Global Aerospace and Defense Outlook 2015

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 1

Global Aerospace and Defense Outlook 2015

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 2

Executive summary

With the mature defense markets of the US and Europe continuing to stagnate, aerospace and defense (A&D) organizations are highly focused on two overriding priorities: driving growth and managing costs.

KPMG International’s Global Aerospace and Defense Outlook provides a comprehensive overview of current trends, issues and opportunities in the global A&D sector. It includes forward-thinking advice, practical insights and valuable benchmarks from KPMG partners, industry experts and A&D leaders.

Driving growth and managing costs

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 3

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 4

say sales growth is a top priority

Sales growth tops the agenda for A&D organizations globally.

say they will focus on growing after-market sales and service offerings as a top priority this year

53% 1/10

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 5

47% cite reducing their cost structure as

a top priority

A&D organizations are continuing to strive for greater efficiency and cost management.

Keeping the businessmodel competitive

38%

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 6

5

10

15

20

25

30

of respondents say they will enter into new geographic markets to drive growth

1/4

say they will rebalance their global footprint as a top priority

13%

Overseas expansion and portfolio shaping will create new growth opportunities.

More than

Innovation and advanced technologies

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 7

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 8

A&D investment into new technologies and services will increase growth.

of all respondents say they expect new manufacturing technologies to drive future growth and innovation

50%say they will increase R&D spend to drive new growth and innovation

46%

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 9

The majority of A&D organizations are now looking to form new partnerships and collaborative relationships with suppliers and customers to improve speed to market.

say they have already adopted more

collaborative business models with suppliers

and customers

say they expect partnerships, rather than in-house efforts, to characterize the future of innovation

72%3/4More than

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 10

A&D organizations are recognizing that they need to exponentially increase their investment levels in order to maintain the pace of their innovation cycle.

Doug GatesKPMG Global Head of Aerospace and Defense

Global Head of Aerospace and Defense KPMG

Supply chain

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 11

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 12

A&D organizations are reorganizing their supply chains to drive future growth.

of all A&D respondents say that restructuring the supply chain to support growth is a top priority this year

say their supply chain is challenged to effectively support new product launches

31%

will segment and tailor their supply chain assets and processes to respond to specific product needs and demand profiles

32%1/3

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 13

Costs continue to come under pressure as A&D organizations look to achieve profitable growth.

say they are focused on lowering costs and working capital levels across the supply chain

54% 29%think their supply chain cost structure may be

impacting their competitiveness

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 14

Supplier capacity and risk are high on the A&D agenda, but visibility remains low.

Concerns related to supplier performance and capacity were cited as the second and third greatest supply chain challenges

of A&D respondents said they had ‘complete’ visibility

Just

10%admitted they only had ‘limited’ visibility

and

40%

Key take-aways for Aerospace and Defense manufacturers

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 15

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 16

A&D organizations are highly focused on two overriding priorities:

Growth will not come easily. New markets will need to be penetrated; new innovations will need to be commercialized; and new business models will need to be established.

driving growth

managing costs

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 17

R&D spend is on the rise as organizations focus on driving incremental innovation as a way to gain a competitive edge and adapt their existing products to adjacent markets.

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 18

To achieve growth objectives, companies have recognized that partnering will continue to increase in importance as they work to innovate products and services, execute on market-entry strategies and adapt and develop new business models.

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 19

A&D organizations are continuing to look for opportunities to sustainably reduce costs.

This includes rightsizing the product and business portfolio in order to prepare their organizations to take advantage of future growth opportunities.

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 20

Supply chain reorganization is high on the agenda as A&D organizations look to drive future growth and reduce working capital. Particular importance should be placed on improved supply chain visibility, more reliable delivery performance and available capacity to meet current and emerging demands globally.

About the survey

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 21

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 22

The Global Aerospace and Defense Outlook 2015 is based on a survey of nearly 70 senior A&D executives

(director level or above). The survey was conducted by Forbes on behalf of KPMG International and was completed in early 2015.

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23

All respondents in this year’s Global Aerospace and Defense Outlook survey represented organizations with global annual revenues of more than US$1 billion

represent organizations with revenues of more than US$25 billion24%

More than a third represent organizations with revenues of between US$10 billion and US$25 billion

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 24

KPMG Global Aerospace and Defense key contacts

Doug Gates

Global Head of Aerospace and Defense

+1 404 222 3609dkgates@kpmg.com

Jeff Dobbs

Global Sector Chair, Industrial Manufacturing

+1 313 230 3460jdobbs@kpmg.com

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 25

Additional KPMG Global Aerospace and Defense country contacts

Amie Ahanchian Managing Director, Tax KPMG in the US +1 202 533 3247 aahanchian@kpmg.com

Kai C. Andrejewski Aerospace and Defense Sector Leader KPMG in Germany +49 211 475 7900 kandrejewski@kpmg.com

Glynn Bellamy Partner KPMG in the UK +44 7766 442407 glynn.bellamy@kpmg.co.uk

Luis Alejandro Bravo Aerospace and Defense Sector Leader KPMG in Mexico +52 55 52468360 labravo@kpmg.com.mx

Bernard Brown Partner, Sector Lead for Defence and Business Services KPMG in the UK +44 20 7311 6605 bernard.brown@kpmg.co.uk

Robert Browne UK Strategy Practice Leader

KPMG in the UK +44 20 73118962 robert.browne@kpmg.co.uk

Stephen Cooper Partner, UK Head of Industrial Manufacturing and Automotive KPMG in the UK +44 20 73118838 stephen.cooper@kpmg.co.uk

Ryan Donley Director, Advisory Services

KPMG in the US +1 512 905 5851 rdonley@kpmg.com

Ken Drover Lead Partner, Defense Center of Excellence KPMG in Australia +613 92 88 6623 kdrover@kpmg.com.au

Amber Dubey Partner and Head of Aerospace and Defense KPMG in India +91 987 1933711 adubey@kpmg.com

Jarib Fogaça Aerospace and Defense Sector Leader KPMG in Brazil +55 19 2129 8700 jfogaca@kpmg.com.br

Jonathon Gill Director KPMG in the UK +44 20 7311 1369 jonathon.gill@kpmg.co.uk

Erich Gampenrieder Head of KPMG’s Global Supply Chain Center of Excellence +49 89 9282 1700 egampenrieder@kpmg.com

Jean-Luc Guitera Partner, Aerospace and Defense sector KPMG in France +33 155 686962 jguitera@kpmg.fr

Fred Hensel Advisory Managing Director KPMG in the US +1 412 232 1568 fwhensel@kpmg.com

Andrew Jackson Partner KPMG in the UK +44 20 7694 1923 atp.jackson@kpmg.co.uk

Ja Young Jo Aerospace and Defense Sector Leader KPMG in Korea +82 2 2112 0640 jjo@kr.kpmg.com

Mike Judd Managing Director KPMG in the US +1 704 905 3485 mjudd@kpmg.com

Adil Khan Principal, Advisory KPMG in the US +1 312 665 2525 aakhan@kpmg.com

Tom Mayor Principal, Strategy practice Industrial Manufacturing KPMG in the US +1 216 875 8061 tmayor@kpmg.com

Donna Meshaka Advisory Managing Director KPMG in the US +1 703 286 8868 dmeshaka@kpmg.com

Grant McDonald National Sector Leader, Aerospace and Defense KPMG in Canada +1 613 212 3613 gmcdonald@kpmg.ca

Laurent Des Places Partner, Aerospace and Defense sector KPMG in France +33 1 55 68 68 77 ldesplaces@kpmg.fr

Matt Richards Managing Director, Advisory KPMG in the US +1 817 437 5474 matthewmrichards@kpmg.com

Mark Savage Managing Director, Joint Venture Advisor KPMG in the UK +44 20 73112106 mark.savage@kpmg.co.uk

James Scalise Partner, Advisory KPMG in the US +1 919 664 7344 jdscalise@kpmg.com

Alex Shum Head of Industrial Manufacturing KPMG in China +86 212 2122508 alex.shum@kpmg.com

Marc van Grondelle Global Leader of KPMG’s Joint Venture Advisory Practice KPMG in the UK +44 20 76944603 marc.grondelle@kpmg.co.uk

Michele Hendricks Global Executive for Industrial Manufacturing KPMG in the US +1 203 406 8071 mhhendricks@kpmg.com

Leona Mickelson Senior Marketing Manager KPMG in Canada +1 416 777 8822 lmickelson@kpmg.ca

Download the full report at kpmg.com/aerospaceanddefense

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.

KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Publication date: June 2015

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