Dépêches

Fitch: Outlook for Commercial Aerospace Cautiously Positive in 2012

Dépèche transmise le 20 décembre 2011 par Business Wire

NEW YORK & LONDON--(BUSINESS WIRE)--The outlook for the global Aerospace and Defense (A&D) sector is stable for 2012, with commercial growth offsetting defense pressure, according to Fitch Ratings in its new outlook report.

Fitch expects the commercial aerospace sector to grow in 2012, but this outlook is tempered with caution based on several economic indicators. In contrast, global defense budgets are falling, cash deployment is a key risk, and thus pure-play defense names could see ratings come under pressure.

Outlook Summary:

--Commercial Segments: Fitch expects deliveries from Airbus S.A.S. (Airbus) and The Boeing Co. (Boeing) will rise approximately 15% in 2012 and 9% in 2013, with 20% revenue growth in 2012. Aftermarket revenues should grow in the mid single digits in 2012. Fitch expects business jet deliveries in 2012 will increase approximately 5% off a low base, with revenues up 5%-10%, and regional jet (RJ) aircraft deliveries should rise 10%, also off a low base.

--Aircraft Finance: Fitch does not expect aircraft financing will be a limiting factor on the commercial aerospace, outlook despite a likely 20% higher financing requirement in 2012 and the turmoil in the key European banking sector. Needs should be met by other sources of financing, including non-European banks and capital markets.

--U.S. Defense Under Pressure: The end of the Supercommittee negotiations without an agreement increases the probability of Fitch's harshest Department of Defense (DoD) spending scenario. The U.S. defense credit outlook will be uncertain and volatile over the next one to two years, and cash deployment is a serious risk related to defense spending reductions.

--European Defense Also Pressured: European defense top lines will be pressured by defense spending in home markets and the U.S. Several mitigating factors should limit overall credit deterioration, and rating actions are likely to be event-driven (e.g. acquisitions) or influenced by company-specific factors such as key program issues.

--Cash Deployment Drives Risk: The credit risk from cash deployment actions in 2012 is higher than in the previous several years, particularly in the defense sector. Pensions and acquisitions could cause credit quality deterioration. Mitigating factors include solid FCF and healthy liquidity. A key event will be United Technologies Corp.'s (UTC) funding of the Goodrich Corporation (GR) acquisition, including approximately $12 billion of debt issuance.

The key risk to Fitch's outlook is a global economic downturn. The downside risks for the aerospace industry were recently illustrated by the International Air Transport Association's (IATA) estimate that a downturn driven by a banking crisis could lead to global airline losses greater than $8 billion in 2012. Economic contraction or declining growth in key emerging markets could also affect Fitch's commercial outlook given the importance of these regions in the commercial backlog.

Most commercial aerospace indicators are positive, yet jet fuel prices and cargo traffic are currently concerns. Several other indicators are at risk of turning negative later in the year. Considering euro zone uncertainty and some signs of slowing growth in key emerging markets, Fitch sees reason to be cautious.

The full '2012 Outlook: Global Aerospace and Defense' is available at www.fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: 2012 Outlook: Global Aerospace and Defense
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=660209

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