The aborted merger of EADS and BAE Systems last year reignited talks about a long-awaited wave of consolidation among prime aerospace and defense (A&D) contractors. After all, Europe still has four major shipbuilders, four missile manufacturers and three combat aircraft primes, while the larger U.S. defense market has essentially two players in each of those categories. The speculations were underpinned by a basic but deeply erroneous assumption: “Bigger is better.”

This year’s Top-Performing Companies’ results probably come as a relief to those who were expecting the worst after last year’s economic and financial downturns (see p. 44). It turns out that many aerospace and defense (A&D) players did at least as well as in the prior year and have experienced limited damage. This is not to say that the industry is out of the woods. On the contrary, A&D companies may be just entering hard times—and that is particularly true for European players.

One of the biggest surprises in Aviation Week’s new Top-Performing Companies (TPC) results is that European companies sharply narrowed the competitiveness gap with their A&D counterparts in the U.S. (p. 48). But given the numerous structural and market challenges European companies continue to face, this year’s TPC snapshot is more of an anomaly than a trend that can be sustained.