Support in Service - Frost & Sullivan Market Insight


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The support in service models in Europe are changing. MoDs can now look to industry for support in maintenance activities that are complex, expensive and inefficient.

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Support in Service - Frost & Sullivan Market Insight

  1. 1. Market Insight: Evolving Support in Service in the European Defence Market Anthony Leather, Research Analyst, Europe – Aerospace, Defence & Security
  2. 2. Introduction The global economic downturn has seriously impacted defence expenditure in Europe. Many countries have been forced to implement large scale cuts to defence spending to contain budget deficits. Measures implemented through retiring platforms, cancellingEvolving Support in Service in the European Defence Market procurement and reducing personnel are having a significant effect on the support in service of equipment. Support is seen as an area that can be targeted to be more efficient and create long term cost savings. With a reduction in support personnel one of the ways to ensure maintenance procedures are continued is to create strategic partnerships with industry to fill the gap. Much has been documented about the level of industry involvement in support in service and the use of performance and availability based contracts as well as Private Finance Initiatives. These contracts are still relatively rare throughout Europe, with only a few exceptions, most notably the United Kingdom. Industry does however provide different types of support models with various levels of involvement. Support Segments Frost & Sullivan has broken support in service into five main segments. Line Maintenance – Encompasses the frontline maintenance and upkeep of platforms to ensure full operational capability of the forces. This includes regular checks and repair of any transactional wear and tear. Heavy Maintenance - Conducted on platforms in a scheduled manner after reaching a pre-established parameter such as engine hours, miles or time period. Spare Parts - The different components and parts used to operationally maintain and repair a platform. Modernisation - Any unscheduled upgrade or replacement of a system that updates theMarket Insight platform. Training and Simulation - Training the operations and support team to operate the platform in its full capability. This also includes the deployment of simulators / simulated training environment. © 2011 Frost & Sullivan
  3. 3. Traditionally armed forces have sourced only spare parts from industry and carried out other support activities in house. However, more MoD’s are now considering or employing a multi-source level of support which includes an amalgamation of the different segments to suit their needs. The chart below represents the level of opportunity for industry for eachEvolving Support in Service in the European Defence Market of the different segments. Figure 1: Opportunity for Support in Service by Segments, (Europe), 2011 High Contract for availability Total Service Solution Training and Simulation Level of industry involvement Heavy Maintenance Modernisation In Theatre Line Maintenance Support Spare Parts Low Opportunity in the Low European Defence Market High Source: Frost & Sullivan analysis. Over the next decade Frost & Sullivan research shows that industry involvement will increase in all areas, especially Modernisation, Training and Heavy Maintenance support for platforms throughout Europe. The supply of spare parts will continue to be a highly competitive segment of the support market. The recent European Defence Directive encouraging competition as well as NAMSA and the European Defence Agency involvement, will facilitate this environment. LOWMarket Insight Training can be outsourced more easily than other areas of the support model. Industry can take a leading role in training, away from conflict areas in a controlled environment. The use of simulators and joint training exercises between states is also likely to rise. Heavy maintenance and modernisation are areas that require more planning for industry involvement but nonetheless show possibilities of greater cost efficiencies. Industry can © 2011 Frost & Sullivan
  4. 4. undertake these tasks in their facilities and if taking on high numbers of platforms to support can benefit from economies of scale. Further, specialised industry engineers will undertake the deep maintenance procedures. These activities are especially relevant with the scale down in Afghanistan where much of the European equipment that has beenEvolving Support in Service in the European Defence Market deployed will require deep maintenance and modernisation. Line maintenance remains the segment with the greatest barriers for industry involvement. Armed forces have ownership of the equipment and feel they can provide the highest value support. Furthermore outsourcing to industry will result in job losses to their personnel which naturally they want to resist. Logistic complications of travelling with the equipment presents further problems. Industry has proved that this can be overcome, highlighted in the current role that it plays in conflict areas such as Afghanistan. However of all the support segments Line Maintenance will be the last to be outsourced and armed forces are likely to retain control of this area. The squeeze on defence budgets in Europe have required MoD’s to look at the options available to outsource support to industry. Cost saving and efficiency can be attained through a hybrid of industry and end user support. Increased competition and reduced country procurement budgets have forced industry to look for secured revenue streams through providing support in service. To achieve this most OEM’s and defence companies have adapted to offer a range of services that will provide cost savings to MoDs. Traditionally air platforms have been the first to be outsourced. They are more complex, the costs of maintenance are high and this is where most benefit and cost saving for end users can be realized through industry involvement. Frost & Sullivan forecasts around 52% of outsourced spend over the next ten years will be on air platforms. Figure 2: Market Segmentation by End User Type, (Europe), 2011 - 2020 Defence Support in Service Market: Market Segmentation by End-User Type 2011 -2020Market Insight LAND 17% MARITIME 30% AIR 53% © 2011 Frost & Sullivan
  5. 5. Regional Overview The level of industry integration in support in service differs throughout Europe. The chart below maps the potential support in service out-source spend of 23 countries in Europe.Evolving Support in Service in the European Defence Market Figure 3: Market Potential by Country, 2011 1 France Sectors with highest total growth potential in Europe 2 Germany High 3 Italy 4 Spain 1 5 Opportunity for growth in 5 United Kingdom SIS outsource spend 12 6 4 Austria 7 8 2 10 Baltic States Medium 8 23 13 9 16 Belgium 20 9 Denmark 3 17 10 Finland 21 19 7 15 6 11 Greece 22 12 Netherlands 18 11 14 18 Bulgaria Low 13 Norway 19 Czech Republic Low Medium High 14 Poland 20 Hungary Current SIS outsource spend 15 Portugal 21 Romania 16 Sweden 22 Slovakia 17 Turkey 23 Slovenia Source: Frost & Sullivan analysis. The UK has led the way, incorporating industry into their support model. Many Western European countries are following this approach with France and Spain likely to be the next countries to out-source more of their support. Frost & Sullivan forecast the total support in service outsource spend in France to increase by a little over $1.5 billion between 2011 - 2020. Figure 4: Forecasted Total Support in Service spend versus Outsource spend (France), 2011- 2020 Defence Support in Service Market : Total Support in Service spend versus Out- source spend (France), 2011-2020 $7,000Market Insight $6,000 Expenditure ($millions) $5,000 $4,000 $3,000 $2,000 $1,000 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 SIS Out-source spend $2,643 $2,617 $2,590 $3,675 $3,639 $3,603 $3,567 $4,207 $4,205 $4,203 Total SiS spend $6,339 $6,276 $6,214 $6,152 $6,091 $6,031 $5,972 $5,969 $5,967 $5,964 © 2011 Frost & Sullivan
  6. 6. However, Germany and Italy are still cautious of the concept. They have built up a strong internal support capability, costing much time and investment which they are reluctant to discard. However budget pressures are forcing countries to be more efficient and explore new support models.Evolving Support in Service in the European Defence Market Many of the Nordic countries have embraced partnership with industry to provide support. However, they have close ties and strategic partnerships with national industry, creating a very competitive environment. Frost & Sullivan’s research suggest that they will continue to evolve their support models and open up more of their maintenance activities to industry. The concept of out-sourcing support to industry is growing in Eastern Europe, however not to the extent of other regions in Europe. There are still many Russian made platforms in the Eastern European market which limits support opportunity. Conclusion The support in service models in Europe are changing. MoDs can now look to industry for support in maintenance activities that are complex, expensive and inefficient. As armed forces are restructured and headcount is reduced, MoD’s are likely to maintain fighting personnel and downsize support numbers. Expertise within the maintenance and engineering divisions will be lost. Outsourcing support to industry will help fill this capability gap and allow the armed forces to focus on combat related activities. With industry playing a greater role in support they are able to see how platforms are performing and any modifications on new systems that are required. They receive instant feedback which is beneficial to both the end user and the original equipment manufacturer. To achieve harmonisation of cost efficiency and maintained capability, outsourcing maintenance requirements provides an appealing option. Further industry integration in support is inevitable for armed forces throughout Europe,Market Insight however the extent of this involvement remains under the control of the MoD, for now. About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The companys Growth Partnership Service provides the CEO and the CEOs Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. To join our Growth © 2011 Frost & Sullivan Partnership, please visit