The global aerospace and defense industry is large, growing and complex and possesses attractive dynamics for investment. The global industry is composed of five segments – manufacturers/suppliers, financiers/lessors, airlines/operators, aftermarket/MRO businesses and service providers – serving four end markets – commercial aerospace, business jets, military aircraft and other military/defense. However, each segment and market is served by multiple businesses operating within discrete, and often fragmented, subsegments and submarkets. We seek to identify the individual segments of the industry that possess the greatest opportunity for investment at any individual point in time.
The global aerospace and defense industry is large with estimated annual revenues of over $1.25 trillion. In addition, according to the 2015 Boeing Current Market Outlook, the aggregate value of the approximately 38,000 commercial aircraft to be delivered from 2014-2034 is expected to equal approximately $5.6 trillion. The industry is also growing. Since 1950, demand for air travel has grown at an average rate in excess of 5% per annum, doubling every fifteen years since 1970 with only three years of cyclical declines. Demand for air travel is driven by global economic growth, and the majority of historical growth has been driven by North America and Western Europe. Future forecasts for passenger demand, however, now demonstrate a continued pivot from developed countries toward higher growth, emerging economies in Asia, the Middle East, Africa and Latin America. As a result, demand for air travel is expected to grow approximately 5% per annum through 2034.
To meet this continuing growth in demand and to support fleet renewal programs, average annual aircraft production of commercial aircraft from 2014–2034 is forecasted to increase from approximately 1,000 aircraft in 2011 and 1,350 aircraft in 2014 to over 1,800 aircraft per annum, representing approximately 38,000 aircraft worth approximately $5.6 trillion. Approximately 60% of new aircraft deliveries will provide growth in capacity while the balance will replace older, less fuel efficient aircraft, thereby increasing the global fleet of commercial aircraft from approximately 22,000 aircraft today to approximately 44,000 aircraft in 2034. Order backlogs for commercial aircraft are currently at record levels, and Airbus and Boeing each have approximately 9 years of firm backlog today.
In addition to continued growth in the commercial aerospace segment of the industry, other segments, including “large cabin” business jets, discrete military aircraft and other segments of military spending will also experience attractive growth. In order to support this market growth, most businesses serving the aerospace and defense industry need to invest significant incremental capital. Liberty Hall provides our portfolio companies the financial, intellectual and human capital necessary to grow and build their businesses by adding complementary capabilities, customers and platforms and expanding into new geographies.