The world’s leading aerospace companies fared well in the second quarter of this year thanks to the global recovery of gross domestic product (GDP), growing passenger travel demand and increased defense spending—though a looming trade war hints at an uncertain future for the sector.
There was strong growth in Q2 across the aerospace sector, which includes defense companies. According to Zacks Investment Research, aerospace market revenues are up 7.6 percent from the same period last year.
Lockheed Martin saw sales of $13.4 billion over the quarter, a 6 percent increase year over year, while profits soared an incredible 23.5 percent. The company raised its financial outlook for 2018 as a result.
Northrop Grumman delivered surprisingly strong positive earnings of almost 16 percent. In Q2, the company witnessed solid growth in orders from the Pentagon and U.S. allies.
Airbus posted higher than expected Q2 earnings thanks to accelerated deliveries of its A320 neo passenger jet and A350 cost improvements. Revenues rose 8 percent to USD$17.16 billion (EUR€14.851 billion).
Raytheon was another positive surprise to analysts, with earnings and revenues increasing 23.7 percent and 5.5 percent, respectively, from Q2 of last year.
While Boeing is the only company that did not beat the Zacks Consensus Estimate for earnings, the company still reported $24.26 billion in revenues, higher than the $22.74 billion of 2017’s Q2.
Defense stocks have grown for the past couple of quarters thanks to President Trump’s commitment to defense spending. A steady flow of contracts from the Pentagon continues to fuel stock growth in the sector. Defense contractors also received contracts from U.S. allies.
On the commercial side, passenger traffic is on the rise, fuel prices are holding steady and there is a rising demand from Asia for new planes—all will have positive effects on the market’s growth.
However, the biggest fear of industry leaders may already exist: a trade war. Aerospace leaders have been outspoken about their concerns regarding high tariffs often instituted during trade wars.
“Well over of 80 percent of U.S. commercial aerospace is exported,” said Richard Aboulafiah, aviation analyst. “U.S. aerospace is in the front line waiting to get shot first.”
“There's already been an impact with raw materials, with the costs of production and lead times,” said Kavita Dawson, president of Maven Engineering, which supplies spare parts for aircraft to Lockheed Martin and the U.S. Department of Defense.
The aerospace sector is particularly sensitive to tariffs because it depends on a global supply chain to remain competitive. A trade war is the last thing the industry needs.
Read more about the economic outlook of U.S. industry, including aerospace, at Steel Squeeze: A Look at How the Trump Tariffs Could Impact Manufacturing in North America.