OREANDA-NEWS. First-half results from European aerospace and defence companies suggest a six-year downturn in the defence sector may be coming to an end, with orders and revenue showing strong growth, Fitch Ratings says.

Weak demand in the defence segment in recent years has put the rating profiles of some EMEA aerospace and defence companies under pressure. A sustained recovery would therefore be credit positive for our rated issuers, especially as defence contracts tend to provide greater revenue visibility and usually generate higher, more stable margins than commercial aerospace contracts. This is partly because defence contracts are typically much longer term, often lasting 20-25 years, including the provision of equipment and maintenance services.

The companies that stand to benefit most are those that derive a significant portion of their revenues from defence activities, such as BAE Systems (BBB+/Negative) and Finmeccanica (BB+/Stable).

Defence order intake in 1H15 among the six largest European contractors was up 12% compared to the corresponding period in 2014. The strength and diversity of the order intake underpins our belief that the sector is rebounding, as does our view that the defence spending outlook in the world's largest accessible markets, such as the US and UK, has improved materially. Despite the upcoming defence review in the UK and the likely sequestration in the US, we believe demand for the products and services of the largest rated defence companies in both these markets will pick up.

We estimate that defence revenue at the six largest European aerospace and defence companies in 1H15 grew by 6.8%. This exceeded the 6.1% growth in the buoyant civil sector, which has experienced record demand for large commercial aircraft in the past three years. The growth in defence revenue in 1H15 has been broadly spread between developed and emerging markets and various programmes.