Future Of Aerospace And Defense A Little Less Bright, Analysts Forecast

Days after Boeing announced a coming halt to production of its 737 MAX, the first forecasts to emerge from financial analysts covering aerospace and defense (A&D) still see good business prospects for the sector in 2020 but with several caveats, and with far cloudier horizons.

A 2020 forecast issued Dec. 18 by Moody’s Investors Service called for 6% profit growth, including Boeing’s, but that assumes the MAX’s grounding does not last beyond mid-year.

Meanwhile, slowing economic growth worldwide makes deliveries of new commercial aircraft more likely, but with limited financial impact given the six-to-seven-year size of order backlogs at Airbus and Boeing. Countering all of that, higher defense spending around the world will support earnings growth in 2020-21, according to Moody’s.

Rival Fitch Ratings also said the MAX’s return was critical. “The impact of the MAX suspension should be temporary unless substantial orders are canceled,” the credit agency said Dec. 19. “Our rating case assumes the MAX groundings will be lifted in phases by different regions through early second-quarter 2020 and that deliveries in various regions will resume shortly afterwards.”

Fitch did not provide a growth forecast, but its analysts said MAX production suspension “underscores” risks of the aerospace sector, both for original equipment manufacturers and their suppliers.

“The exact credit impact will largely depend on the length of suspension and the timing of the 737 MAX’s return to service, and on potential regulatory changes,” Fitch said. “The long-term impact of the MAX grounding on the aerospace sector is likely to be negative due to growing regulatory scrutiny.” New aircraft certifications will become longer and costlier for manufacturers, while regulatory actions in case of difficulties are likely to be quicker and more rigorous.

Others agree that the MAX halt augurs worse-than-before results for A&D in 2020. “We can expect a negative ripple effect across the aerospace industry in 2020,” Accenture Global A&D Lead John Schmidt told Aviation Week. “This impact is likely to be more significant than prior rate reductions because of the complexities facing suppliers in restarting idled production lines back up to full production rates.”

In October—when Boeing still was promoting a MAX return to service by year-end—Schmidt’s group had halved its expected growth for global A&D in 2019, to just 2.5% year-over-year versus a 5.4% forecast before the MAX was grounded in March. 

Another consultancy, Deloitte, which issued its own 2020 outlook earlier this month, did not provide numerical expectations for A&D as a whole.