this backdrop, and the need for consolidation in theEuropean market on the back of reduced military spending, wehave already seen significant M&A activity in the first half of2014. A good example was British defence specialist Cobham'sacquisition of US rival Aeroflex, as it sought to insulate itselffrom the downturn in US defence spending and push intohigher-growth commercial markets in microelectronics andwireless civil communications.

We expect to see plenty more cross-border deals of this typein the year ahead and we should also be alert to more Asianbuyers looking to grasp opportunities in the market, such as theChinese AVIC group which last year bought German aircraftengine maker Thielert.

A measure of the levels of M&A interest in the wider sectorwas illustrated only last month, when US aircraft interiorsbusiness B/E Aerospace said it was reviewing its strategicoptions which could lead to a sale, merger or divestments. Thatannouncement has already led to intense interest on both sidesof the Atlantic, and shows just how hot the aerospace market isright now.

We hope you enjoy the read.

@CWICF

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CONTENTSMARKET OVERVIEW 4

The global aerospace industry today

AIRCRAFT FOCUS 7

Commercial market

Business jets

Defence market

Helicopter market

Freight

Supply chains

Engines

New technologies

Air frames

MRO market

GEOGRAPHIC TRENDS 11

Growth in emerging markets leads the way

M&A REVIEW 12

The global market continues to be a vibrant source of M&A activity

AEROSPACE DEALS 14

Listing of 20 recent M&A transactions

COMPANY INDEX 18

Listing of 20 leading globalaerospace players

CLEARWATERINTERNATIONAL DEALS 23

A round-up of recent ClearwaterInternational transactions in theaerospace industry

This report is published by Clearwater InternationalEditors: Jim Pendrill & Sarah FernandezDesign: www.creative-bridge.comSubscription: [email protected] part of this publication may bereproduced or used in any form without prior permission of Clearwater International.

A EROSPACE R EPORT2

Constantine BillerPartner, UK

+44 845 052 [email protected]

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Clearwater International is supported through its membership of IMAP, providing leading advice across the world

AEROSPACE R EPORT4

As plane maker Airbus affirms, continued economicgrowth, a growing middle class, plus rising tourism andmigration are just some of the factors that are set toincrease global connectivity. Increasing urbanisationwill lead to a doubling of mega cities by 2032, and 99per cent of the world’s long-haul traffic will bebetween, or through, these cities.

Airbus* predicts that air traffic will grow 4.7 per centannually over the next 20 years (2013-2032), requiringmore than 29,000 new passenger and freight aircraftvalued at nearly $4.4tn. Some 10,400 planes will replaceexisting aircraft, which means that the worldwide fleetwill double to around 36,500 aircraft by 2032. By thesame date, trade organisation ADS** estimate thatmore than 24,000 business jets, 5,800 regional aircraftand 40,000 helicopters will also be required.

Asia-Pacific will lead the world in traffic by 2032, sayAirbus, overtaking Europe and North America. Today afifth of the population in emerging markets take a flightannually, but by 2032 this will rise to two thirds as globalpassenger numbers more than double to 6.7 billion.

Domestic demand in emerging economies will growsharply too. India is forecast to grow at the fastestrate (nearly 10 per cent), followed by China and Brazil(both 7 per cent).

Fully capitalising on this uplift and exploiting newcommercial aviation markets will be key for suppliers,especially those whose business models are currentlymore geared around the defence industry whichcontinues to shrink in the US and Western Europe.Although there is significant growth in defencemarkets such as China and Russia, these are stilllargely out of bounds for Western suppliers.

A measure of the wider dominance of the passengerjet market came last year when the Europeanaerospace and defence group EADS changed itsname to Airbus Group, reflecting the fact that the bulkof its revenues now come from civil aerospace.

The next 20 years herald extraordinary growth in theglobal aviation industry, driven by the rise in passengertraffic to and from emerging markets.

Market Overview

* Global Market Forecast** Commercial Aerospace Market Information

Passenger traffic growth for the next 20 years

4.7% CAGR

Passenger fleet

2012 2032

16,094 33,651

Number of passengers

2012 2032+77%

2.9 billion 6.7 billion

Deliveries 2012-2032

Total new passenger & freighter aircraft

29,226

+109%

Source: Airbus Global Market Forecast

Record orders

Against this backdrop, it is little wonder that theindustry's 'big two' - Airbus and Boeing - haverecord order books for new aircraft deliveries.Between them they delivered a record 1,300 planesin 2013, while also receiving 2,800 new orders,taking their combined backlog to more than 10,000.

Airbus delivered almost 500 of its short-haul A320jet in 2013, far more than any other aircraft type. Italso took significant orders for its next generationA320 Neo, which features more fuel efficientengines. Boeing, meanwhile, has announced that itwill increase production of the 737, its short-haul jet.

2014 has also started with a record delievery ofcommercial aircraft. In total, more than 300 planes weredelivered globally in the first three months of this year– up 7 per cent on 2013.

Due largely to the huge backlog of orders - $390bnfor Boeing and €638bn for Airbus Group at list price– AlixPartners* expects that by 2017 the workloadvolume of OEMs’ main commercial programmes will

have ramped up by 45 per cent. On the back ofthese projections, suppliers such as PrecisionCastparts, Safran, Rolls-Royce, UTC, Parker Hannifinand Zodiac are all seeing significant growth.

Alix says the commercial aerospace profit pool willcontinue to grow at an annual rate of 5 per cent,driven in part by both airframe and enginemanufacturers’ new technologies intended toimprove aircraft operating efficiency. As the profitpool gets larger, commercial aircraft OEMs will fightto increase their share by developing new aircraftdesigns and ramping up production for bothnarrow- and wide-body aircraft.

In the very large aircraft market, dominated by theAirbus A380, Alix says there is a requirement for1,334 passenger aircraft valued at $519bn. Of these,it estimates that almost half will be needed in theAsia-Pacific region. The requirement in the twin-aislemarket is for 6,779 aircraft valued at $1.8tn, againwith almost half of deliveries forAsia-Pacific, whilethe single-aisle market requires more than 20,000aircraft worth another $1.8tn.

A CLEARWATER INTERNAT IONAL INDUSTR IA L S T EAM REPORT 5* 2013 Aerospace & Defence Industry Outlook

Asia-Paci�c

Europe

North America

Middle East

Latin America

CIS

Africa

29%

26%

25%

8%

5%

4%

3%

5.5%

3.8%

3.0%

7.1%

6.0%

5.8%

5.1%

34%

22%

18%

12%

7%

4%

3%

0RPK tra!c by airline domicile (billions)

1,000 2,000 3,000 4,000 5,000% of 2012world RPK

20-yeargrowth

% of 2032world RPK

20 years

+4.7%world annualtra!c growth

2012

2032

Source: Airbus Global Market Forecast

RPK (Revenue Passenger Kilometres) traffic by...

AEROSPACE R EPORT6

Airline flux

While suppliers can exploit the plethora ofopportunities in the industry, times remain tough forairlines. Operators continue to be squeezed by highfuel prices, while low-cost carriers (LCCs) and newglobal competitors have kept pressure on pricing. Theglobal spread of the LCC market - not only in Europebut increasingly in Asia, the Middle East and Africa - isfurther helping to open new markets and encouragemore first-time flyers.

Competitive pressures are likely to remain for sometime with operators in the US and Europe eitherrestructuring or merging. However, the benefits ofsuch restructurings are beginning to feed through. Forinstance, profits for the new American Airlines Groupimproved fivefold in 2013 as a series of mergers andbankruptcies reduced competition.

However, the blurring of the line between low-costand full-service carriers is creating flux. Alix* says astraditional network carriers have unbundled theirpricing to give passengers lower fares, so the LCCshave added new services such as business-class ticketsand long-haul routes. Many former flag carriers nowoperate subsidiaries that provide competition onshort-haul European flights such as Lufthansa'sGermanwings and IAG's Vueling.

New entrant Norwegian Air is low-cost but is settingits sights on intercontinental markets as well as short-haul business, aiming to connect European cities withUS and Asian cities.

Defence woes

Driven by rising defence budgets in China and Russia,global military spending is growing for the first time infive years. According to IHS Jane**, global defencespending will rise slightly to £945bn in 2014 andChina's planned spending on armed forces will for thefirst time be greater than the combined budgets ofBritain, France and Germany. China has set aside$148bn this year, up more than 6 per cent, and itsdefence spending is projected to increase at acompound annual growth rate of 18.5 per cent forthe next decade. US spending at $351bn is still thehighest in the world, but fell by 1.3 per cent last year.

Contractors that sell to the US are particularlyexposed, although European firms face big threatstoo as major programmes like combat aircraft andshipbuilding are reduced. In particular Alix saysEuropean contractors are struggling to sustaininnovation and industrial capacity in the absence of amajor new initiative to radically restructure Europeandefence capacity.

It says that defence companies must continue to reducecosts and improve their value proposition to customers,while focusing on international markets and rebalancingtheir portfolios. Competitions for major programmesare increasingly 'winner-take-all arrangements', such ascombat aircraft in developing markets, and OEMs mustadapt their offerings accordingly.

Outlook

The mix of rapidly growing emerging markets in Asiaand the Middle East, evolving technologies, and fiscalstrains on mature markets is leading to widespreadinstability in the aerospace industry. Alix concludesthat profitability is an ongoing challenge and companiesmust redouble their efforts to reduce costs.

Meanwhile, companies need to accelerate theirdiversification into new and faster-growth markets.This entails more than a mere geographic change butthe tailoring of products and services for customersegments with varying priorities and requirements.The ability to identify and anticipate demand for newproducts and services driven by new technologieswill be a clear differentiator in A&D companies.

* 2013 Aerospace & Defence Industry Outlook** Annual defence budgets review

A CLEARWATER INTERNAT IONAL INDUSTR IA L S T EAM REPORT 7

In response to huge demand, Airbus and Boeing are developingexisting models to prolong their life and make them more fuel efficient.

Commercial

In terms of the largest aircraft today, most orders arefor the Airbus A380 with Emirates recently announcingplans to buy a further 100 units of the plane. Manyanalysts see the A380 as the best solution to theexpected huge increase in passengers flying betweenthe world’s most congested hubs.

Debate continues to rage as to whether mid-sizedplanes will better serve future global markets, withproponents stating that passengers will want morefrequent departures at main hubs and direct flightsbetween smaller airports.

The Airbus A330 is a big player in this market, whileBoeing is upgrading its 777. The 777x is its newestfamily of twin-aisle planes and was launched at lastyear’s Dubai Airshow. Production of the 777x isscheduled to begin in 2017, with first delivery in 2020.

Business jets

Bombardier* anticipate 9,800 aircraft deliveries inthe business jet market worth $269bn from 2013 to2022, and 14,200 aircraft worth $381bn from 2023to 2032. Meanwhile, it forecasts a total of 24,000business jet deliveries in its markets from 2013 to2032, worth around $650bn to the industry.

The figures are a sign of how the business aviationmarket has continued to recover since the depths ofthe global recession, and how as confidence hasreturned to world markets so aircraft orders andbacklogs have grown. The business jet market isparticularly active in Asia, where demand is beingdriven by a new generation of entrepreneurs mainlyfrom China and Indonesia.

While business jet orders and deliveries for 2013are expected to be comparable to those of 2012,Bombardier forecasts that they will begin toimprove this year and that the industry will surpassits prior delivery peak year of 2008 by as early as2016. It is also anticipated that with demand forbusiness jets shifting towards emerging markets, thefleet of large and medium category aircraft willgrow, with the large aircraft category demonstratingthe fastest growth.

North America will still see the greatest number ofnew business jet deliveries between 2013 and 2032,followed by Europe. China is forecast to become thethird largest region in terms of deliveries over thenext 20 years, while markets such as Brazil, India,Russia, Mexico and Turkey are expected to form asignificant share of the business jet market.

With increasing demand for more cost-effective andfuel-efficient aircraft, it is predicted that 60 per cent ofthe current commercial fleet will be retired by 2032,especially in the smaller seat market.

Defence

Aircraft Focus

* Business Aircraft Market Forecast

AEROSPACE R EPORT8

Much focus remains on the F-35 programme – althoughbeing developed by Lockheed Martin for the US market,it is a collaboration with the UK, Canada, Australia,Denmark, Norway, Turkey, Italy and the Netherlands.

Lockheed is building the front fuselage and completingfinal assembly of the plane, while Northrop Grumman isbuilding the centre of the plane and BAE Systems therear fuselage, tail and wing tips. Pratt & Whitney is theengine supplier, while Rolls-Royce is making the lifting fans.

In Europe, there remains much political debate overthe next generation of military aircraft. The UK andFrench governments have announced that BAESystems and Dassault will work together on a £120mfeasibility study into an unmanned combat air system,while Dassault is finalising a $20bn deal with theIndian government to supply almost 200 of its Rafaleplane to replace India's ageing jet fighter fleet.

Brazil has chosen the aircraft maker Saab for a $4.5bncontract to build 36 fighter jets over the next 10years, while BAE Systems is selling 72 EurofighterTyphoon jets to Saudi Arabia as it targets growthmarkets such as the Middle East to offset weakdemand from the US and Europe.

Helicopters

A Strategic Defence Intelligence report* into thecommercial helicopter market forecasts global growthof just over 3 per cent per annum between 2013 and2023. It says the market is being driven by growth inoffshore oil and gas exploration and production; inthe emergency medical care market; in VIP transport;and in law enforcement requirements.

The steadily growing oil and gas industry in the MiddleEast is creating particular demand for commercialhelicopters, while emergency services (EMS) will drivethe market for civil helicopters in Asia-Pacific and theMiddle East as countries in these regions often lack anestablished EMS network.

The report also highlights the constraints of thesector. It says such fast-growing demand will make itdifficult to fulfill the requirement for trainedcommercial pilots and technicians. Some helicoptermanufacturers, one example being Bell, are addressing

the issue by signing agreements with aviation collegesin countries such as China.

Freight

Unlike the continued rise in passenger traffic in recentyears, the freight market has struggled to maintainstrong growth as a combination of the global financialcrisis, reshoring, an increased volume of freight carriedby sea, and high fuel prices have combined to putpressure on airlines.

Although estimates from Boeing** put the value ofthe sector at $240bn in 2013, in that year it saw year-on-year global growth of just 1.4 per cent measuredin freight tonne kilometers, according to theInternational Air Transport Association (IATA). Asiancargo carriers now make up about 40 per cent of theglobal market, although Asian carriers’ average freightcharges have been pushed down by excess capacity –in part because airlines have been expanding theirpassenger fleets so quickly.

As a result of its huge investment in its fleet, Emiratesis now the world’s biggest freight airline by tonnagecarried while the Middle East has continued to seestrong growth in its freight market, rising by 13 percent last year. Players such as Cathay Pacific are alsoentering new emerging markets such as Mexico, Indiaand Vietnam.

Supply chains

The huge increase in sales volumes of commercialaircraft over the next generation will create significantchallenges for A&D supply chains. For instance, Alix***projects a 45 per cent increase in workload by 2017with new programmes like the A320 Neo, Boeing 737MAX, and Bombardier C series coming on stream.

These new programmes also involve moretechnologically complex designs aimed at increasingaircraft operating efficiency, which will put addedpressures on supply chains to react to advances incomposite materials, fuel-efficient engine technologies,avionics, and fuel, braking and electric systems.

* Commercial Helicopter Market 2013-2023** World Air Cargo Forecast 2012-2013*** 2013 Aerospace & Defence Industry Outlook


Alix* suggests that the current industry supply chainis not entirely ready for this dual challenge ofdelivering a greater volume of more sophisticatedaircraft. In fact, it says there is a "real and growingrisk" of supply chain disruptions as certain suppliershave only limited expertise and modest engineeringcapabilities for implementing and sustaining severalprogrammes, especially in the detailed parts andaerostructures segments.

It says some suppliers and OEMs have taken stepsto handle these limitations, for example by moredirectly involving and closely monitoring Tier 1aerostructure suppliers in new programmes. But itsays these measures also represent a new risk-sharing model which brings its own dangers.

The conclusion is that OEMs will increasingly haveto lead operational improvement programmes attheir key suppliers, and Tier 1 responsibilitysuppliers will have to develop similar measuresfurther down the supply chain. As tier 1responsibility shifts to include not only full-systembut subsystem specs and integration, OEMs will haveto work with those specs and that integration toensure that sufficient competencies are in place.

Engines

With engines accounting for up to a third of the valueof a new jet, engine makers are well placed to capitaliseon the forecast growth in the aviation industry over thenext generation with combined revenues forecast toreach $1tn over the next 20 years. Big players in themarket include GE, CFM International (GE’s jointventure with Snecma of France), Rolls-Royce and Pratt& Whitney.

One of the biggest trends in the market is enginemakers increasingly being guaranteed exclusivity on anew plane and sometimes contributing directlytowards development costs of the aircraft. Forinstance, Rolls-Royce is the only engine supplier forAirbus’ new long-haul A350 plane, while GE suppliesall the engines for the Boeing 777. Another key trendis engine manufacturers now offering long-termbenefits to customers such as full life cycle services.

New technologies

Technological developments to make aircraft more fuelefficient remains key. Pratt & Whitney is developing anew generation of jet engine – its geared turbofan –which has a gearbox that lets the fan at the front ofthe engine turn at a different speed to thecompressors inside, thereby making the engine moreefficient. The engine is being fitted in Airbus’ updatedA320 aircraft which is being delivered from 2016, andthe hope is that the engine may in time be fitted towide-bodied jets too.

Another eye-catching technology is CFM’s LEAPengine which uses composite materials to achievefuel efficiency savings. The company says the enginecan reduce fuel consumption and CO2 emissions by15 per cent compared to today’s engines. The LEAPproduct line incorporates a number of technologiesincluding optimized thermodynamic design, highercompression ratios, advanced 3D aerodynamicdesign, and greater use of advanced materials. Theengine begins flight tests this year leading to enginecertification next year, and entry into commercialservice in 2016.

Earlier this year, Rolls-Royce started assembly of thefirst higher-thrust version of its Trent XWB – theengine which it claims is the world’s most efficientflying today and which has been specifically designedfor the Airbus A350. The new 97,000lb thrust versionwill exclusively power the Airbus A350, with the firstflight scheduled for the end of 2016 and entry intoservice in 2017.

The increased thrust is achieved through acombination of new high-temperature turbinetechnology, a larger and scaled-up engine core, and ahigher-flow fan enabled by advanced aerodynamicswhich has allowed Airbus to increase the A350payload range and maximum take-off weight.

* 2013 Aerospace & Defence Industry Outlook

AEROSPACE R EPORT10

Air frames

The use of composites and other advanced materialsin aircraft design and manufacturing has now becomecommonplace, resulting in a product line ofeconomical and environmentally-friendly jetliners.

Composite materials maximise weight reduction asthey are typically 20 per cent lighter than aluminium,while they are also more reliable than other traditionalmetallic materials, leading to reduced aircraftmaintenance costs. Composite technologies also giveadded strength and durability to aircraft, ensuring alonger lifespan, as well as being corrosion-free, whichlessens the quantity of chemicals necessary to protectstructural components. Weight reductions fromcomposites also result in lower fuel consumption.

Both Airbus and Boeing have widely adopted thetechnology, with Boeing’s Dreamliner the first full-sizecommercial aircraft with composite wings andfuselage. More than 50 per cent of of the next-generation Airbus A350 XWB is made of composites,and it is also the first Airbus aircraft that uses a higherpercentage of composite technologies than metallicapplications. Its fuselage panels, frames, windowframes, clips and doors are made from carbon fibrereinforced plastic.

By applying composites on the A350 XWB, Airbus saysit has increased the service intervals for the aircraftfrom from six to 12 years, which significantly reducesmaintenance costs for customers. The high percentageof composites also reduces the need for fatigue-relatedinspections required on more traditional aluminiumjetliners, and lessens the requirement for corrosion-related maintenance checks.

Maintenance, repair and operations(MRO)

With the civil air transport fleet doubling to morethan 50,000 aircraft within 15 years, there aresignificant opportunities in the MRO market asairlines increasingly outsource their maintenanceoperations, while aircraft OEMs are also extendingtheir reach into the MRO business.

Airbus FHS and Boeing Edge could become majorplayers in the segment in the next three to five years,as the two companies build on their relationships withairlines and challenge component OEMs such as cabinequipment manufacturers by implementing majornew programmes and platforms.

Another trend affecting the MRO business is thatnext-generation aircraft and engines require lessmaintenance. So, although there is a clear growthopportunity in the MRO segment, operators will haveto navigate a dynamic market in order to succeed.Key requirements will be access to capital, willingnessto invest long term and a footprint with operationsclose to the fleet of tomorrow, including strongcoverage in Asia, says Alix*.

Such growth is also encouraging new entrants intothe market, as seen by considerable M&A activity inrecent years. In 2012, for example, the componentMRO business of Aveos was taken over by A JWalter Aviation.

* 2013 Aerospace & Defence Industry Outlook


Head east

As growth in mature markets flattens, the industry’scentre of gravity is shifting to markets in Asia and theMiddle East where a growing middle class is increasinglytravelling by air and airlines are building up their fleets.China is forecast to replace the US as the most valuablemarket in the world for passenger jet deliveries byabout 2030 – almost half of all traffic will originate inAsia by that date, compared with 37 per cent currently,according to Boston Consulting Group* (BCC).

The International Air Transport Association** (IATA)estimates that China’s domestic passenger trafficincreased nearly 12 per cent last year, compared toglobal traffic growth of just over 5 per cent.According to the Chinese government, the totalnumber of airports in the country is to increasefrom 175 in 2010 to 230 in 2015 – including a majornew hub in Beijing scheduled for completion in 2018.Growth in China’s second and third-tier cities is alsorapid and Boeing predicts that the size of China’scivil aviation fleet will increase to 6,450 aircraft.Boeing and Airbus both say they expect orders forwide-body planes to increase rapidly as Chineseairlines expand their international networks.

But not just to China…

Asia will account for almost 32 per cent of globalpassenger traffic by 2017, up from 28 per cent in2012, according to IATA. The share of traffic fromNorth America and Europe will fall to 24 per centand 23 per cent respectively. Between them Boeingand Airbus expect airlines in Asia to buy $1.8tn-1.9tn worth of aircraft during the next 20 years.

Such phenomenal growth isn’t just confined to China.Indonesia’s Lion Air ordered 234 Airbus A320s in 2013,the biggest ever commercial airline order, whileVietnamese low-cost airline VietJetAir recently signed a$9.1bn deal to buy 63 Airbus aircraft. There are about1,200 aircraft on order in southeast Asia with the likesof Malaysia's AirAsia and Lion Air - the region’s fastestgrowing low-cost carriers – particularly active. By2031, the Asia-Pacific region will be the biggest airlinemarket in the world, receiving nearly a third of all newjet deliveries, according to Alix***.

Arise the ‘superconnectors’

At the heart of this shift are the Gulf's'superconnectors', its three fast-growing, state-controlled carriers which are increasingly takingmarket share from more established airlines.Emirates, Etihad Airways and Qatar Airways, whichhave hubs in Dubai, Abu Dhabi and Doharespectively, are all pursuing ambitious long-haulstrategies and all three cities are busy building eithernew airports or terminals.

For instance, Dubai's new Al Maktoum airport willhandle 160 million passengers on five runways whenfully operational in 2027. The existing airport isalready set to replace London Heathrow as theworld's largest hub by 2015. In less than 30 years,Emirates (with almost 200 aircraft) has assembledthe largest fleet of long-range, wide-body passengerjets in the world. Earlier this year, Qatar's new Dohaairport opened with a design capacity of 30 millionpassengers a year and the potential to raisethroughput to 45 million.

At last year's Dubai Airshow, the trio were unveiledas launch customers for the Boeing 777x. Emiratesplans to buy 150 units of the plane in what is set tobecome Boeing's biggest single commercial aircraftorder, while Etihad and Qatar ordered 75 unitsbetween them. Emirates also bought 50 more A380swhile Etihad, which wants to triple the size of itsfleet by 2026, placed orders at the show for a totalof 143 aircraft worth $37.2bn.

The potential of the sector to grow in big emergingmarkets such as Indonesia, Vietnam and thePhilippines is clear. While the US has 7,050commercial aircraft in use and Europe 4,200,southeast Asia still only has 1,050 planes and morethan 1,200 on order. In Indonesia alone the middleclass is forecast to nearly double from 74m to 140mby 2020, according to BCC. Low-cost carriersalready account for more than half of the capacity inIndonesia, Malaysia, the Philippines and Thailand.

However, IATA estimates that Asian carriers haveseen net profits fall from $11.1bn in 2010 to $3.2bnin 2013 with the biggest factor being the weak stateof the air cargo market.

* BCG/Tripadvisor: Winning the next billion Asian travellers** IATA Monthly Traffic Analysis*** 2013 Aerospace & Defence Industry Outlook

Geographic Trends

AEROSPACE R EPORT12

The global aerospace market continues to be a vibrant source of M&A activity.

M&A Review

Overview

With suppliers coming under pressure from OEMs toconsolidate supply chains, as well as regional players inthe supply chain broadening their product portfolioand customer base, the industry is a hotbed of dealactivity. In addition, the desire of major players to seizeupon technological advances and growing globalopportunities is also creating a fertile M&A landscape.

That said, in Europe at least, the past year was notablefor the deal that did not happen – namely the failedmerger of Airbus owner EADS and the UK's largestdefence contractor BAE Systems. The logic of the tie-up was to create a European aerospace and defencegroup which could compete with the likes of the USand China. However, the deal hit the rocks after theUK, German and French governments failed to agreeon how much influence they should each have overthe new business.

US leads the way

US corporates continue to lead the way in terms ofM&A activity and the first half of 2014 saw a number of big ticket transactions, such as PrecisionCastparts acquiring California-based AerospaceDynamics International (ADI) from the MarvinGroup for $625m.

ADI operates a wide range of high-speed machiningcentres for the industry and has developed particularexpertise in large complex components, hard metalmachining and critical assemblies. ADI has strongpositions across high growth commercial platforms,including a significant presence on the Airbus A350,and Precision says ADI has developed large partcapabilities that will expand its aerostructures productoffering and role on next-generation aircraft.

Another deal saw Textron acquire Beech Holdings,the parent of Beechcraft, and then bring together itsCessna business and Beechcraft to form a newdivision – Textron Aviation. Cessna and Beechcrafttogether produced about $4.6bn in revenues during2013. Textron Aviation will now offer a broaderselection of aircraft for its customers and a greatlyexpanded service footprint including Citation andHawker business jets, King Air twin-engineturboprops, Caravan single-engine utility turbopropsand piston-engine aircraft.

The end of 2013 saw Rockwell Collins, whichdevelops communication and aviation electronicsolutions for both commercial and governmentapplications, complete its largest ever acquisition withthe purchase of Arinc from the Carlyle Group for$1.4bn. Arinc provides digital communications toairliners and business jets through aircraftcommunications systems as well as flight supportservices for business aviation, airport communicationsand information services, and MRO services.

The US TransDigm Group, a manufacturer ofcomponents for use on commercial and militaryaircraft, has also been particularly acquisitive.

Last year it bought Arkwin Industries, a manufacturer ofaerospace hydraulic and fuel system components forcommercial and military aircraft, helicopters and otherspeciality applications. It also bought GE Aviation'sElectromechanical Actuation division via a newvehicle, Whippany Actuation Systems, whichmanufactures motion control sub-systems for civil andmilitary applications. Earlier this year, the companywent on to complete the acquisition of German-based Elektro-Metall Export which manufacturesactuators, electrical and electromechanicalcomponents and assemblies, primarily for commercialaircraft, helicopters and other speciality applications.


Another notable US deal saw the Triumph Groupacquire the pump and engine control systemsbusiness of Goodrich from United TechnologiesCorporation. The business is a leading independentaerospace fuel system supplier for the commercial,military, helicopter and business jet markets.

Cross-border

The past year has also seen a number of significantcross-border deals. For instance Eaton sold itsaerospace power distribution management solutionsand integrated cockpit solutions business to theFrench Safran group. The division producesilluminated switches, cockpit panel assemblies, pilotcontrols and passenger safety unit latches, as well ascircuit protection, power distribution and switchcomponents and sub-systems for aerospace andindustrial applications. The deal allows Safran tobolster its North American presence in avionics andflight controls bringing recognised expertise inpanels and displays, including illuminated switchesand cockpit controls.

The UK has long been seen as a global leader inaerospace technologies and its suppliers remainattractive to overseas buyers. The past year sawengine component maker Trac Group acquired byUS-based Chromalloy, which serves engine makersand operators in the commercial aerospace, defenceand energy industries. CCRS, a provider of coatingand repair services to the aerospace and gas turbineindustries, also fell into US hands after beingacquired by Curtiss-Wright.

Another deal saw Tritech, a manufacturer of complexinvestment castings and a supplier to OEM and Tier1 aerospace groups, sold to Uni Deritend, part of theNeterwala Group of companies and India's largestmanufacturer of air-melt investment castings.

However, UK companies have been on the overseasacquisition trail too. One example is MB Aerospace’sacquisition of engine component manufacturingbusiness Norbert Industries which has operations inthe US and Poland. Last year MB also acquired US-based aero-engine component manufacturingbusiness Delta Industries.

British defence specialist Cobham acquired US-based Aeroflex for an enterprise value of $1.5bn.Aeroflex makes components used in the aerospaceand defence industries and more than two-thirds ofits revenues come from the commercial sector.

There has been plenty of recent M&A activity withinthe UK too. Senior acquired Thermal Engineering, anaerospace components manufacturer whichspecialises in manufacturing hot and cold formedcomponents, complex fabricated assemblies andthermal insulation heat shields and systems.Farsound, a manufacturer and supply chain managerof precision components for the aerospace anddefence industries, was sold to RG Industries, apartnership between Rubicon Partners andGrovepoint Capital.

Meanwhile, 2014 has also seen a number of JV exits.Rolls-Royce sold its 50 per cent stake in Rolls-Royce Turbomeca to the helicopter enginemanufacturer, while Cobham acquired the remaining50 per cent stake it did not already own in threecompanies from Bristow Helicopters.

AEROSPACE R EPORT14

Recent M&A Transactions

Announced: 21/01/2014

Target: Airbus Group Inc’s Test and Services division

Total Transaction Value (£m): 32

Purchaser: Astronics Corp

Stake Acquired (%): Pending

Astronics Corp /Airbus GroupInc’s Test andServices division

Astronics Corporation agreed to acquire the assetsand liabilities of the Test and Services division of AirbusGroup Inc, a US-based defence and homeland securityprovider, for an estimated $53m plus a net workingcapital adjustment of $17m.


Target: Remaining stake in FBS Ltd, FB Heliservices Ltdand FB Leasing Ltd


Purchaser: Cobham plc

Stake Acquired (%): 50 in each entity

Cobham plc /remaining stakein FBS Ltd, FBHeliservices Ltdand FB LeasingLtd

Cobham acquired the remaining 50 per cent stake that itdid not already own in three companies from BristowHelicopters. It fully bought out FB Heliservices Ltd andFBS Ltd, the UK-based helicopter pilot training companies,and FB Leasing Ltd, for a total of £74m including debt ofan estimated £38m.


Target: Avio SPA’s aviation business

Total Transaction Value (£m): 2,800

Purchaser: General Electric Company

Stake Acquired (%): 100

General ElectricCompany / Avio SPA’saviation business

General Electric acquired Avio SPA’s aviation business,an Italian-based aircraft engine, control, automationand electrical system manufacturer, and provider ofaircraft repairs and services.


Target: Reinhold Industries Inc

Total Transaction Value (£m): n.a.

Purchaser: Heico Corp


Heico Corp / ReinholdIndustries Inc

Heico Corporation acquired Reinhold Industries Inc, aUS-based aircraft parts manufacturer and wholesaler,from affiliates of investment firm The Jordan CompanyL.P. and Reinhold management.

Announced: 19/05/14

Target: Aeroflex Corp

Total Transaction Value (£m): 1,500

Purchaser: Cobham plc


Cobham plc /Aeroflex Corp

British defence specialist Cobham has acquiredAeroflex, which makes components used in theaerospace and defence industry. The deal is the largestin Cobham's history.



Target: Aerospace Dynamics International Inc


Purchaser: Precision Castparts Corp


PrecisionCastparts Corp / AerospaceDynamicsInternational Inc

Precision Castparts Corporation acquired AerospaceDynamics International Inc, a California-basedmachined parts and assemblies manufacturer for theaerospace and defence industries, from MarvinEngineering Company Inc. The transaction is expectedto complete in the first fiscal quarter of 2015 and issubject to regulatory approvals.


Target: ARINC Inc


Purchaser: Rockwell Collins Inc


Rockwell CollinsInc / ARINC Inc

Rockwell Collins completed the acquisition of ARINCfrom the Carlyle Group for $1.4bn. Rockwell Collinsalso sold ARINC’s Industry Standards Organisation toSAE International. In addition, Rockwell Collinsdivested of ARINC’s Aerospace Systems Engineeringand Support business, which provides military aircraftintegration and modifications, maintenance, logisticsand support.


Target: Eaton Corp’s Aerospace Power DistributionManagement Solutions and Integrated CockpitSolutions business


Purchaser: Safran SA


Safran SA / EatonCorp’s AerospacePower DistributionManagementSolutions andIntegrated CockpitSolutions business

Eaton Corporation sold its Aerospace PowerDistribution Management Solutions and IntegratedCockpit Solutions business to Safran SA for $270m.The transaction was due to complete in the first halfof 2014.


Target: Stake in Aerolec SAS, and outright acquisitionof Goodrich


Purchaser: Safran SA

Stake Acquired (%): 60/100

Safran SA /Aerolec SASGoodrich Corp’sElectrical PowerGeneration andTransmissionSystemsbusinesses

China's Ministry of Commerce ordered GoodrichCorporation, a US defence and aerospace productsmanufacturer, to divest its electrical power generationand transmission systems businesses and a 60 per centstake in Aerolec SAS, a French-based aircraft partswholesaler and aircraft equipment maintenance servicescompany. The divestments followed United TechnologiesCorporation's acquisition of Goodrich. Safran SAsubsequently agreed to acquire both companies.


Target: Thermal Engineering Holding Ltd


Purchaser: Senior plc


Senior plc / ThermalEngineeringHolding Ltd

Senior plc acquired Thermal Engineering Holding Ltd, aUK-based aerospace component manufacturer, fromPrivet Capital LLP and other shareholders, for £28m.The consideration includes £6.5m of debt assumed.The company is now part of Senior's Aerospace FluidSystems division.

AEROSPACE R EPORT16


Target: Beechcraft Holdings LLC


Purchaser: Textron Inc


Textron Inc /BeechcraftHoldings (akaBeech HoldingsLLC)

Textron acquired all outstanding equity interests inBeechcraft Holdings LLC, a US-based aircraftmanufacturing holding company and parent ofBeechcraft Corporation, for a reported $1.4bn. Thedeal provided Textron with an opportunity to extendits general aviation business.


Target: CPU Technology Inc’s Acalis business


Purchaser: The Boeing Company


The BoeingCompany / CPU TechnologyInc's Acalisbusiness

The Boeing Company acquired the Acalis businessfrom CPU Technology Inc, the US-based anti-reverse engineering semiconductor elementsmanufacturer. The Acalis business became part ofBoeing Military Aircraft’s Global Strike division.


Target: Arkwin Industries Inc


Purchaser: TransDigm Group Inc


TransDigmGroup Inc / ArkwinIndustries Inc

TransDigm Group Inc acquired Arkwin IndustriesInc, a US-based aerospace hydraulic and fuelsystem components manufacturer. The cashconsideration was approximately $286m.


Target: GE Aviation Systems LLC’s ElectromechanicalActuation division’s assets


Purchaser: Whippany Actuation Systems LLC


TransDigm GroupInc / GE AviationSystems LLC’sElectro-mechanicalActuationdivision's assets

TransDigm Group Inc acquired the assets of GEAviation Systems LLC's Electromechanical Actuationdivision. The cash consideration was approximately$150m. The business is now conducted through anew entity, Whippany Actuation Systems LLC, basedin New Jersey, USA.


Target: EME Holding GmbH


Purchaser: TransDigm Group Inc


TransDigmGroup Inc / EME HoldingGmbH

TransDigm Group Inc acquired EME HoldingGmbH, a German-based holding company. Thedeal allowed TransDigm Group to expand itscontent on a number of substantial platforms.



Target: Goodrich Pump & Engine Control System Inc


Purchaser: Triumph Group Inc


Triumph GroupInc / GoodrichPump & EngineControl SystemInc

United Technologies Corporation soldGoodrich Pump & Engine ControlSystem Inc, the US-based helicopterexhausts end engine partsmanufacturer, to Triumph Group Inc.


Target: Precision Castparts Corporation’s UK- and Thai-based PrimusComposites business


Purchaser: Triumph Group Inc


Triumph GroupInc / PrecisionCastpartsCorporation’sUK- and Thai-based PrimusCompositesbusiness

Triumph Group Inc acquired the UK-and Thai-based Primus Compositesbusiness of Precision CastpartsCorporation, a US-based machinetools and investment castingsmanufacturer.


Target: Rolls-Royce Turbomeca Ltd


Purchaser: Turbomeca SA


Turbomeca SA / Rolls-RoyceTurbomeca Ltd

Rolls-Royce Holdings sold its 50 percent stake in Rolls-Royce TurbomecaLtd, the UK-based helicopter enginemanufacturer, to Turbomeca SA, for€293m. Turbomeca already held a 50per cent stake in the company.


Target: 3 Phoenix Inc


Purchaser: Ultra Electronics Holdings plc


Ultra ElectronicsHoldings plc / 3Phoenix Inc

Ultra Electronics Holdings acquired 3Phoenix Inc, a US-based sonar, radar,intelligence, surveillance andreconnaissance products manufacturer,from management. The considerationcomprises an initial payment of $70m,plus up to an additional $17mcontingent on earnings growth overthe next three years.


Target: Avic Xi’An Aero Engine (Group) Ltd - assets


Purchaser: Xi’An Aero Engine

Stake Acquired (%): Assets and debts

Xi’An AeroEngine / AvicXi’An AeroEngine (Group)Ltd - assets

Xi'an Aero Engine acquired a 100 percent stake in six companies, an 80 percent stake in a Shenzhen-basedcompany, as well as the assets anddebts related to the final assembly ofthe aero motor and test run businessof Avic Xi'an Aero-engine (Group) Ltd.

AEROSPACE R EPORT18

Revenues: £m2013 49,4662012 47,3212011 41,161

EBITDA: £m2013 3,7082012 3,5052011 3,051

EBITDA Margin: £m2013 7.5%2012 7.4%2011 7.4%

EBIT: £m2013 2,0652012 1,7852011 1,472

EBIT Margin: £m2013 4.2%2012 3.8%2011 3.6%

Principle areas of business:Aerospace, defence

Revenue breakdown:Commercial 95%; Defence 5%

Geographical breakdown:Asia-Pacific 32%; Europe 23%;North America 18%; MiddleEast 18%; Latin America 6%;Other 3%

Recent M&A activity:March 2014: Sold EADS NorthAmerica Test & Services Inc, aCalifornia-based manufacturerof test & measurement systems,to Astronics Corporation.

AirbusRotterdam (144, 061)*

Airbus Group manufacturesaircraft, helicopters, commercialspace launch vehicles, missiles,satellites, defence systems andelectronics. The Airbus divisioncomprises of Airbus Commercialand Airbus Military whichdevelop, manufacture and marketcommercial jet aircraft militarytransport aircraft, and specialmission aircraft.

Revenues: £m2013 16,8642012 16,6912011 17,770

EBITDA: £m2013 1,1122012 1,9342011 3,185

EBITDA Margin: £m2013 6.6%2012 11.6%2011 17.9%

EBIT: £m2013 6192012 1,3892011 1,683

EBIT Margin: £m2013 3.7%2012 8.3%2011 9.5%

Principle areas of business:Aerospace, defence and security

Revenue breakdown:Electronic Systems 12.9%; Cyber& Intelligence 6.5%; Platforms &Services 79%; HQ 1.6%

Geographical breakdown:USA 37%; UK 26%; Saudi Arabia20%; Australia 5%; Other 12%

Recent M&A activity:July 2013: Sold its unmannedaircraft business, a London-based manufacturer of civil andmilitary aircraft.

BAE Systems

BAE Systems is a globaldefence, aerospace and securitycompany delivering a range ofproducts and services for air,land and naval forces, as well asadvanced electronics, security,information technologysolutions and support services.The company operates in thefollowing segments: ElectronicSystems, Cyber & Intelligenceand Platforms & Services.

Revenues: £m2013 52,5272012 50,5302011 44,472

EBITDA: £m2013 5,0012012 4,9502011 4,897

EBITDA Margin: £m2013 9.5%2012 8.7%2011 11.0%

EBIT: £m2013 3,8832012 3,8302011 3,954

EBIT Margin: £m2013 7.4%2012 7.0%2011 8.9%

Principle areas of business:Aerospace, defence, space systems and security

Revenue breakdown:Aerospace 61.2%; Defence18.4%; Space systems 9.8%;Other 10.1%

Geographical breakdown:USA 33.3%; Asia (other thanChina) 33.3%; China 7.4%;Europe 22.2%; Oceania 2.2%;Other 1.5%

Recent M&A activity:February 2013: Acquired CPUTechnology Inc, a California-based manufacturer ofelectronic computers.

Boeing

Boeing is an internationalaerospace company providingproducts and services acrossfive segments: CommercialAirplanes, Military Aircraft,Network and Space Systems,Global Services & Support andBoeing Capital Corporation.

Revenues: £m2013 11,0072012 10,1522011 11,871

EBITDA: £m2013 7582012 6022011 997

EBITDA Margin: £m2013 6.9%2012 3.8%2011 6.5%

EBIT: £m2013 5212012 3772011 782

EBIT Margin: £m2013 4.7%2012 3.8%2011 6.5%

Principle areas of business:Aerospace, transportation

Revenue breakdown:Aerospace 51.6%; Transportation 48.4%

Geographical breakdown:North America 39%; Europe43.6%; Asia-Pacific 10.7%; Other 6.7%

Recent M&A activity:May 2013: Sold Flexjet Inc, aprovider of fractional aircraftownership services, for £118m.

Bombardier

Bombardier is a Canadian-basedaerospace and transportationcompany. The business operatesin two segments: Aerospace andRail Transportation. TheAerospace segment providesbusiness, commercial,amphibious and specialisedaircraft, plus related services.

Top 20 Global Players

* Workforce

Montreal (76,400)Chicago (168,400)London (78,000)


Revenues: £m2013 3,8342012 3,2212011 2,769

EBITDA: £m2013 1,4482012 6872011 450

EBITDA Margin: £m2013 37.8%2012 21.3%2011 16.3%

EBIT: £m2013 5602012 6052011 381

EBIT Margin: £m2013 14.6%2012 18.8%2011 13.8%

Principle areas of business:Civil and military aviation

Revenue breakdown:Defence 30.2%; Falcon (executive jets) 69.8%

Geographical breakdown:France 78%; US 22%

Recent M&A activity:Acquisition of a 20.8% stake inThales Group, the French-basedprovider of onboard andground systems for the civilaerospace market, in a dealworth £1.46bn.

Dassault Aviation

Dassault Aviation operates in theglobal civil and military aviationindustry specialising in the design,manufacture and sale of combataircraft and executive jets. Itsportfolio of products includes theFalcon family for the civil aviationmarket, as well as Mirage 2000,Rafale and Neuron aircrafts forthe military sector.

Revenues: £m2013 13,3842012 13,4902011 14,510

EBITDA: £m2013 5482012 692011 (1,239)

EBITDA Margin: £m2013 4.1%2012 0.5%2011 (8.5%)

EBIT: £m2013 (45)2012 (485)2011 (1,801)

EBIT Margin: £m2013 (0.3%)2012 (3.6%)2011 (12.4%)


Revenue breakdown:Helicopters 25.4%; Defence andSecurity Electronics 30.5%;Aeronautics 20.9%; Space 6.6%;Defence Systems 7.8%;Transportation 11.2%; Other 2.1%

Geographical breakdown:Italy 17.6%; UK 10.1%; Rest ofEurope 29.2%; North America22.7%; Other 20.4%

Recent M&A activity:December 2013: Sold its 39.55%stake in Ansaldo Energia SpA, aGenoa-based manufacturer ofpower generators, gas andsteam turbines, for £308m.

August 2013: Acquired DSIEntertainment Systems Inc, aprovider of audio installationservices, through its USsubsidiary EngineeredEnvironments Inc.

Finmeccanica

Finmeccanica operates througheight divisions producing militaryaircraft and civil applications suchas turboprop aircraft,aerostructures and enginenacelles. It is also active inhelicopter production,computerised flight control andmission management, satellitenavigation, radar systems, avionicsand electro-optimal equipment.

Revenues: £m2013 88,5592012 90,7242011 92,020

EBITDA: £m2013 17,2662012 17,9342011 20,030

EBITDA Margin: £m2013 19.5%2012 19.8%2011 21.8%

EBIT: £m2013 10,3092012 11,2522011 12,956

EBIT Margin: £m2013 11.6%2012 12.4%2011 14.1%

Principle areas of business:General industrials including aviation

Revenue breakdown:Power & Water 16.7%; Oil & Gas11.5%; Energy Management 5.1%;Aviation 14.8%; Healthcare12.3%; Transportation 4%;Appliances & Lighting 5.6%; GECapital 29.8%

Geographical breakdown:USA 47%; Europe 17.3%; PacificBasin 17.5%; Latin America 9%;Middle East and Africa 9.2%

Recent M&A activity:December 2012: Acquired theaviation business of Avio SpA ina £2.7bn deal.

GE

General Electric Company (GE)is a diversified technology andfinancial services company. Itsproducts and services rangefrom aircraft engines, powergeneration, water processingand household appliances,through to medical imaging,business & consumer financingand industrial products.

Revenues: £m2013 18,9302012 19,4912011 21,142

EBITDA: £m2013 2,5872012 8992011 2,889

EBITDA Margin: £m2013 13.7%2012 4.6%2011 13.7%

EBIT: £m2013 2,2502012 5152011 2,506

EBIT Margin: £m2013 1 1.9%2012 2.6%2011 11.9%


Revenue breakdown:Aerospace 26%; Combat Systems19.6%; Marine Systems 21.5%;Information Systems andTechnology 32.9%

Geographical breakdown:North America 82.7%; Europe9.1%; Asia-Pacific 4.8%;Africa/Middle East 2.4%; SouthAmerica 1.1%

Recent M&A activity:November 2012: Sold thePalencia operations of itssubsidiary company SantaBarbara Sistemas SA, the Spanishbased manufacturer of defenceequipment and materials.

General Dynamics

General Dynamics offers aportfolio of products and servicesin business aviation, combatvehicles, weapons systems andmunitions, military & commercialshipbuilding and communications& information technology. Thecompany has four divisions:Aerospace, Combat Systems,Marine Systems, and InformationSystems & Technology.

Paris (11,614) Rome (63,835) Connecticut (307,000) Virginia (96,000)

AEROSPACE R EPORT20

Revenues: £m2013 23,6822012 23,2962011 23,616

EBITDA: £m2013 4,0582012 3,1662011 2,378

EBITDA Margin: £m2013 17.1%2012 13.6%2011 10.1%

EBIT: £m2013 3,4582012 2,5932011 1,759

EBIT Margin: £m2013 14.6%2012 11.1%2011 7.5%

Principle areas of business:General industrials includingaerospace

Revenue breakdown:Aerospace 30.7%; Automationand Control Solutions 42.4%;Performance Materials andTechnologies 17.3%;Transportation Systems 9.6%

Geographical breakdown:USA 58.8%; Europe 25.2%;Other 16.1%

Recent M&A activity:April 2014: Sold Sociétéd'Études et de ConstructionsAéronavales SAS, amanufacturer of aircraft parts.

September 2013: AcquiredIntermec Inc, a manufacturerand wholesaler of systems forautomated data collection andmobile computing, for £376m.

Honeywell

Honeywell International is adiversified technology andmanufacturing company whoserange of products include sensingand security technologies forbuildings, turbochargers,automotive products, specialitychemicals, electronic andadvanced materials, processtechnology for refining andpetrochemicals, and energyefficient products and solutions.

Revenues: £m2013 1,5142012 1,3782011 1,349

EBITDA: £m2013 1662012 1362011 (109)

EBITDA Margin: £m2013 11.0%2012 9.9%2011 (8.1%)

EBIT: £m2013 1132012 922011 (155)

EBIT Margin: £m2013 7.5%2012 6.7%2011 (11.5%)

Principle areas of business:Aerospace, defence, energy,transportation and industrial

Revenue breakdown:Industrial Process 44.4%; MotionTechnologies 28.9%; InterconnectSolutions 15.8%; ControlTechnologies 11.1%

Geographical breakdown:USA 35.9%; Germany 10.7%;Other developed markets 23.4%;Other emerging markets 30.1%

Recent M&A activity:November 2012: Sold the shapecutting product lines of ITTCorp, a US provider ofaerospace and defence services,to Lincoln Electric Holdings Inc.

ITT

ITT Corporation is amanufacturer of engineeredcritical components andcustomised technology solutionsfor the aerospace, defence,energy, transportation andindustrial markets. The companyhas five divisions:Aerospace/Defence, IndustrialProcess, Motion Technologies,Interconnect Solutions andControl Technologies.

Revenues: £m2013 7,6582012 8,1312011 8,513

EBITDA: £m2013 9022012 9742011 1,031

EBITDA Margin: £m2013 11.8%2012 12.0%2011 12.1%

EBIT: £m2013 7722012 8322011 883

EBIT Margin: £m2013 10.1%2012 10.2%2011 10.4%

Principle areas of business:Aerospace, national security

Revenue breakdown:Platform & Logistics Solutions21.5%; Communications,Intelligence, Surveillance andReconnaissance 26.8%; ElectronicSystems 45%; National SecuritySolutions 10.3%

Geographical breakdown:USA 77.7%; UK 3.6%; Canada2.9%; Germany 2.2%; Australia1.7%; South Korea 1.4%; Other 10.5%

Recent M&A activity:March2014: Acquired Data TacticsCorp, the Virginia-based providerof data analytics services.

December 2013: AcquiredMustang Technology Group, amanufacturer of radar sensorsand systems.

L-3 Communications

L-3 Communications is a primecontractor in aerospace systemsand national security solutions.The company also provides arange of communication &electronic systems and productsused on military and commercialplatforms. It operates in foursegments: Aerospace Systems,Electronic Systems,Communication Systems andNational Security Solutions.

Revenues: £m2013 27,5042012 29,1822011 30,085

EBITDA: £m2013 3,5272012 3,1952011 3,016

EBITDA Margin: £m2013 12.8%2012 11%2011 10%

EBIT: £m2013 2,9262012 2,5842011 2,364

EBIT Margin: £m2013 10.6%2012 8.9%2011 7.9%

Principle areas of business:Aerospace and defence, IT, spaceand emerging technologies

Revenue breakdown:Aeronautics 31%; InformationSystems and Global Solutions18%; Missiles and Fire Control17%; Mission Systems andTraining 16%; Space Systems 18%

Geographical breakdown:USA 82%; Other 18%

Recent M&A activity:March 2014: AcquiredBEONTRA AG, a Germanprovider of integratedcorporate planning solutions.

November 2013: AcquiredAmor Business TechnologySolutions Ltd, a UK provider ofinformation technologyservices.

Lockheed Martin

Lockheed Martin is a globalsecurity and aerospace companyprincipally engaged in theresearch, design, development,manufacture, integration, andsustainment of technologysystems and products. Thebusiness also provides a range ofmanagement, engineering,technical, scientific, logistic andinformation services.

New Jersey (131,000) New York (9,400) New York (48,000) Maryland (115,000)


Mitsubishi HeavyIndustries

Revenues: £m2013 19,6702012 21,4412011 21,854

EBITDA: £m2013 2,0332012 1,6292011 1,461

EBITDA Margin: £m2013 10.3%2012 7.6%2011 6.7%

EBIT: £m2013 1,2062012 6872011 466

EBIT Margin: £m2013 6.1%2012 3.2%2011 2.1%

Principle areas of business:Aviation, space, marine, powerengine and machinery

Revenue breakdown:Shipbuilding and OceanDevelopment 7.7%; PowerSystems 33.9%; Machinery &Steel Infrastructure Systems16.5%; Aerospace Systems 16.6%;General Machinery and SpecialVehicles 13.3%; Other 11.9%

Geographical breakdown:Japan 55.2%; USA 12.0%; Asia16.2%; Europe 7.7%; LatinAmerica 3.7%; Middle East 1.7%;Other 3.4%

Recent M&A activity:April 2014: Acquired the offshorewind turbines business of VestasWind Systems A/S, amanufacturer and wholesaler ofwind turbines, to form a jointventure for an estimated £253m.

February 2014: Merged its thermalpower generation system businesswith Hitachi in a £2.1bn deal.

Mitsubishi Heavy Industries is adiversified manufacturer. ItsMarine Vessel and Ocean divisiondevelops passenger ships and carferries, while its Power Enginedivision develops boilers, turbines,diesel engines and pumps. ItsAviation and Space segmentoffers space equipment, aircraftand torpedoes.

Revenues: £m2013 14,9542012 15,5972011 17,089

EBITDA: £m2013 2,1922012 2,2802011 2,490

EBITDA Margin: £m2013 14.7%2012 14.6%2011 14.6%

EBIT: £m2013 1,8922012 1,9652011 2,138

EBIT Margin: £m2013 12.7%2012 12.6%2011 12.5%

Principle areas of business:Aerospace, electronics

Revenue breakdown:Aerospace 40.6%; ElectronicSystems 29.0%; InformationSystems 26.7%; TechnicalServices 11.5%

Geographical breakdown:USA 86.3%; Other 13.7%

Recent M&A activity:February 2014: AcquiredQantas Defence, a Sydney-basedprovider of air workmaintenance and modificationservices, from Qantas Airways.

Northrop Grumman

Northrop Grumman providesproducts, services and integratedsolutions in aerospace andelectronics. The companyoperates four divisions:Aerospace Systems, ElectronicSystems, Information Systemsand Technical Services. Its maincustomer is the US government,principally the Department ofDefence and Intelligence.

Revenues: £m2013 14,3752012 15,1002011 16,040

EBITDA: £m2013 2,0692012 2,1252011 2,120

EBITDA Margin: £m2013 14.4%2012 14.1%2011 13.2%

EBIT: £m2013 1,7992012 1,8432011 1,832

EBIT Margin: £m2013 12.5%2012 12.2%2011 11.4%

Principle areas of business:Aerospace, defence andhomeland security

Revenue breakdown:Integrated Defence Systems 27.4%;Information and Services 25.5%;Missile Systems 27.8%; Space andAirborne Systems 26.9%

Geographical breakdown:USA 72.8%; Asia-Pacific 10.9%;Middle East and North Africa10.1%; Other (principallyEurope) 6.2%

Recent M&A activity:June 2013: Acquired VisualAnalytics Inc, a US developer ofanalytics software.

December 2013: Acquired thegovernment solutions businessof SafeNet Inc, a US developerof network security software,for an estimated £174m.

Raytheon

Raytheon is a technologycompany specialising in defence,homeland security and othergovernment markets worldwide.The company provideselectronics, mission systemsintegration and other capabilitiesin the areas of communicationsand intelligence systems, as wellas a range of mission supportservices.

Revenues: £m2013 15,5132012 12,1612011 11,124

EBITDA: £m2013 2,6442012 3,3142011 1,448

EBITDA Margin: £m2013 17.0%2012 27.3%2011 13.0%

EBIT: £m2013 1,8442012 2,8272011 1,040

EBIT Margin: £m2013 11.9%2012 23.3%2011 9.4%

Principle areas of business:Aerospace, defence, marine and energy

Revenue breakdown:Civil Aerospace 42.9%; DefenceAerospace 16.7%; Marine 16.3%;Energy 6.8%; Power Systems 18.2%.

Geographical breakdown:UK 11.6%; Rest of Europe24.7%; Americas 31.4%; MiddleEast & Africa 7.2%; Asia 23.5%;Other 1.6%

Recent M&A activity:August 2013: AcquiredSmartMotor AS, a Norway-based manufacturer andwholesaler of turbines andpower systems.

May 2013: Acquired Hyper-Therm High TemperatureComposites Inc, a California-based manufacturer ofcomposite materials.

Rolls-Royce

Rolls-Royce is a provider ofpower systems and services foruse on land, at sea and in the air. Ithas divisions in Civil Aerospace,Defence Aerospace, Marine andEnergy. The Civil Aerospacesegment is engaged in theprovision of commercial aeroengines and aftermarket services.The Defence Aerospace segmentprovides military aero engines andaftermarket services.

Tokyo (68,213) Virginia (65,300) Massachusetts (63,000) London (55,200)

AEROSPACE R EPORT22

United TechnologiesSafran

Revenues: £m2013 12,0962012 11,1292011 9,767

EBITDA: £m2013 2,4582012 2,0742011 1,196

EBITDA Margin: £m2013 20.3%2012 18.6%2011 12.3%

EBIT: £m2013 1,6732012 1,4852011 642

EBIT Margin: £m2013 13.8%2012 13.4%2011 6.6%

Principle areas of business:Aerospace, aircraft, defence andsecurity

Revenue breakdown:Aerospace Propulsion 53%;Aircraft Equipment 28%; Defence9%; Security 10%

Geographical breakdown:France 59.7%; Rest of Europe11.1%; Africa and the MiddleEast 3.9%; Americas 19.9%; Asiaand Oceania 5.4%

Recent M&A activity:January 2014: Acquired theAerospace Power DistributionManagement Solutions andIntegrated Cockpit Solutionsbusiness of Eaton Corp for £164m.

March 2013: Acquired theelectrical power systemsbusiness of Goodrich Corp, amanufacturer and wholesaler ofaircraft parts and equipment, foran estimated £252m.

Safran produces aircraft androcket engines and propulsionsystems. Its Aerospace Propulsiondivision provides engines, turbinesand parts for aircraft, and rocketboosters for civil, military andspatial markets. Its AircraftEquipment division produceslanding gear, wheels and carbonbrakes, aircraft engine nacelles andairborne power electronics.

Revenues: £m2013 7,3492012 7,5892011 7,295

EBITDA: £m2013 7502012 8912011 638

EBITDA Margin: £m2013 10.2%2012 11.7%2011 8.8%

EBIT: £m2013 5142012 6532011 377

EBIT Margin: £m2013 7.0%2012 8.6%2011 5.2%


Revenue breakdown:Bell Helicopter 37.3%; TextronSystems 13.8%; Cessna 23%;Industrial 24.9%; Finance 1.1%

Geographical breakdown:USA 62.1%; Europe 12.7%;Canada 3.1%; Latin America7.3%; Asia and Australia 9.2%;Middle East and Africa 5.7%

Recent M&A activity:December 2013: AcquiredBeech Holdings LLC, a US-based manufacturer andwholesaler of aircraft, for anestimated £856m.

Textron

Textron operates in the aircraft,defence, industrial and financesectors. It runs five divisions:Cessna, Bell, Textron Systems,Industrial and Finance. Cessna is ageneral aviation company withtwo principal lines of business:aircraft sales and aftermarketservices. Bell Helicopter is asupplier of military andcommercial helicopters.

Revenues: £m2013 11,8492012 11,5722011 10,915

EBITDA: £m2013 1,0842012 1,0702011 907

EBITDA Margin: £m2013 9.2%2012 9.2%2011 8.3%

EBIT: £m2013 7022012 6762011 628

EBIT Margin: £m2013 5.9%2012 5.8%2011 5.8%


Revenue breakdown:Aerospace 32.0%; Transport 10.6%;Defence & Security 51.9%; DCNS(35% owned subsidiary) 8.3%

Geographical breakdown:USA 72.8%; Asia-Pacific 10.9%;Middle East and North Africa10.1%; Other (principallyEurope) 6.2%

Recent M&A activity:January 2014: Sold the SAPBusiness of Thales Italia SpA, anItalian manufacturer andwholesaler of defence equipment.

February 2013: Acquired the airtraffic management IT solutionsbusiness of Egis SA, a Frenchprovider of consulting services.

Thales

Thales is a provider ofintegrated solutions, equipmentand security systems, primarilyto the aerospace and defencemarkets. Its Aerospace divisionspecialises in on-boardequipment, electronics andsystems for the civil and militarymarkets. Its Space division offerssolutions combining space andterrestrial technologies.

Revenues: £m2013 37,9752012 35,6922011 36,073

EBITDA: £m2013 6,7712012 5,7692011 5,929

EBITDA Margin: £m2013 17.8%2012 16.2%2011 16.4%

EBIT: £m2013 5,6672012 4,8272011 5,112

EBIT Margin: £m2013 14.9%2012 13.5%2011 14.2%

Principle areas of business:Aerospace, building systems

Revenue breakdown:Commercial & Industrial 47%;Military Aerospace & Space 19%;Commercial Aerospace 34%

Geographical breakdown:USA 57.5%; Europe 20.2%; Asia-Pacific 13.9%; Other 8.4%

Recent M&A activity:January 2014: Acquired UHS PtyLtd, the Australian-based providerof electronic systems services.

June 2013: Sold Angus Fire Ltd, aUK-based manufacturer andwholesaler of fire-fightingproducts, for £62m. ClearwaterInternational advised thebuyers, LDC and managementon the transaction.

United Technologies Corporationprovides high technologyproducts and services to thebuilding systems and aerospaceindustries worldwide. Thecompany operates six divisions:Carrier and UTC Fire & Securityserve customers in thecommercial, governmentinfrastructure and residentialproperty sectors.

Paris (66,289) Rhode Island (32,000) Paris (65,912) Connecticut (212,000)

A CL EARWATER INTERNAT IONAL INDUSTR IA LS TEAM RE PORT 23

Manufacturer and supplychain manager for aerospacefasteners

Clearwater International advisedFarsound Engineering on the saleto RG Industries LLP

FARSOUND ENGINEERING

Manufacturer of precisionengineered and mission-critical components

Clearwater International advisedPrecision Micro on the sale toMeggitt plc

PRECISION MICRO

Manufacturer of precisionmachined, investment andvacuum castings for theaerospace industry

Clearwater International advisedon the sale of Tritech Aerospaceto India’s largest manufacturer ofair-melt castings, NeterwalaGroup Ltd

TRITECH

Provider of procurement andtesting services for electroniccomponents used in theaerospace and space industries

Clearwater International advisedAlter Technology on the sale toTÜV Nord GmbH

ALTER TECHNOLOGY

Manufacturer of precisionengineered components andtooling for the aerospaceindustry

Clearwater International advisedSMA on the establishment of ajoint venture with Hafei AviationIndustry Co Ltd

SMA

Manufacturer of advancedprinted circuit boards for theaerospace, military and spaceindustries

Clearwater Internationaladvised Printca on the sale toGraphic plc

PRINTCA

Software development forbusiness-critical informationsystems

Clearwater International advised afounding shareholder on the saleof a 28% stake in the company

CRITICAL GROUP

Provider of aircraftmaintenance services

Clearwater International advisedSinaer on raising debt from threeinternational institutions

SINAER MAINTENANCEDIVISION

WWW.CLEARWATER INTERNAT IONAL .COM

AARHUS • BARCELONA • BEIJING • BIRMINGHAM • COPENHAGEN • LISBONLONDON • MADRID • MANCHESTER • NOTTINGHAM • PORTO • SHANGHAI

global aerospace report 2014 - clearwater...

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