Credit-rating agency Moody's has warned of more downgrades, as aerospace firms suffer the effects of cut-throat competition in the defence market and economic downturn. BAE Systems, Bombardier, EADS, Goodrich, Northrop Grumman, Raytheon and Rolls-Royce are among companies in the frame.
Moody's senior vice-president Tassos Phillipakos says: "US consolidators did not give themselves time to digest new acquisitions. Also, it was mostly debt-funded." He says Northrop Grumman and Thales may be particularly vulnerable in this respect. The former's acquisition of the Newport News shipyard last year was its largest ever take-over, and perhaps far enough from the core business to create difficulties, he adds. While Thales has acquired Racal, Phillipakos says any more acquisitions could lower the firm's standing.
Though consolidation should make the US defence industry more profitable by allowing greater economies of scale, it has "not yet produced expected results", says Moody's. Lockheed Martin and Raytheon have been active in mergers and acquisitions, but have not improved performance as expected. Despite Afghanistan, defence budgets are growing only moderately, it adds.
Moody's does not expect sales of commercial aircraft to recover before 2005, with much of the airline recovery expected in less prosperous countries.
Source: Flight International
