IHS AEROSPACE, DEFENCE & SECURITY
IHS Balance of Trade 2015 The changing worldwide defence trade March 2015
Abridged sample
Analysis Ben Moores Senior Analyst Georgios Salapasidis Senior Analyst Charles Forrester Senior Research Analyst Paul Burton Director, Industry & Budgets
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IHS Aerospace, Defence & Security | IHS Balance of Trade 2015
Contents I.
Executive summary
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II.
Regional and country analysis
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North America
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Western Europe Case study: France
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Eastern Europe (including Russia and Turkey) Case study: Russia/ Ukraine Case study: Poland Case study: Turkey Sub-Saharan Africa
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Middle East Case study: Saudi Arabia
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East Asia Case study: Indonesia
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West and Central Asia
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Oceania
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Latin America
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III. Industrial analysis
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IV. Analysis by market type
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v. Methodology and regional definitions
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IHS Aerospace, Defence & Security | IHS balance of trade 2015
I. Executive summary In 2014 the largest growth in defence trade deliverables was recorded since our records began in 2008. Markets expanded by USD7.6 billion to USD64.4 billion. This came despite global defence spending falling between 2010 and 2013. The continued growth came from the trade of military aerospace products and from the ongoing growth in imports from Saudi Arabia, Australia and China. India surpassed Saudi Arabia in 2013 only to see their roles reversed again in 2014. China jumped from the fifth largest importer of arms in 2013 to the third largest in 2014 with some USD2.6 billion worth of imports.
The order of the top five leading exporters did not change between 2013 and 2014. Eight of the leading 10 exporting countries increased their exports, with only China and Israel seeing their export totals fall. As forecast last year, we saw Chinese exports decline in 2014 and they are potentially likely to drop out of the top 10 next year. After dropping to eighth place last year, Italy bounced back to sixth largest exporter as new deliveries of the M-346 trainer aircraft and the ATR-72 transport aircraft began. Sweden dropped out of the top 10 and was replaced by Spain as deliveries of the C295M and A400M ramped up. As forecast last year, South Korea has continued to move up the export league table, exporting USD740 million of defence equipment in 2014. This is a remarkable achievement considering the country exported under USD100 million in 2008. Based on existing backlog, South Korea will overtake China at the turn of the decade. Last year the IHS Balance of Trade forecasted that Vietnam, Australia, Mexico and Indonesia would all see significant growth over the remaining part of the decade. As forecasted, all four states saw significant increases in imports in 2014 and we predict that all four will see significant imports out till 2020. © 2015 IHS
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This year the IHS Balance of Trade team devised a new analytical mechanism that looks at unawarded opportunities over a 10-year period and the historical propensity to import defence equipment. Using this analysis the countries that were to see the fastest relative opportunity growth over the next 10 years were Turkey, Algeria, Kuwait, Singapore, Qatar, Brazil, Norway, and Poland. The countries that we identified as falling fastest in terms of unawarded opportunities were the United Kingdom, China, Taiwan, Israel, Venezuela, Australia, and South Korea.
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II. Regional and country analysis North America
The United States continued to top the export table in 2014, with USD23.7 billion worth of exports compared with USD19.8 billion in 2013. This high growth rate is expected to continue over the three years as deliveries of the Lockheed Martin F-35 Lightning II start to ramp up and deliveries of equipment to Saudi Arabia, Iraq, and the UAE increase. The United States primary export strength is in its aerospace product offering, with Boeing’s C-17, AH-64, B737, H-47 and Lockheed Martin’s F-16s forming the cornerstone of its product base. This dominance is assured with the upcoming deliveries of the F-35 fighter aircraft throughout the current decade. Imports to the United States fell again in 2014 from USD954 million to USD909 million. Imports have been falling since 2009 when they were USD2.8 billion and the US was the second largest importer in the world. Much of this fall can be attributed to the winding down of operations in Iraq and Afghanistan and the associated fall in urgent © 2015 IHS
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operational requirements. However, it is worth noting that the United States is engaged in a number of joint international programmes, such as certain F-35 deliveries, that are not captured within this study. Saudi Arabia once again became the primary recipient of US military equipment in 2014, displacing India as deliveries of Boeing F-15 multirole fighter aircraft and AH-64 ground attack helicopters began. Indian deliveries increased by nearly USD300 million to USD2.3 billion but Saudi imports doubled to USD2.8 billion. Taiwan, Australia, the UAE and South Korea all remained the leading US partners. Kuwaiti and Omani imports both substantially increased to USD959 million and USD734 million as deliveries of C-17A’s and F-16 C/D Block 50 respectively. Egyptian deliveries fell substantially as F-16 deliveries slowed down. There will be more deliveries in 2015 but subsequently annual deliveries to Egypt will fall from USD1156 million in 2015 to USD311 million 2018. Canadian imports have remained steady at approximately USD1 billion since 2009. This number will increase as Canada prepares to import F-35 fighter planes and H-92 helicopters from the United States. Canadian exports have risen over the past year from USD1.1 billion to USD1.3 billion, but are still up from the USD600 million in 2009. Exports have fallen to Canada’s key market, the United States, as the LAV A-2 and DHC-8-300 programmes have started to wind down. However Canadian exports are set to grow very rapidly with deliveries of the LAV III to Saudi Arabia, this single program is worth USD17.1 billion through to 2024; as a result in 2015 Canada is forecast to move from the 11th largest exporter of military equipment to the 7th largest, over taking Israel, Italy and China as it climbs.
Western Europe
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Western Europe military imports rose from USD6.9 billion in 2013 to USD7.3 billion in 2014. This small rise takes place against a backdrop of programme cancellations earlier in the decade, and in the light of elongated production cycles to address the inability of some European countries to fund large-scale programmes in the short-term. This has happened across the whole of Western Europe, where the severity of the financial crisis led to huge cuts in orders. The foremost examples are Portugal and Austria, which have cut imports by three quarters and Greece, the UK, Netherlands, and Spain, which have cut imports by half respectively since 2009. Overall European imports are down from USD12 billion in 2009 to USD8 billion in 2014. After years of cuts and low cyclical spending there are some countries that offer strong export opportunities over the next 10 years. The countries, in order of overall opportunity for exports, are Norway, Netherlands, and Belgium. There are USD23 billion of unawarded contracts in these three countries of which IHS Balance of Trade forecasts that USD16 billion will be awarded to overseas contractors. IHS Balance of Trade also forecasts that Switzerland and Denmark have relatively larger opportunities over the coming decade than they had historically. Western European exports climbed from USD17 billion in 2013 to USD19.3 billion in 2014, a rise of 14%. The UK, Spain, Switzerland and Italy all saw significant increases in export levels over the past year primarily in military aerospace markets. IHS Balance of Trade Forecasts that Western European imports will continue to fall for the next two years and that exports will stay at a minimum of USD19 billion over the next two years.
Case study: France France retained its third place position as a defence equipment exporter according to IHS Balance of Trade, with Thales in the top 10 of international defence exporters. Pan-European conglomerate Airbus Group, which maintains a strong presence in France, was the fourth largest exporter globally. French defence equipment imports were valued at USD507 million in 2014. Imports have generally risen over the past four years, and are expected to remain at the USD500 million mark for the next two years. Programmes such as the modernisation of the country’s airborne early warning and control (AEWAC) aircraft continued to dominate the country’s imports of aircraft such as the Boeing E-3F Sentry AWACS and Northrop Grumman E-2 Hawkeye. A number of international procurement programmes, such as the acquisition of land-based radar systems from Thales Netherlands remain funded, but delivery status remains unclear. Additionally, as programmes and systems for the French military begin to come online – such as the Airbus A400M Atlas – the resultant signing of contracts for simulator systems and other support packages is expected to continue to gather pace. Key imports of lower value included the acquisition of the General Atomics MQ-9B Reaper unmanned aerial vehicle (UAV) from the United States. Delivery of two of the systems took place in 2014, giving the French military access to a new capability that domestic and European suppliers had struggled to fulfil. Other international unmanned procurements included the Harfang, jointly supplied by IAI and Airbus Defence & Space, and target systems supplied by Meggitt. French exports for 2014 were valued at USD4.9 billion, with military aircraft being the country’s primary export worth USD1.41 billion. This result was almost double the country’s exports of military ships (USD759 million), which was in second place. Aircraft exports were driven by strong helicopter deliveries by Airbus Helicopters and NHIndustries, and deliveries of Airbus A330MRTT Multi-Role Tanker Transport aircraft to the Middle East. Major export markets included Eastern Europe and the Middle East. However, Eastern European figures were largely dominated by the acquisition of Mistral LHDs – a programme that still remains shrouded in doubt as to whether the French government will allow the delivery of the first completed vessel, the Vladivostok, which was initially scheduled for October. Payments for both the Vladivostok and the second vessel, the Sevastopol, have gone through, but the programme © 2015 IHS
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remains in a state of flux going forward. Should the sale to Russia fall through, it is expected that there may be an international customer found for the vessels. France is still awaiting clarification on some major programmes, with deliveries and contracts that could have been expected in 2014 being pushed into future years. These include the ongoing discussions with India over the potential sale of Dassault Rafale multirole fighter aircraft, the final agreement regarding the sale to Lebanon of military equipment ranging from self-propelled artillery systems to armoured personnel carriers, and the announcement in February 2015 of the sale of Rafale aircraft and FREMM frigates to Egypt.
Oceania Imports into Oceania rose from USD1.5 billion in 2013 to USD2.2 billion in 2014. The region is dominated by Australian imports, which rose from USD1.3 billion in 2013 to USD2 billion in 2014. As forecast in 2014, Australian imports have rapidly increased over the past year and will increase again in 2015 to USD2.5 billion. This will move Australia from the sixth largest importer of military equipment to fifth in 2015. The IHS Balance of Trade forecasts that Australia will have USD20 billion worth of opportunities available in our 10year forecast and that, based on recent historical patterns, approximately USD8 billion of these will be imported. An analysis of that data suggests that Australia will go from the fifth to the 12th most important global market for importing defence equipment over the next 10 years. This relative decline is due to the end of a wave of cyclical spending, already allocated awards and the rise in budgets of other countries. This trend is highlighted by the size of the already awarded backlog, which will insure that, on average, USD3 billion a year is spent on imports before further opportunities are awarded. Currently the United States is the primary supplier to the region; it exported USD1.7 billion to the region in 2014: 77% of the total market.
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IV. Analysis by Market Type Military fixed and rotor wing account for around a half of the market, and grew by over 20% in 2014. This trade is being driven by an inability of emerging states to upgrade, develop and build local aircraft, and in the case of China, an inability to develop effective aerospace engines. Ground vehicles, which account for a sixth of the total world export market, fell by 4% in 2014. This trend is ongoing, as emerging countries seek to develop local vehicle assembly capability while the end of operational requirements in Iraq and Afghanistan has meant lower demand. Our forecast last year was that the lack of export backlog in the military vehicles market could drive it down by 10%in coming years. In the past 12 months there have been a slew of unforeseen orders from the Middle East including orders from: Iraq for M1A1 SA tanks and Bradley A2 Operation Desert Storm infantry fighting vehicles and from Saudi Arabia for LAV III armoured personal carriers and LAV-25 infantry fighting vehicles. The Saudi Arabian LAV III order is so large that in 2015 it is set to account for around a sixth of the total vehicles market.
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Over the next 10 years IHS Balance of Trade forecasts that there will be some USD87billion in opportunities in the vehicle platform and vehicle mounted systems market but that the total global market will average around USD60billion per year. Of that USD87 billion we believe that only around USD13billion will be exported as most countries will seek to final assemble vehicles domestically. However, we believe that addressable opportunities at a subsystem and component level could well be as high as USD50billion over the 10 year forecast. In 2014 the annual trade in military ships increased by 15% to USD5.2 billion, the fifth year in a row that the market has risen. The Russian Federation has already paid for the Mistral Class Amphibious ships from France so the funding has been counted in our calculations. The biggest importers in 2014 were Algeria, India, Indonesia, Algeria and Vietnam. The Russian Federation remains the largest exporter of military ship platforms. The total opportunity market for ship platforms and ship mounted systems is expected to be USD216 billion over the coming 10 years. The opportunity market for just ship platforms without mission systems is expected to be USD162 billion over the next 10 years. The leading opportunities come from Turkey, South Korea, Saudi Arabia and Japan but all will domestically build their own ships except for Saudi Arabia. Demand continues to be driven by the littoral states of East and Southeast Asia as tensions over maritime claims increase; nearly half of all naval systems traded globally are now imported into Asia and this ratio, based on orders booked, will continue until 2018. Primary mission systems areas saw markets either stabilize or slightly climb in 2014 with radar, EO/IR, command and control and military communications deliveries all rise. Some of this growth is related to the unabated military aerospace sector but much of it is related to transportable and man portable equipment. Unlike platform markets mission systems tend to be more difficult to offset or technology transfer or develop for emerging nations and thus they are more resistant to the changes that are occurring. Electronic warfare markets have seen consistent growth since 2009, rising from USD1.6 billion to USD2.6 billion. Much of this growth can be attributed to aviation self-protection systems but strong performance has also come from land and sea based environments. The IHS Balance of Trade 2014 believes this is because the complexity of these systems is still beyond most countries, including those who are now starting to final assemble or export complicated systems. Even by 2024 the backlog of orders for electronic warfare systems is currently forecast to be USD1.8 billion and it is forecast that over next decade there will be USD35 billion opportunities contracted out to industry. Even if only USD10 billion of these opportunities become imports then the total global trade in electronic warfare systems could double over the coming decade. Missile exports have nearly halved over the past five years but have an existing backlog that is forecast to see exports to rise rapidly to USD7.4 billion by 2017, additional sales could see the missile market reaching USD9 billion that year. The total global un-awarded opportunity total is forecast to be USD67.4 billion over the next 10 years. We would expect that around a third of this will be exports driving and sustaining the market at the USD9 billion level.
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V. Methodology and regional definitions This report is the second annual IHS Balance of Trade report, which tracks global defence exports and imports across all major platform and system markets. It was created using the IHS Jane’s Markets Forecast database, and draws upon that product’s unique bottom-up methodology to offer a market view based on actual deliveries (funds released to industry) rather than sales or budgets. The IHS Balance of Trade 2014 covers production, R&D, logistic support and service revenues where there is an export. The entire market is covered except for munitions and small arms; anything under 58mm calibre has not been included in this study. The study only tracks programmes with a primarily military function, removing homeland security and Intelligence programmes. Over a 100,000 programmes and programme elements were analysed, and reduced down to around 30,000 programme and programme elements that were deemed to be an export. The country of final assembly provided the primary basis for export records, but revenue from licensed production was also included. Importantly, joint funded projects with one country of final assembly where the end user country had funded the project were removed from the final analysis, such as the A400M and Eurofighter. There are some small methodological changes from the 2013 report: - the remit of Precision Guided Weapons has expanded to include artillery - logistical support values have been removed from commercial aircraft platforms, taking USD6 billion from the overall forecast - licensed revenue was added for those programmes where final assembly occurs overseas. - adjustments have been made to the Russian prime contractor nomenclature, so that the latest Russian company structures were used. All forecasts and related data within this report are expressed as constant 2015 USD. IHS Jane’s Markets Forecast databases are under continual review and therefore the forecasts in this report may be revised at any time.
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The region/country breakdown is taken from IHS Jane’s Markets Forecast, and is as follows: East Asia Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, North Korea, Philippines, Singapore. South Korea, Taiwan, Thailand, Vietnam Eastern Europe Azerbaijan, Belarus, Bulgaria, Croatia, Czech Republic, Georgia, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Ukraine. Latin America Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Trinidad and Tobago, Venezuela Middle East Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, Turkey, United Arab Emirates, Yemen North America Canada, United States Oceania Australia, New Zealand Sub-Saharan Africa Angola, Botswana, Equatorial Guinea, Ghana, Kenya, Namibia, Nigeria, South Africa, Sudan, Uganda, Zambia West and Central Asia Afghanistan, Bangladesh, India, Kazakhstan, Pakistan, Sri Lanka, Turkmenistan, Uzbekistan Western Europe Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom
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Contacts Ben Moores Senior Analyst
[email protected] Charles Forrester Senior Research Analyst
[email protected] Geogios Salapasidis Senior Analyst
[email protected] Paul Burton Director, Industry & Budgets
[email protected]
IHS Customer Care: Americas: +1 800 IHS CARE (+1 800 447 2273);
[email protected] Europe, Middle East, and Africa: +44 (0) 1344 328 300;
[email protected] Asia and the Pacific Rim: +604 291 3600;
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