THE WORLD’s TOP 100

AEROSPACE & DEFENCE

COMPANIES

2012

September 2012

© Copyright Candesic Ltd 2012. All rights reserved

 CANDESIC TOP 100 AEROSPACE & DEFENCE
COMPANIES 2012

FACTS & FIGURES

Consolidation at the top of the industry pyramid has slowed down

Total A&D revenues of the top 100 A&D companies in the world amounted to $681Bn in 2011.
This is only 17% more than five years ago in 2007 but 71% more than nine years ago in 2003.
This reflects a slowdown in the industry consolidation process, at least at the top of the “industry
pyramid”. Indeed, between 2008 and 2011, only three M&A transactions within the top 100
companies took place, to be compared with eleven transactions during the preceding four-year
period (2004-2007):

Nevertheless, some consolidation did occur, primarily at the bottom and in the middle of the
industry pyramid (below $5Bn revenues), but not as much as one might expect. In fact, overall,
the industry has become less concentrated, with the top 10 players accounting for only 53% of the
total top 100 A&D revenues in 2011, down from 57% five years earlier and 60% nine years earlier.
In 2011, 80% of the total top 100 A&D revenues were accounted for by the top 34 companies,
while in 2003, it was accounted for by the top 25 companies only.

The recently announced takeover of Goodrich by United Technologies will be the first M&A
transaction involving two of the top 20 players in the world since the creation of EADS in 2000
(and in the US since the merger between AlliedSignal and Honeywell in 1999), and may trigger a
new wave of consolidation among the large “tier one” aerospace suppliers.

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 2003 Top 100 A&D Industry Pyramid 2011 Top 100 A&D Industry Pyramid
(number of companies by revenue bracket) (number of companies by revenue bracket)

5 9 >$20Bn
5 6
7
12 $10-20Bn
17
$5-10Bn
19
39 $2-5Bn
$1-2Bn
47 30 <$1Bn
4

Revenue growth has also slowed down

The average revenue growth of the top 100 A&D players has slowed down significantly as well
over the last five years. It was 33% between 2007 and 2011 (6% CAGR) compared to 65%
between 2003 and 2007 (12% CAGR).
CAGR)

Companies within the Top

op 100 which have experienced the biggest increase in their A&D
revenues between 2003 and 2011 include Triumph (461%), Mantech (309%), Precision Castparts
(299%), Meggitt (258%), Harris (254%), Hindustan Aeronautics (253%), Zodiac Aerospace
(212%), Esterline Technologies (206%), BE Aerospace (301%) and L-3
L 3 Communications (200%).
(200%)

The firms that have progressed the most significantly in the rankings over the 2003-2011
2003 period
are Harris (from 44 to 26), Precision Castparts (from 52 to 33), Triumph (from 77 to 43),
4 Mantech
(from 66 to 47), BE Aerospace (from 75 to 55)
5 and Meggitt (from 84 to 64). Moog (from 100 to 78),
7
Ultra Electronics (from 98 to 85)
8 and Esterline Technologies (from 83 to 74)
7 have also
impressively progressed up the rankings.

Interestingly, most of these fast-growing

fast companies are positioned similarly in the value
va chain, as
major tier 1 or tier 2 “merchant”
merchant” suppliers and have also been typically very profitable over the last
decade. This suggests a kind of “sweet spot” in the industry pyramid where well positioned and
ambitious players can enjoy the benefits of both sustained growth and profitability.
.

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 Three Chinese companies, two spin-offs and one consulting firm are newcomers in 2011

Among the newcomers for 2011 (compared to 2007) are two recent US spin-offs: Huntington
Ingalls (out of Northrop Grumman) and Exelis (out of ITT). Additionally, we have decided to
include for the first time three public subsidiaries of China’s state enterprise AVIC, as well as
consulting services firm Booz Allen Hamilton which has become a much more specialized defence
services player (more than 50% of their revenues) since the spin-off of its commercial consulting
arm.

The industry, while still dominated by North American and West European companies, is
becoming more global

The industry is still dominated by North America and Western Europe, with respectively 46 and 34
companies in the Top 100, but an increasing number of countries outside these two regions are
represented in the Top 100.

In 2011, eight countries outside Western Europe and North America had players (20 of them) in
the Top 100: Japan (5), Russia (3), China (3), India (2), Israel (3), Singapore (2), South Korea (1)
and Brazil (1). Turkey might soon join the list, with Aselsan and Turkish Aerospace Industries now
just outside the Top 100. This rewards the significant investments made by these countries in
their A&D industry over the last 10 to 20 years. Nevertheless, while their number is increasing
(from 15 in 2007), their share of revenues is still marginal: 9% (up from 6% in 2007), to be
compared with 57% and 34% for North American and West European players respectively.

Within Western Europe, the most represented countries are the U.K. (ten companies), followed by
France and Germany (seven each, eight including EADS), and Italy (three). Spain has only one
company left – Navantia - in the Top 100 (two if one takes into account the Spanish share in
EADS), as Indra and ITP, which used to be in the Top 100, are currently out of it.

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 2011 Top 100 A&D Companies by Region
(number of companies)
3% 1% North America
3%
Western Europe

13% Asia (South East and Far

46% East)
Middle East and Eastern
Asia
Russia
34%

Brazil

2011 Top 100 A&D Companies by Region

(aggregated sales)
North America
1%
1% 2%
Western Europe
5%
Asia (South East and Far
East)
34% Middle East and Eastern
57% Asia
Russia

Brazil

The industry leadership is very stable, with only one change in the top 10

The top 3 A&D companies have not changed over the last nine years: Boeing has remained the
largest in the world with $69Bn of sales, followed very closely by EADS ($68Bn) and, relatively far
behind, Lockheed Martin ($46Bn). BAE Systems is currently the fifth largest A&D company in the
world but even further behind, generating only 40% of Boeing’s or EADS’ revenues. Only one
changed occured in 2011 in the Top 5: Northrop Grumman has been replaced by General
Dynamics as the fourth largest player following its divestiture of Huntington Ingalls.

In the Top 10, nine players have remained the same throughout the last decade: Boeing, EADS,
Lockheed Martin, BAE Systems, Northrop Grumman, General Dynamics, Raytheon, United
Technologies and General Electric. The “new kid on the block” is Finmeccanica which climbed
into the top 10 following its acquisition of DRS Technologies, replacing Thales.

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 2011 A&D Sales: World's Top 20
(USD millions)

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

Among institutional and financial investors, BlackRock is the most active, being a major
shareholder (i.e. holding more than 5% of the capital) in 30 of the top 100 A&D companies

Blackrock and State Street Bank are by far the most active institutional investors in the A&D
sector. Only accounting for companies where they own more than 5% of the capital, Blackrock is
a major shareholder in thirty of the top 100 A&D companies. On aggregate, it owns the equivalent
th
of $22Bn in sales, which, if it was an industrial group, would make it the 9 largest A&D player in
the world.

State Street Bank is a major shareholder in only seven companies but, on aggregate, owns more
th
than $26Bn worth of sales, which would make it the 7 largest A&D player in the world. This is
due to particularly high stakes held in large players like Boeing, Lockheed Martin, Northrop
Grumman or United Technologies.

The French Government is also a major and influential shareholder in five companies (EADS,
Thales, Safran, DCNS, Nexter) for the equivalent of a combined sales amount of $28.2Bn, which
th
makes it in essence the 6 largest A&D player in the world.

Other governments with significant shareholdings in top 100 A&D companies include Russia
(three companies, $6.8Bn in aggregate sales), Italy (two, $7.3Bn), Spain (two, $5.9Bn), Israel (two,
$5Bn in sales), China (three, $3.5Bn) and India (two, $3.8Bn).

Private equity ownership of leading A&D companies has become pervasive

Seven of the top 100 A&D companies are currently owned by private equity funds: Avio by Cinven,
SR Technics by Mubadala Development Company, Hawker Beechcraft by Goldman Sachs and
Onex, Fokker Technologies by Arle Capital (formerly Candover) and Booz Allen Hamilton, Arinc

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 and Sequa by The Carlyle Group. The Carlyle Group thus confirms its leadership among private
equity firms involved in the A&D industry, having also owned major stakes in several other top 100
A&D companies in the past, including Vought Aircraft Industries (sold to Triumph), Avio (sold to
Cinven), Howmet (now part of Alcoa), United Defense (sold to BAE Systems) and Qinetiq.

Other top 100 companies having been under private equity ownership in the past include L-3
Communications, Spirit Aerosystems, MTU Aeroengines and Transdigm. This confirms the role
that private equity firms can play as catalysts for corporate transformation or industry
consolidation.

Meanwhile, only three companies are still privately owned by the founding family and are all to be
found in Germany: Diehl (Diehl family), Krauss Maffei Wegmann (Bode family) and Liebherr
(Liebherr family).

The balance between commercial and defence revenues is stable

The split between commercial and defence revenues has been remarkably stable since 2003, with
59% of the aggregated revenues of the top 100 A&D companies coming from defence /
government customers and 41% coming from commercial customers. The average defence –
commercial split is 57%-43%.

There are 27 “pure play” defence companies (with defence and government revenues accounting
for at least 95% of their total A&D revenues), but only 13 “pure play” commercial companies (with
commercial revenues accounting for at least 95% of their total A&D revenues).

While Lockheed Martin is the largest defence company by far with about 50% more defence sales
than its nearest follower Boeing ($46Bn vs. $31Bn), EADS is also by far the largest commercial
aerospace company with 36% more commercial revenues than its nearest follower, Boeing
($52Bn vs $38Bn).

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 The level of specialization among the top 100 A&D companies is high and has been
increasing slightly

On average, A&D sales account for 76% of the total sales of the companies in the Top 100; this
shows a fairly high level of specialization among the top players. This figure is slightly up from
72% in 2003. For fifty eight of the companies, A&D sales account for more than 90% of their total
sales. Not surprisingly, the level of specialization is higher at the top of the pyramid (84% for the
top 30) than at the bottom (70% for the bottom 50).

On the other end of the spectrum, for twelve companies in the Top 100, Aerospace & Defence
sales represent less than 20% of the total enterprise’s sales: Volvo (2%), ThyssenKrupp (3%), Fuji
Heavy Industries (5%), Mitsubishi Electric (6%), Eaton (10%), General Electric (13%), Liebherr
(13%), Alcoa (14%), Navistar (14%), Kawasaki Heavy Industries (16%), Parker Hannifin (16%),
and Mitsubishi Heavy Industries (18%).

Aircraft manufacturing and Services are the largest sub-sectors

In 2011, “Aircraft Manufacturing” (design and integration of complete aircraft, including UAVs) and
“Services” (including MRO / aftermarket, aircraft services, IT & cybersecurity, training & simulation,
technical services…) were the two largest sub-sectors in terms of revenues, each representing
around 26% of all top 100 A&D revenues. The figure has been stable over the last nine years for
“aircraft manufacturing”, while the share of “services” is significantly up, from around 18% in 2003.

This increase is mainly due to the development of outsourced defence services, in particular in the
United States, but it is also partially due to a reclassification as “service” revenues of some
revenues which were historically not captured as such (e.g. aftermarket revenues), thus reflecting
the increased importance of services in the industry and the emergence of dedicated business
units within companies to support “services” growth. Underlying this trend is the acknowledgement
that new business models are needed to complement and sometimes replace traditional
“platform-centric” business models in order to find new growth engines and to compete more
effectively with new manufacturing players from countries such as China, India, Brazil or South
Korea. It is worth mentioning that a big chunk of “Services” revenues (around one third) is
essentially a captive MRO business for aircraft equipment OEMs and airlines.

The third largest sub-sector is “Aircraft Sub-Systems and Components” (including aircraft engines,
avionics, aerostructures, materials…), representing 18% of all A&D revenues in 2011. This figure
has been stable over the last nine years.

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 Next comes “Defence Electronics & Communications” with 12% of total sales, slightly down from
14% in 2003. Other declining sectors have been “Weapon Systems & Ammunitions” (5%, down
from 7% in 2003) and “Space” (4% down from 7%). “Naval Systems” (shipbuilding) has remained
relatively stable around 4% while the share of “Land Systems” (vehicles and equipment) has
increased from 2% in 2003 up to 3.5% in 2011.

Security revenues (excluding cybersecurity – which is included in IT services) are still very
marginal among top A&D players, accounting for around 1% of all revenues. Only a few
companies (such as BAE Systems, Safran, Thales, L-3 Communications, ST Engineering, Saab
and Alliant Techsystems) have developed a significant security business.

2011 Top 100 A&D Revenues by Sub-Sector

Aircraft Manufacturing
4% 1%
4% Services
4%
5% Aircraft Sub-Systems and
Components
26%
Defence Electronics &
Communications
Weapon Systems &
12% Ammunitions
Space

Naval Systems
18% 26%
Land Systems

Security

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 Candesic Top 100 Aerospace & Defence Companies 2012

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 Candesic Top 100 Aerospace & Defence Companies 2012
(Continued)

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 Candesic Top 100 Aerospace & Defence Companies 2012
(Continued)

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 Notes:

• “2011 sales” data relate to the latest financial year for which full financial results have been published. For most
companies (80), the latest financial year ended between December 2011 and March 2012. Overall though, “2011
sales” data for a given company refer to a period ending between August 2011 and July 2012, depending on the
company’s financial year-end.
• When the latest financial year revenues were not available, previous available sales figure has been used (this is
the case for Arinc and Sequa, for which 2011 sales figures could not be found)
• When data (such as commercial / defence split) were unavailable or could not be found, they have been
estimated (shown in italic in the table).
• The split between commercial sales and defence/government sales has been indicated in the table by showing
the share of defence / government sales. The share of commercial sales simply adds up to 100%.
• Revenue numbers for non US companies have been converted in USD at the interbank exchange rate of the end
of the latest financial year (e.g. EUR/USD: 0.719, GBP/USD: 0.624)
• For companies involved in sectors other than A&D, A&D sales have been derived or estimated from the
breakdown and information provided by the company in its financial reports or other publicly available corporate
documentation.
• For each company, A&D revenues have been broken down into nine standardized business segments (sub-
sectors):
– Aircraft manufacturing (design and integration)
– Aircraft sub-systems and components (incl.l aircraft engines, avionics, aerostructures, materials)
– Services (MRO/aftermarket, aircraft services, IT & cybersecurity, training & simulation, technical
services)
– Weapon Systems (incl. ammunitions)
– Defence Electronics & Communications
– Space (launchers, satellites)
– Naval Systems (shipbuilding)
– Land Systems (vehicles & equipment)
– Security
• The breakdown into these sub-sectors has been derived or estimated from the breakdown and information
provided by the company in its financial reports or other publicly available corporate documentation. When not
available, the breakdown has been estimated.
• Information about major shareholders and selected shareholdings is typically up-to-date as of the latest annual
financial statements.
• Some companies generating enough revenues from the A&D sector to be potentially included in the Top 100
have nevertheless been voluntarily kept out of the list as we believe that the nature of their business is too
different from the rest of the companies in the sector, namely:
– “Private military contractors” (e.g. Dyncorp)
– Generalist consulting, facilities management, project management and IT/ICT firms (e.g. CSC,
Serco, Fluor, KBR, Bechtel, Jacobs Engineering, HP…)

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 CANDESIC TOP 100 AEROSPACE & DEFENCE COMPANIES
2012

About Candesic

Candesic is an innovative management & strategy consultancy, combining both proven strategy
consultants trained in the world’s top management consultancy firms, and a broad network of
technical and industry experts that allows us to go beyond what other consultancies can traditionally
offer.

Our consulting experience gives clients access to top-tier problem solving and strategic analysis skills
whilst our industry expertise ensures projects stay grounded in reality, generating actionable and
practical advice. Our main areas of expertise are healthcare, “technology & telecom”, and “aerospace,
defence & security”. We manage a tight network of 150 leading consultants and industry experts and
have offices in London, Paris, and Madrid, as well as affiliate offices in 20 major cities in Europe and
beyond.

About Candesic Aerospace, Defence & Security Practice

Candesic has accumulated years of experience in Aerospace, Defence and Security. The practice
has among its clients some of the largest A&D players in the world as well as numerous small-to-
medium-sized companies. The practice has also been working with private equity firms to support
their acquisitions in the industry, either through due diligence work or strategy advisory services. Our
team is made up of seasoned professionals with an experience of the industry both as managers and
consultants. Our unique model combines insider-like industry expertise with outside-in strategic
perspective to bring innovative – sometimes disruptive, yet always practical, insights to our clients.

For more information, please contact Antoine Gélain, Practice Leader, at agelain@candesic.com or
at +44 (0) 79 9097 4145

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