By Andrea Shalal
WASHINGTON (Reuters) - Revenues in the global aerospace and defense sector are expected to grow by 3 percent in 2016 after a 0.5 percent decline in 2015, according to a forecast by Deloitte Touche Tohmatsu.
The rebound will likely be driven by strong passenger traffic, continued demand for commercial aircraft from growing economies like India and China, and an expected recovery in global military spending fueled by tensions in the Middle East, the firm said in its annual outlook for the sector.
It said U.S. military spending likely bottomed out in 2015 and was slated to rise slightly in the fiscal 2016 year, which began Oct. 1. Global security threats were also fueling growth in defense budgets in many other countries, it said.
Tom Captain, who leads Deloitte's aerospace and defense segment, said the commercial aerospace sector will likely boost revenues by 3.4 percent in 2016, buoyed by demand from the Asia-Pacific and Middle East regions.
The worldwide fleet of commercial passenger and cargo aircraft - and the number of passengers flown each year - are expected to double over the next two decades, the report said.
Boeing Co (N:BA) and Airbus Group SE (PA:AIR) have dominated the market since 1997, but at least one additional competitor could enter the market in the next 20 years, it said.
The sector is expected to produce 1,420 large commercial aircraft in 2016, 40.5 percent more than just five years ago. By 2021, production is expected to rise to 1,627 aircraft, an increase of nearly 19 percent from 2015.
Defense sector revenues are expected increase 2.7 percent, driven largely by a $13 billion rise in U.S. military spending in fiscal 2016, the report said.
Deloitte expects further consolidations in both the commercial aerospace and defense subsectors after mergers and acquisitions surged 288 percent to a record $54.6 billion in 2015.
Further portfolio restructurings, divestitures and spin-offs are likely in 2016 as companies seek to lower costs and secure funds for needed investments. It cited Lockheed Martin Corp's (N:LMT) plan to sell a large chunk of its government services and information technology business.
Reuters reported last month that defense contractor CACI International Inc (N:CACI) is the top contender for the Lockheed business. Annual revenues of the assets to be sold are between $4.5 billion and $5 billion, instead of the $6 billion initially projected.