Greater defense spending, increasing productivity, and industry concentration helped drive the global aerospace and defense (A&D) industry’s revenues up by 2.7 percent to $685.6 billion in 2017. However, that rate lagged the 3.1 percent expansion of the overall worldwide economy last year, according to Deloitte’s 2018 report on the global A&D industry’s financial performance.

Defense spending growth in 2017 outpaced that of commercial aerospace spending, not to mention the aforementioned general global average. Defense sector revenues for the top 100 A&D companies grew by $13.4 billion, a 3.9 percent increase, for a total of $361.5 billion. That compares to commercial aerospace revenues, which added $4 billion—a 1.2 percent increase—for a total of $323.1 billion.

A drop in widebody jetliner deliveries in the U.S. contributed to the sluggish growth for commercial aerospace, according to Deloitte. However, airplane makers and their suppliers will be kept busy producing the roughly 38,600 new jetliners expected to be delivered over the next 20 years.

The average core operating margin of commercial aerospace companies hit 11 percent in 2017, up from 9.5 percent the prior year. That is on par with defense companies’ 11.2 percent core operating margin.

OEMs, as well as the electronics and propulsion segments, drove the A&D industry’s $18.3 billion growth in revenue last year. OEMs led the way, with a $5.6 billion rise in revenues, followed by increases at electronics suppliers of $4.7 billion and the propulsion segment of $3.2 billion.

Boeing led A&D companies in terms of free cash flow (FCF), a key metric counting cash generated from operations after capital expenditures. Across the industry, FCF jumped 26.2 percent, from $40.7 billion in 2016 to $51.3 billion last year. Boeing recorded $11.6 billion in FCF, followed by Lockheed Martin with $5.3 billion, and Airbus Group with $4.2 billion. Those three companies accounted for 41 percent of the industry’s free cash flow, indicative of ongoing concentration in the A&D industry, the report noted.

With $239.6 billion in revenues, U.S. defense companies considerably outpaced their European competitors, which recorded $95.8 billion in revenues. Notably, greater defense spending in the U.S. helped the American sector grow at a faster clip. U.S. defense companies posted a 4.5 percent year-over-year uptick in revenues last year, compared to 2.6 percent for European defense companies.