Ramona Adams
Fitch Ratings has released the latest edition of its Defense & Security Handbook that contains an overview of the current global defense spending environment as well as profile reports on 22 U.S. and European companies.
The credit rating agency said Wednesday its report spotlights the Defense Department‘s budget, the F-35 Joint Strike Fighter program and defense contractors’ pensions.
Fitch forecasts that the “relevant parts of the addressable global defense market” will rise between 3 and 5 percent through the next three years and that global defense spending in 2016 will reach approximately $400 to $425 billion — excluding China and Iran.
Increased U.S. defense spending in fiscal year 2016 supported Fitch’s credit outlook for the defense and security sector and the company predicts continued solid spending levels in FY 2017 and beyond if budget caps are overridden.
U.S. budget caps could remain a risk through 2021 but caps could be overridden as a result of the U.S. election, Fitch said.
President-elect Donald Trump’s administration could also reduce the risk of temporary continuing resolutions for spending, Fitch added.
The company noted F-35 deliveries could nearly double in the next two years and boost revenue growth across the defense industry.
Fitch also estimates that discretionary pension contributions for some U.S.-based defense companies would rise in the next two to three years.
Challenges to Fitch’s outlook include cost overruns and delays on key programs; currency fluctuations in non-U.S. markets; the impact of oil and commodity prices on government budgets; U.S. budget caps; additional CRs; and political disruptions.
