Appetite for Commercial Aerospace Mergers & Acquisitions Undiminished by Economic Concerns, Says Lazard
An extremely positive outlook for the commercial aerospace industry is driving strong mergers and acquisitions activity, according to Michael Richter, managing director of the aerospace and defense group at financial advisor and asset manager Lazard. In his view, companies and investors gravitate toward strong equity performance, revenues from healthy order backlogs and the perceived opportunity to enter markets during the early stage of an up-cycle.
Despite the mounting prospect of another full-blown financial crisis in Europe and diminished airline profitability in many regions, Richter told AIN that companies throughout the aerospace supply chain have benefitted from the increased aircraft build rates announced by Airbus and Boeing last year. Meanwhile, he said, the market has taken solace in an apparent end to the uncertainty surrounding the troubled Boeing 787 program and now seeks to capitalize on opportunities presented by the new A320 neo and Boeing 737 Max narrowbodies.
A new White Paper published by Lazard ahead of next month’s Farnborough International Airshow highlights two competing views among prospective merger and acquisition players as to what awaits the commercial aerospace sector in the next few years. “The first view is that the current aerospace cycle will continue through, and hold steady beyond, the announced build rate increases,” said Lazard, which describes such an outcome as a “super cycle.”
“The second view is the more traditional commercial aerospace cycle wherein Airbus and Boeing orders, and subsequently deliveries, experience periods of fluctuation stemming from either external events or transitional periods in aircraft model production,” concluded the White Paper. Under that scenario, deliveries would likely peak and then dip around the middle of the current decade.
But grave concerns about Europe’s financial foundations, slowing growth in markets such as China and IATA’s latest downgrade in projected airline profits have given rise to skepticism. “To the extent that the market deteriorates, the order backlog is at risk,” conceded Richter. “But if it does hold up then it will be good for suppliers. To the extent that organic growth is at risk, then growth through mergers and acquisitions becomes more important [for companies seeking other sources of growth].”