Analysis of Global Aerospace, Defence and Civil Security Markets

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Frost & Sullivan Analysis of Global Aerospace, Defence and Civil Security Markets

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Analysis of Global Aerospace, Defence and Civil Security Markets

  1. 1. 360 Degree CEO Perspective Series Analysis of Global Aerospace, Defence and Civil Security Markets Julius Yeo Consultant “Partnering with clients to create innovative growth strategies”
  2. 2. Strategic Thinking – A Helicopter Vision HELP! THE EXCELLENT OBJECTIVE - VISION CAPTURE THIS CUSTOMER COMPETITIVE THREAT RABBIT HOLES RESTRICTED - VERY VISION TEMPTING TO DIVE DOWN 2 © 2010 Frost & Sullivan, All rights reserved www.frost.com 2
  3. 3. Key Issues Impacting Industry Today Top line growth facing headwinds, Commercial aerospace and Defense cycles peaking Change of US administration and shifting defense procurement priorities across US and NATO Secular Asian growth drives need for exposure across entire industry PMA and MRO models evolving Increasing industry consolidation, European firms building presence in US defense market, Asian firms expanding globally Maintaining earnings growth as cycles slow, managing costs and margins Effective position in homeland security market to maximize opportunities © 2010 Frost & Sullivan, All rights reserved www.frost.com 3
  4. 4. Table of Contents Global Analysis Aerospace, Global Overview of the Defence Market Defence and Civil Security Emerging Trends in Defence Global Overview of the Commercial Aerospace Market Markets Emerging Trends in Commercial Aviation Global Overview of the Civil Security Market Emerging Trends in Civil Security Conclusions and Recommendations © 2010 Frost & Sullivan, All rights reserved www.frost.com 4
  5. 5. Global Overview of the Defence Market © 2010 Frost & Sullivan, All rights reserved www.frost.com 5
  6. 6. A number of underlying and interrelated factors are combining to change the Defence way the military procures and services its equipment – New Opportunities to emerge 2008 - 2020 High Impact Major regional war in Middle East The Unexpected Reduction in defence spending in Rapid growth in China’s military major European markets capabilities Adoption of Total Cost of Ownership and TLCM Principles Projected Afghanisation of security duties Stabilisation and re-prioritization Impact on the in Afghanistan of US Defence Budget Aerospace & Strong growth in Asia-Pacific Defence Markets Defence Introduction of new competitive Industry Rapid technology cycles driving forces from weak public finances system obsolescence Increasing Importance of After- market Services Financial difficulties for Tier-3 sub- component manufacturers on critical Introduction of new competitors / supply line affecting delivery Partners from Asia-Pacific Markets Low Impact Certainty Low High © 2010 Frost & Sullivan, All rights reserved www.frost.com 6
  7. 7. Defence Where are the opportunities? Sectors with highest total growth potential 1 Unmanned Systems 2 2 Force Protection 1 1 High CAGR for Vertical Markets (>10%) 2 3 Military Airlift 4 Combat Aircraft 6 3 5 Land Combat Systems Medium (5-10%) 6 Soldier Modernisation 5 4 7 Strategic & Tactical Comms 9 7 8 8 Training and Simulation Low (0-5%) 9 Command and Control 1 Counter-IED Small Medium Large 2 Counter Rockets and Mortar (<$2 billion) ($2-$5 Billion) (>$5 Billion) Annual Market Size of Vertical Markets CAGR is calculated from 2008 - 2012 © 2010 Frost & Sullivan, All rights reserved www.frost.com 7
  8. 8. Economic difficulty has had limited impact on global defence spending Defence – other factors will have greater influence US$1.65 US$1.4 Trillion Defence Budgets (Global), 2007-2016 Trillion 1,800 4% 1,600 1,400 10% 3% 1,200 Billion $ 7% 1,000 800 30% 21% 600 400 200 0 23% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 22% NORTH AMERICA EUROPE ASIA PACIFIC MIDDLE EAST ROW 2009-2012 2013-2016 46% Strong Growth Driven by Market stabilises as forces begin withdrawing 34% Afghanistan & Iraq conflict from Afghanistan (such as Canada and The Netherlands) Significant spend on UORs Market increasingly driven by Asia-Pac 2007 Market unpredictable and 2016 driven by events Unclear how future US-PRC rivalry will impact Global Defence Spending is expected to continue to grow at a steady rate over the next decade, with major growth centred in the Asia-Pacific region, much of which as a result of China’s incredible rise in spending © 2010 Frost & Sullivan, All rights reserved www.frost.com 8
  9. 9. Far East is expected to provide the largest growth opportunities over Defence the next 5-10 years Defence Budgets in selected Far Eastern Markets, 2007-2014 Solid Growth in South 120 Korean budget combined with major manpower 100 reductions 80 Billions US$ 60 40 20 0 2007 2008 2009 2010 2011 2012 2013 2014 Australia India Korea Malaysia Pakistan Singapore Solid growth in the Indian defence budget – from $22 Billion to $36 Billion from 2007-2014 India, China and South Korea are the fastest growing spenders in the region © 2010 Frost & Sullivan, All rights reserved www.frost.com 9
  10. 10. Global Overview of Commercial Aviation Markets © 2010 Frost & Sullivan, All rights reserved www.frost.com 10
  11. 11. Commercial Aviation Trends during the recession of 2008-10 Frost & Sullivan predicts that the air transport industry will see its first signs of recovery, in terms of passenger numbers, during 2010 and most airlines will return to pre-recession growth by 2011 The economic downturn has negatively affected the air transport industry, as passenger numbers are forecasted to fall, for the first time since 2002, by 3% in 2009; Airlines will see a loss of over $4.5 Billion (Avg. Net Margin -1%) and Aircraft Manufacturers will be struggling to meet targets (For FY2009, F&S forecasts that EADS will see a net margin of -0.5%-1%, Boeing 3-4%, Embraer 0-1% and Bombardier 2-3%) Consolidation trends will intensify both in the airline and aircraft manufacturing industries; Airlines with sufficient mass and strong balance sheets (E.g. AF/KLM, Lufthansa, Emirates, Ryanair) will grow both organically and through M&As Nonetheless, aircraft manufacturers have the largest order backlogs in their history and are expected to keep aircraft deliveries at pre-2007 levels (Airbus sits on a 3,125 aircraft backlog and its 2009 production is fully booked) Both Airbus and Boeing will continue downgrading their in-house component and system manufacturing capabilities, minimise their Tier 1 supplier lists and push for more risk-sharing partnerships, in a move to restructure their business and boost their cash flows further Business Aviation will continue to grow at stable rates, especially in the less-affected Med-Large Biz Jet segment, whilst deliveries of over 9,000 business jet aircraft are forecasted for the period 2008-2018. There will be substantial opportunities for OEMs to establish presence in new aircraft manufacturing facilities in Brazil, Russia, India and China With jet fuel prices forecasted to remain at relatively low levels ($60-80 per barrel) for the foreseeable future, the use of composites in new airframes and the adoption of alternative fuel sources (e.g. Biofuels) is no longer a top priority for suppliers and end-users; Nonetheless, Carbon fibre composites will become the most widely used material by 2018 Owing to increased demand in air travel and fleet expansion/modernisation, growth markets such as China and India have initiated a major revamp in Airport Infrastructure (Terminals, Runways) and Air Traffic Management, presenting numerous opportunities for expansion for Western OEMs © 2010 Frost & Sullivan, All rights reserved www.frost.com 11
  12. 12. Commercial Large Commercial Transport Trends Aviation Wide body aircraft deliveries expected to grow faster than other segments, whilst APAC will evolve into the second biggest destination of aircraft, after North America Annual aircraft deliveries, by aircraft segment 2008-2017 (Global) 1550 1270 1600 1400 21.0% 22.1% 1200 No. of deliveries (units) 1000 800 600 51.7% 59.8% 400 200 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Widebody Narrow body Regional 27.3% 18.1% 6.4% 29.9% 2008 31.0% 2017 6.4% 4.0% 22.3% APAC Africa & Middle East Russia/CIS Europe North America Latin America Due to passenger demand and the emergence of APAC as the second biggest market worldwide, all major aircraft integrators and OEMs to establish manufacturing rightsassembly facilities in China and India by 2017 © 2010 Frost & Sullivan, All and reserved www.frost.com 12
  13. 13. Commercial Business Aviation Trends Aviation Demand for business aircraft will remain at stable levels across most segments, though VLJs will have a definite impact in the market; North America a clear leader in all aircraft deliveries 1460 Annual business aircraft deliveries, by aircraft segment 2008-2017 (Global) 1600 1190 1400 16.6% 37.5% 1200 No. of deliveries (units) 1000 30.6% 800 19.4% 600 400 37.5% 200 29.3% 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15.3% Large Medium Light VLJ 13.8% 9.0% 8.8% 5.2% 2008 2017 24.1% 52.9% APAC Africa & Middle East Europe North America Latin America Private leasing and chartered operation will be an added driver for corporate travel. Citation jets contribute the approximately 28% of all deliveries in the & Sullivan,jetsrights reserved www.frost.com © 2010 Frost Medium All category. Fractional ownership programmes bringing 13 business aviation market expansion
  14. 14. Aerospace Manufacturing Trends Although the majority of airframes will be assembled in Europe and North America, APAC will become a major outsourcing region for components and systems manufacturing Airbus will shift an Airbus A320 increasing number of Assembly line in assembly lines to APAC, China to ship over Boeing will keep aircraft as well as target 300 units in next assembly in the USA, but partnerships in the region 10 years Mitsubishi target more partnerships on component and system and with APAC level Chinese AVIC Kawasaki manufacturers for component producing components and manufacturin wings and systems g for fuselage for B747/B787 B787 Sukhoi will deliver over 240 units of the Superjet EADS Socata to Hinduja the next possible relocate major entry in the aviation ERJ145 Assembly manufacturi market, after Tata Motors in China, in a Embraer will be Embraer/Harbin JV Honda, ng/assembl looking to Mitsubishi y to India outsource to lower- IAI to grow in HAL to and KAI cost regions – with business manufacture investing in Mexico being an aviation doors for HAL to produce the regional obvious target manufacturing, Airbus / Enter fuselage for over market by after a $1 billion 200 G150 a/c introducing Hawker Beechcraft partnership agreement own jets opened a new with Gulfstream with Boeing manufacturing facility on G150 for future Tata Motors entering in Mexico, whilst work commercial aviation Bombardier is manufacturing under JV looking to shift with Boeing Learjet at its existing facilities there © 2010 Frost & Sullivan, All rights reserved www.frost.com 14
  15. 15. Commercial Low Cost Carriers’ outsourcing practices expected to drive MRO market Aviation globally Increased bargaining power of end-users and high labour costs will drive outsourcing to Asian and East European countries MRO Regional Demand Forecasting 2008- 2017 (Global), in Bio. USD 90 $80.1 Billion 2017 Africa & Middle East Russia / CIS 80 10% 2% North Am erica 70 40% Demand in Billion USD 60 $46.0 Billion 50 Europe 24% 40 30 20 10 0 APAC 24% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Engines Components Line / Heavy Maintenance Modifications Cost reduction initiatives have driven airlines to outsource their heavy maintenance requirements to lower cost MRO facilities in Eastern Europe and the Far East MROs to partner with OEMs and specialist organizations such as logistics providers, in order to offer comprehensive component management programmes 15 © 2010 Frost & Sullivan, All rights reserved www.frost.com
  16. 16. Global Overview of Civil Security Markets © 2010 Frost & Sullivan, All rights reserved www.frost.com 16
  17. 17. Civil Security Global Civil Security Trends Key Trends Features & Implications • Mass transport systems are increasingly being seen as “soft” targets for both criminal and terrorist activity. Intelligent & durable surveillance systems within “rolling stock” are key revenue generators. • Emphasis on low TCO, self-diagnosing CCTV systems, automatic wireless image downloads and Mass Transport innovative passenger screening technologies will push R&D efforts within this threat domain. • Massive development of small to medium size airports (over 400 by the year 2028) around the world, coupled with potential increases in baseline international airport security standards, is expected to massively increase demand for airport security measures. • Key technologies include biometric electronic access control measures, passenger screening portals Airports and explosive detection systems for baggage, as well as cutting-edge passenger processing systems. • Significant implementation of TETRA networks around the world is leading to the expansion of PMR capabilities to both the public sector (ambulance, fire brigade and police) and the private sector (oil refineries, power stations and chemical refineries), with small C2 systems gaining in popularity. First Responder / C3i • Events such as the Olympic Games, World Cup, national championships and scheduled sporting events are pushing the relevant authorities to provide ever increasing levels of security. • At present, the primary emphasis is on mobile / portable C2 systems that are reusable and can be easily transported between different venues. Significant digital surveillance systems and encrypted PMR technologies are seen as solutions to many large event security issues. Large Event • ICAO standards regarding the implementation of biometric passports will push biometric passenger processing systems to the limit. Deadlines for programs such as US-VISIT are expected to be extended again the future, despite large-scale rollout of biometric passports and other identification methods. Borders © 2010 Frost & Sullivan, All rights reserved www.frost.com 17
  18. 18. Greatest revenue potential lies within APAC region and the Middle East. Latin Civil Security America offers reasonable returns, while a significant amount of civil security work has already been completed within the EU region. Number of Opportunities India High US$10 billion Turkey Australia US$1.8 billion US$300 million Russia US$9 billion Brazil Malaysia UAE South US$400 China US$12 billion Africa Million US$2 billion Bahrain Algeria Oman US$5 billion Medium Mexico South Thailand Sweden US$2 billion Korea Austria Portugal Saudi Arabia Venezuela US$20+billion Lithuania Denmark Singapore Kazak Brunei US$9 billion+ Italy Low AVOID CONSIDER ENTER Low Medium High Cumulative Value of Opportunities © 2010 Frost & Sullivan, All rights reserved www.frost.com 18
  19. 19. The global civil security market will continue to see robust growth through to 2012 principally driven by a high terrorist threat perception. Problems related to border Civil Security security, large events security and mass transit protection will also be a catalyst for continued governments spending. Key Take Aways Civil Security an events driven industry, market driven by threats rather then economics Market contains a number of recession resistant drivers that will ensure it sustains growth through the current downturn. In some respects recession will be a source of opportunities, particularly in border security and critical infrastructure protection. Brazil and Turkey represent key emerging markets through to 2012 Transatlantic merger and acquisitions are a key trend in the market, though the rate of acquisition has slowed slightly as major companies try and weight it out. © 2010 Frost & Sullivan, All rights reserved www.frost.com 19
  20. 20. Key Contact Asia Pacific Julius Yeo Consultant Aerospace & Defense Practice Asia Pacific DID +65.68900.989 FAX +65.68900.988 HP +65.8133.9195 EMAIL julius.yeo@frost.com WEB www.aerospace.frost.com © 2010 Frost & Sullivan, All rights reserved www.frost.com 20

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