Analysts at Moody’s Investors Service recently published their outlook for the global aerospace and defense industry for the next year to 18 months. The ratings firm’s outlook on the industry is stable, but there are factors that could change that outlook to negative.

First the positives. Even though defense spending remains low, it is improving “modestly” and Moody’s expects the headwind to be offset by strong demand for large commercial aircraft. The firm projects operating profits will rise 2% to 4% over the next 12 to 18 months.

Another positive is the demand for large commercial aircraft, which Moody’s sees as slipping slightly from recent very high levels, but still gaining 2% to 3% before rising again as the end of the decade approaches.

If defense spending, especially in the United States, should rise, and commercial production and delivery of new airplanes grows more quickly than Moody’s now expects, the outlook could improve from stable to positive.

What could negatively affect the industry are continuing lower budgets and a drop in commercial aircraft sales. Concerning the first, Moody’s does not expect U.S. defense budgets to rise until 2016 to 2017. If the defense budget falls below sequestration levels, that would be a serious negative for the industry.

As to the second concern, low oil prices have reduced airlines’ enthusiasm for more fuel-efficient airplanes. The lower prices makes the economics of buying new commercial jets less attractive.

Moody’s gives General Dynamics Corp. (NYSE: GD) a debt rating of A2 with a stable outlook. RBC Capital Markets raised its rating on the company from Sector Perform to Outperform in late March.

Raytheon Corp. (NYSE: RTN) carries a debt rating of A3 with a stable outlook from Moody’s. Of 18 current analysts’ ratings, six consider Raytheon a Strong Buy, six rate the company as a Buy and the other six call it a Hold.

Lockheed Martin Corp. (NYSE: LMT) is rated Baa1 with a positive outlook, and Northrop Grumman Corp. (NYSE: NOC) has a similar rating and a stable outlook. Huntington Ingalls Industries Inc. (NYSE: HII) is rated Ba1 with a stable outlook.

ALSO READ: Credit Suisse Shows Top Defense Stock Picks

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.