| WASHINGTON, April 28
WASHINGTON, April 28 Mergers and acquisitions in
the U.S. weapons industry are starting to edge up after a third
year of declining revenues across the sector in 2013, according
to two separate reports released on Monday.
PriceWaterhouseCoopers said deal volume in the aerospace and
defense (A&D) industry was rising and could well exceed 2013
levels by the end of this year, especially if aerospace-focused
deals on the commercial side remained strong.
The company cited 12 deals with a total value of $3.3
billion in the first quarter, up from 11 deals with a total
value of $1.8 billion in the first quarter of 2013.
"We are starting to see deal activity pick up in the A&D
sector as we have a modest improvement in an uncertain
environment," said Scott Thompson, who heads PwC's U.S.
aerospace & defense practice.
But he said uncertainty about the sector's outlook beyond
fiscal year 2015 continued to dampen deal activity, since
mandatory military budget cuts are due to resume in fiscal 2016.
Deloitte, another accounting and consulting firm, released a
separate report which showed that revenues were down 2.6 percent
across the sector in 2013, with 17 of the top 20 arms makers
affected. It said the report underscored the widespread impact
of budget reductions that began in 2013.
Companies that make armored vehicles and other ground
equipment, and firms that offer services in combat zones,
suffered the biggest reductions, according to the report.
The report found that job cuts and plant closures helped
companies boost profits by 17.9 percent across the sector, even
as revenues dropped. About one half of that increase was due to
the absence of a one-time $2.1 billion loss reported by General
Dynamics Corp in 2012.
Tom Captain, vice chairman of Deloitte and the head of its
U.S. and global aerospace and defense practice, said he expected
the revenue declines to continue but added that companies were
taking aggressive steps to offset shortfalls through foreign
military sales, acquisitions, development of new products and
growth in non-defense markets.
Captain said companies were expected to turn increasingly to
acquisitions since workforce reductions and plant closures could
only help boost profitability for a limited time, and prospects
for new orders were slim.
"There's too much capability in the defense industry," he
said. "You can't cut your way to profitability for very long."
(Reporting by Andrea Shalal; Editing by Paul Simao)