Weak economic conditions in the U.S. are not likely to weigh on commercial aerospace sector’s credit quality this year, while defense contractors are likely to see weaker demand in the face of significant federal deficits, Standard & Poor’s said in a recent report.
The ratings firm said it expects the credit quality of most commercial aerospace firms to be stable to modestly improving over the next year.
“Commercial aerospace is a global business, so a weak U.S. economy should not be a major hindrance if other regions are growing,” said S&P credit analyst Christopher DeNicolo.
S&P said the aerospace sector is entering what could be a prolonged period of increasing deliveries. Aerospace companies have been reporting larger order backlogs and should benefit from new models despite headwinds in the global economy, high fuel prices and the possibility of reduced availability of aircraft financing.
In contrast, the U.S. defense industry is likely to see weaker spending this year due to efforts to reduce the U.S. federal budget deficit, the wind-down of operations in Iraq and Afghanistan and recently proposed changes to U.S. military strategy.
However, S&P said it expects ratings on most large defense contractors to be fairly stable over the next year despite weaker defense budgets. The outlook for smaller defense contractors is uncertain and will depend largely on which weapons programs Congress cuts, S&P noted.
By Nathalie Tadena, Dow Jones Newswires
January 12, 2012