Industry Still Primed For Mergers And Acquisitions, Says Lazard
The outlook for the commercial aerospace industry remains extremely positive and this 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. Richter said companies and investors are drawn to strong equity performance, revenues from healthy order backlogs and the perceived opportunity to get a bigger piece of the action at the early stage of an upcycle.
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 are benefiting from the increased aircraft build rates announced by Airbus and Boeing in 2011. On top of this, he said the market has been reassured by an apparent end to the uncertainty surrounding the troubled Boeing 787 program and is now seeking to capitalize on opportunities presented by the new A320 neo and Boeing 737 MAX narrowbody developments.
A new industry commentary published by Lazard ahead of this week’s Farnborough International airshow indicates that there are two competing views between prospective merger and acquisitions 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 this outcome as a “super cycle.”
Alternatively, “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 Lazard. In this scenario, deliveries would likely peak and then dip around the middle of the current decade.
But surely, given grave concerns over Europe’s financial foundations, slowing growth in markets like China and the latest downgrade in project airline profits from the International Air Transport Association, the outlook cannot be this optimistic? “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].”