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Defense spending in israel august 2013

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  • 1. MarketLine Industry Profile Defense Spending in Israel August 2013 Reference Code: 0188-2405 Publication Date: August 2013 WWW.MARKETLINE.COM MARKET LINE. T HIS PROFILE IS A LICENSED PRODUCT AND IS NOT T O BE PHOT OCO PIED Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 1
  • 2. EXECUTIVE SUMMARY Market value The Israeli defense spending market grew by 4.1% in 2012 to reach a value of $14.7 billion. Market value forecast In 2017, the Israeli defense spending market is forecast to have a value of $15.4 billio n, an increase of 5.2% since 2012. Market volume The Israeli defense spending market remained at a volume of 184.6 thousand personnel in 2012. Market volume forecast In 2017, the Israeli defense spending market is forecast to have a volume of 187.9 thousan d personnel, an increase of 1.8% since 2012. Category segmentation Equipment is the largest segment of the defense spending market in Israel, accounting for 52.4% of the market's total value. Geography segmentation Israel accounts for 16% of the MEA defense spending market value. Market rivalry Main players within the global market for defense products and systems are large companies with well -established reputations. Such companies are diversified in terms of the products they manufacture and their geograp hical presence; however, they often have similar business models to their competitors which can increase rivalry. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 2
  • 3. TABLE OF CONTENTS Executive Summary..........................................................................................................................................................................2 Market value ..................................................................................................................................................................................2 Market value forecast...................................................................................................................................................................2 Market volume...............................................................................................................................................................................2 Market volume forecast ...............................................................................................................................................................2 Category segmentation................................................................................................................................................................2 Geography segmentation ............................................................................................................................................................2 Market ri valry .................................................................................................................................................................................2 Market Overview ...............................................................................................................................................................................7 Market definition............................................................................................................................................................................7 Market analysis .............................................................................................................................................................................7 Market Data........................................................................................................................................................................................8 Market value ..................................................................................................................................................................................8 Market volume...............................................................................................................................................................................9 Market Segmentation .....................................................................................................................................................................10 Category segmentation..............................................................................................................................................................10 Geography segmentation ..........................................................................................................................................................11 Market Outlook ................................................................................................................................................................................12 Market value forecast.................................................................................................................................................................12 Market volume forecast .............................................................................................................................................................13 Five Forces Analysis ......................................................................................................................................................................14 Summary......................................................................................................................................................................................14 Buyer power.................................................................................................................................................................................15 Supplier power ............................................................................................................................................................................16 New entrants ...............................................................................................................................................................................17 Threat of substitutes...................................................................................................................................................................18 Degree of rivalry..........................................................................................................................................................................19 Leading Companies........................................................................................................................................................................20 Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 3
  • 4. Elbit Systems Ltd........................................................................................................................................................................20 ELTA Systems Ltd......................................................................................................................................................................24 Israeli Military Industries Ltd. ....................................................................................................................................................25 Lockheed Martin Corporation ...................................................................................................................................................26 Macroeconomic Indicators.............................................................................................................................................................29 Country Data ...............................................................................................................................................................................29 Appendix...........................................................................................................................................................................................31 Methodology................................................................................................................................................................................31 Industry associations..................................................................................................................................................................32 Related MarketLine research....................................................................................................................................................32 Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 4
  • 5. LIST OF TABLES Table 1: Israel defense spending market value: $ billion, 2008 –12..........................................................................................8 Table 2: Israel defense spending market volume: thousand personnel, 2008–12.................................................................9 Table 3: Israel defense spending market category segmentation: $ billion, 2012 ...............................................................10 Table 4: Israel defense spending market geography segmentation: $ billion, 2012 ............................................................11 Table 5: Israel defense spending market value forecast: $ billion, 2012 –17 ........................................................................12 Table 6: Israel defense spending market volume forecast: thousand personnel, 2012 –17 ...............................................13 Table 7: Elbit Systems Ltd.: key facts ..........................................................................................................................................20 Table 8: Elbit Systems Ltd.: key financials ($) ...........................................................................................................................22 Table 9: Elbit Systems Ltd.: key financial ratios.........................................................................................................................22 Table 10: ELTA Systems Ltd.: key facts .....................................................................................................................................24 Table 11: Israeli Military Industries Ltd.: key facts .....................................................................................................................25 Table 12: Lockheed Martin Corporation: key facts ....................................................................................................................26 Table 13: Lockheed Martin Corporation: key financials ($)......................................................................................................27 Table 14: Lockheed Martin Corporation: key financial ratios...................................................................................................27 Table 15: Israel size of population (million), 2008–12...............................................................................................................29 Table 16: Israel gdp (constant 2000 prices, $ billion), 2008 –12..............................................................................................29 Table 17: Israel gdp (current prices, $ billion), 2008–12 ..........................................................................................................29 Table 18: Israel inflation, 2008–12...............................................................................................................................................30 Table 19: Israel consumer price index (absolute), 2008–12 ....................................................................................................30 Table 20: Israel exchange rate, 2008–11 ...................................................................................................................................30 Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 5
  • 6. LIST OF FIGURES Figure 1: Israel defense spending market value: $ billion, 2008 –12 ........................................................................................8 Figure 2: Israel defense spending market volume: thousand personnel, 2008–12 ...............................................................9 Figure 3: Israel defense spending market category segmentation: % share, by value, 2012 ............................................10 Figure 4: Israel defense spending market geography segmentation: % share, by value, 2012 ........................................11 Figure 5: Israel defense spending market value forecast: $ billion, 2012 –17.......................................................................12 Figure 6: Israel defense spending market volume forecast: thousand personnel, 2012–17..............................................13 Figure 7: Forces driving competition in the defense spending market in Israel, 2012.........................................................14 Figure 8: Drivers of buyer power in the defense spending market in Israel, 2012 ...............................................................15 Figure 9: Drivers of supplier power in the defense spending market in Israel, 2012 ...........................................................16 Figure 10: Factors influencing the likelihood of new entrants in the defense spending market in Israel, 2012 ..............17 Figure 11: Factors influencing the threat of substitutes in the defense spending market in Israel, 2012.........................18 Figure 12: Drivers of degree of rivalry in the defense spending market in Israel, 2012 ......................................................19 Figure 13: Elbit Systems Ltd.: revenues & profitability .............................................................................................................22 Figure 14: Elbit Systems Ltd.: assets & liabilities ......................................................................................................................23 Figure 15: Lockheed Martin Corporation: revenues & profitability ..........................................................................................28 Figure 16: Lockheed Martin Corporation: assets & liabilities...................................................................................................28 Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 6
  • 7. MARKET OVERVIEW Market definition Defense spending covers capital items, military personnel, government defense agencies, and related expenditure on defense and peacekeeping. The defense market is segmented to include expenditure on: personnel; equipment; infrastructure; and other expenditure (which represents all other spending). Volume is measured as the active serving personnel in the national army, air force, navy (including marines and coast guard) and other elements of the service, such as Joint Staff. An y currency conversions used in the creation of this report have been calculated using constant 2012 annual average exchange rates. For the purposes of this report, the Middle East-Africa (MEA) region comprises Egypt, Israel, Nigeria, Saudi Arabia, South Africa, and United Arab Emirates. Market analysis In real terms, Israeli defense spending saw low growth during 2008 -2012, although as a percentage of GDP, spending decreased year-on-year during the same period. Data suggests defense spending will fall into de cline until 2014, where the government has pledged to increase its defense budget for the next four years to record levels in 2018. Israeli defense spending had a total budget allocation of $14.7bn in 2012, representing a compound annual growth rate (CAGR) of 2.4% between 2008 and 2012. In comparison, the Nigerian and Egyptian markets grew with CAGRs of 17.4% and 6.6% respectively, o ver the same period, to reach respective values of $2.3bn and $4.4bn in 2012. Personnel numbers declined with a compound annual rate of change (CARC) of -0.1% between 2008 and 2012, to reach a total of 184,550 personnel in 2012. The number of personnel is expected to rise to 187,926 personnel by the end of 2017, representing a CAGR of 0.4% for the 2012-2017 period. The equipment segment was the market's most lucrative in 2012, with a total budget allocation of $7.7bn, equivalent to 52.4% of the market's overall value. The personnel segment had a budget allocation of $6.0bn in 2012, equating to 41.0% of the market's aggregate value. The performance of the market is forecast to decelerate, with an anticipated CAGR of 1.0% for the five -year period 2012 - 2017, which is expected to drive the market to a value of $15.4bn by the end of 2017. Comparatively, the Nigerian and Egyptian markets will grow with CAGRs of 11.0% and 7.2% respectively, o ver the same period, to reach respective values of $3.9bn and $6.2bn in 2017. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 7
  • 8. MARKET DATA Market value The Israeli defense spending market grew by 4.1% in 2012 to reach a value of $14.7 billion. The compound annual growth rate of the market in the period 2008–12 was 2.4%. Table 1: Israel defense spending market value: $ billion, 2008–12 Year billion 2008 13.4 2009 13.9 4.2% 2010 13.8 (0.8%) 2011 14.1 1.9% 2012 14.7 4.1% CAGR: 2008–12 SOURCE: MARKETLINE % Growth 2.4% M AR KE TL IN E Figure 1: Israel defense spending market value: $ billion, 2008–12 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 8
  • 9. Market volume The Israeli defense spending market remained at a volume of 184.6 thousand personnel in 2012. The compound annual rate of change of the market in the period 2008 –12 was -0.1%. Table 2: Israel defense spending market volume: thousand personnel, 2008–12 Year thousand personnel 2008 185.0 2009 184.6 (0.2%) 2010 184.6 0% 2011 184.6 0% 2012 184.6 0% CAGR: 2008–12 SOURCE: MARKETLINE % Growth (0.1%) M AR KE TL IN E Figure 2: Israel defense spending market volume: thousand per sonnel, 2008–12 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 9
  • 10. MARKET SEGMENTATION Category segmentation Equipment is the largest segment of the defense spending market in Israel, accounting for 52.4% of the market's total value. The Personnel segment accounts for a further 41% of the market. Table 3: Israel defense spending market category segmentation: $ billion, 2012 Category 2012 % Equipment 7.7 52.4% Personnel 6.0 41.0% Infrastructure 0.3 1.8% Other 0.7 4.8% Total 14.7 100% SOURCE: MARKETLINE M AR KE TL IN E Figure 3: Israel defense spending market category segmentation: % share, by value, 2012 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 10
  • 11. Geography segmentation Israel accounts for 16% of the MEA defense spending market value. Saudi Arabia accounts for a further 61.8% of the MEA market. Table 4: Israel defense spending market geography segmentation: $ billion, 2012 Geography 2012 % Saudi Arabia 218.7 61.8 Israel 56.5 16.0 United Arab Emirates 35.9 10.1 South Africa 17.2 4.9 Egypt 16.8 4.8 Nigeria 8.9 2.5 Total 354 100% SOURCE: MARKETLINE M AR KE TL IN E Figure 4: Israel defense spending market geography segmentation: % share, by value, 2012 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 11
  • 12. MARKET OUTLOOK Market value forecast In 2017, the Israeli defense spending market is forecast to have a value of $15.4 billion, an increase of 5.2% since 2012. The compound annual growth rate of the market in the period 2012–17 is predicted to be 1%. Table 5: Israel defense spending market value forecast: $ billion, 2012–17 Year billion % Growth 2012 14.7 4.1% 2013 14.3 (2.8%) 2014 13.8 (3.2%) 2015 14.3 3.9% 2016 14.9 3.8% 2017 15.4 3.6% CAGR: 2012–17 SOURCE: MARKETLINE 1.0% M AR KE TL IN E Figure 5: Israel defense spending market value forecast: $ billion, 2012–17 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 12
  • 13. Market volume forecast In 2017, the Israeli defense spending market is forecast to have a volume of 187.9 thousand personnel, an increase of 1.8% since 2012. The compound annual growth rate of the market in the period 2012–17 is predicted to be 0.4%. Table 6: Israel defense spending market volume forecast: thousand personnel, 2012 –17 Year thousand personnel % Growth 2012 184.6 0% 2013 184.6 0% 2014 184.6 0% 2015 187.7 1.7% 2016 187.9 0.1% 2017 187.9 0.0% CAGR: 2012–17 SOURCE: MARKETLINE 0.4% M AR KE TL IN E Figure 6: Israel defense spending market volume forecast: thousand personnel, 2012 –17 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 13
  • 14. FIVE FORCES ANALYSIS The defense spending market will be analyzed taking manufacturers of weapons and defense systems, and national defense departments as players. The key buyers will be taken as national governments, and raw materials and parts manufacturers, and individual personnel as the key suppliers. Summary Figure 7: Force s driving competition in the defense spending market in Israel, 2012 SOURCE: MARKETLINE M AR KE TL IN E Main players within the global market for defense products and systems are large companies with well -established reputations. Such companies are diversified in terms of the products they manufacture and their geographical presence; however, they often have similar business models to their competitors which can increase rivalry. The defense spending market is unique in that its principal buyers are also the market players. The main market players, and the ones this profile focuses on, are manufacturers of weapons and defense systems. However, national defense departments are also players as they provide the necessary training of military personnel. A nation's government is the main buyer, purchasing weapons and defense systems from the players, but also providing its defense department with the funds to pay for recruit's training and wages. Suppliers are more conventional, in that they are the raw material and parts manufacturers, and the individual personnel who are either enlisted or volunteer for military service. The only legitimate buyers for military hardware are the governments of sovereign states. This means that the defens e market in most countries is a monopsony, which immediately gives great power to the buyer. Defense companies make use of raw materials such as aluminum, titanium and composites, and also components provided by sub -contractors, relying on high quality materials, thus increasing the power suppliers wield over players. Anyone willing to start a defense products and systems manufacturing company may find it extremely problematic as generally, in order to compete with incumbents, new players need large-scale entry and an integrated business model. There are few substitutes to the purchase of new defense systems and weapons, although one of them is the purchase of used military equipment, usually reserved for smaller nations or developing countries with limited defense budgets. In the last few years there has also been an outsourcing of defense operations to private companies, such as Academi and Aegis, to operations in Iraq and Afghanistan. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 14
  • 15. Buyer power Figure 8: Drivers of buyer power in the defense spending market in Israel, 2012 SOURCE: MARKETLINE M AR KE TL IN E The only legitimate buyers for military hardware are the governments of sovereign states. This means that the defense market in most countries is a monopsony, which, combined with a buyer's large size and significant financial muscle, immediately gives great power to the buyer. Defense companies can ease the impact of buyer power by selling to several countries, although this will normally require their own governments to grant export licenses. In major defense projects, buyers set out their requirements and specifications, which market players must meet. This means that the products they buy are highly differentiated. Buyer switching costs are also potentially high. These factors would tend to weaken buyers. However, buyers can backwards integrate (for example a number of countries have state controlled defense companies, and the US operates governmental departments such as the Defense Advanced Research Projects Agency also known as DARPA) which strengthens their position. With defense spending, the situation is more complex than in a typical consumer market. Boeing, for example, reports that its key defense customer, the US Department of Defense, may terminate a supply c ontract either ‘for its own convenience’ or ‘for default’. In the first case, a company would be entitled to payment for work completed to date, plus cancellation costs. In the second case, where the company was judged not to have met project specifications, it would receive payment for work accepted, and might find itself liable for some of the cost of re -procurement as well. No state is likely to cease spending on defense altogether, as a defense force is seen as vital for national security. The necessity of maintaining a military weakens buyer power. However, governments may also be under pressure to balance defense with other areas of public spending. Furthermore political decisions to reduce public spending and the decline in tax revenue, a by-product of the global 'financial crisis', has resulted in many governments reconsidering how much they spend on particular defense projects, with defense spending often seen as a more politically safe area to implement spending cuts. On balance, buyer power is moderate. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 15
  • 16. Supplier power Figure 9: Drivers of supplier power in the defense spending market in Israel, 2012 SOURCE: MARKETLINE M AR KE TL IN E Defense companies make use of raw materials such as aluminum, titanium and composites, and also components provided by sub-contractors. High quality inputs are very important in this market. There may be no alternative suppliers for some of them. Even where multiple suppliers are available, it can take up to one year to certify that thei r products are of a specified quality. This increases switching costs and boosts supplier power. Depending on their position within the military, individual personnel can be expensive to replace in terms of the money invested by a country's defense department in their training, as a result these high switching costs increase supplier power. However, due to the unique nature of the job role, the chances of individual personnel forward integrating are unlikely, with the only instances of this occurring are if they hire themselves out as mercenaries or work for private defense contractors, which serves to weaken the supplier position. Equally it is impossible for market players to backward integrate in terms of individual personnel, thus boosting supplier pow er. Other factors impacting on individual personnel are the small size and high numbers of this type of supplier which decreases the strength of suppliers. Due to the importance of personnel in the military, and the lack of viable alternatives, which may change in the future as the development of unmanned drones continues, alongside the importance of high quality recruits in both a mental and physical capacity, supplier power is increased. Overall, supplier power is assessed as strong. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 16
  • 17. New entrants Figure 10: Factors influencing the likelihood of new entrants in the defense spending market in Israel, 2012 SOURCE: MARKETLINE M AR KE TL IN E An yone willing to start a defense products and systems manufacturing company may fin d it extremely problematic. In order to compete with incumbents, new players generally need large -scale entry and an integrated business model; however, it is possible to exploit a niche such as a computer software program or a solution to a very particula r environment. The typical business model also requires large amounts of capital outlay in terms of materials needed, storage facilities and transportation etc. Expertise and knowledge is crucial to the success of companies as the work is highly specialized with high levels of intellectual property. Defense operations are subject to numerous domestic and international laws, regulations and restrictions (including import-export controls, money-laundering, false accounting, anti-bribery and anti-boycott provisions). Non-compliance with these laws, regulations and restrictions could expose the company to fines, penalties, suspension or the termination of contracts. The regulation level varies from country to country. Western markets in particular operate stric t controls which new entrants must be aware of. These factors all serve to make the defense spending market difficult for new entrants. Furthermore, increasing fears about global warming are leading to a focus on reducing emissions with many firms having to re-design and adjust the way they manufacture products. Successful entry into this market is most likely achieved through an existing company with similar properties (e.g. engineering) that has diversified into the market. Gaining entry to a new geographic market can also be difficult and generally requires some kind of physical presence, and is often facilitated by mergers, acquisitions and partnerships. Israeli defense spending is forecast to experience marginal growth, making market conditions unfavora ble for potential new entrants. Overall the threat of new entrants is weak. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 17
  • 18. Threat of substitutes Figure 11: Factors influencing the threat of substitute s in the defense spending market in I srael, 2012 SOURCE: MARKETLINE M AR KE TL IN E There are few substitutes to the purchase of new defense systems and weapons, although one of them is the purchase of used military equipment. This segment of the market is usually solely reserved for smaller nations or developing countries with limited defense budgets, and as such is of little threat as a substitute. However, in the last few years there has been an outsourcing of defense operations to private companies, such as Academi and Aegis, to operations in Iraq and Afghanistan, but the majority of responsibility still lies with sovereign states. Another development that has picked up pace since the advent of the Iraq and Afghanistan wars has been the use of drones in place of military personnel. As a substitute to a nation's defense department's training of "traditional" personnel, it is limited. This is due to the need of human remote operators which ultimately have to be trained by defense departments, albeit at much lower costs and risks, in addition to the limited use of drones by m any countries. However, there is evidence to suggest this may change in future as the US Navy announced in July 2013 one of the unmanned drones it has been developing successfully landed and took off from an aircraft carrier without any human controller or interaction. The threat of substitutes is assessed as very weak overall. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 18
  • 19. Degree of rivalry Figure 12: Drivers of degree of rivalry in the defense spending market in Israel, 2012 SOURCE: MARKETLINE M AR KE TL IN E Main players within the market for defense products and systems are large companies with well -established reputations. Such companies are diversified in terms of the products they manufacture and their geographical presence. Diversification protects players from any unreliability in their defense business or the possibility of a market exit, and thus eases rivalry. However this is limited by the fact that market players tend to have similar business models. There has been a reduction in the number of principal contractors in recent years due to acquisition activities. In some countries, there is a tendency to nationalize strategic industries to develop capabilities, making it harder for multinational firms to compete, unless operated in joint ventures or manufactured under license. On-going consolidation of the global defense industries continues to intensify competition, in the sense that large rivals are a more significant threat than small ones. The Israeli defense budget allocation experienced low growth during 2008-2012, increasing rivalry in this market somewhat. Overall rivalry in this market is moderate. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 19
  • 20. LEADING COMPANIES Elbit Systems Ltd. Table 7: Elbit System s Ltd.: key facts Head office: Ad vanced Technology Center, Haifa 31053, ISR Telephone: 972 4 8316 663 Fax: 972 4 8316 944 Website: www.elbitsystems.com Financial year-end: December Ticker: ESLT, ESLT Stock exchange: Telaviv, NASD AQ SOURCE: COMPANY WEBSITE M AR KE TL IN E Elbit Systems (Elbit) is an Israel based company, engaged in the development, manufacture and integration of defense electronic and electro-optic systems. The company focuses on designing, developing, manufacturing and integration of command, control, communication, computer, intelligence, surveil lance and reconnaissance (C4ISR) network centric systems, including unmanned vehicles, for defense and homeland security applications. It also performs upgrade programs for airborne, land and naval defense platforms. Moreover, the company develops and manu factures systems and aero structures for the commercial aviation market. The company operates in Israel, the US, Europe, South America, Asia, and Oceania. The company mainly operates in the areas of military aircraft and helicopter systems; helmet mounted systems; commercial aviation systems and aero structures; unmanned air vehicle (UAV) systems; naval systems; land vehicle systems; command, control, communications, computer and intelligence (C4I) systems; electro -optic and countermeasures systems; homeland security systems; electronic warfare (EW) and signal intelligence (SIGINT) systems; and various commercial activities. In military aircraft and helicopter systems, the company supplies a portfolio of advanced airborne electronic and electro optic systems and products to leading military aircraft manufacturers and end users. The company supplies logistic support services for airborne platforms, including repair and maintenance centers, training and spare parts. In helmet mounted systems, the company designs and supplies a range of advanced helmet mounted systems (HMS), including helmet mounted displays (HMDs) for fixed-wing aircraft and rotary aircraft pilots. These include tracking and display systems, both for day and night flying. The company is engaged in multiple HMS activities. Under commercial aviation systems and aero structures, the company's activities mainly include vision -based cockpit concept systems, other avionics systems, electrical systems, pressurization systems and aero structure products. In unmanned air vehicle (UAV) systems, Elbit Systems designs and supplies integrated unmanned aircraft systems (UAS) for a range of applications. It designs and manufactures a variety of UAV platforms, including the Hermes and Skylark families of UAVs. The company also designs and supplies command and control ground station elements that can be adapted for various types of UAS. The company's naval systems include naval combat and C4I management systems, shipboard combat system integration, naval electro-optic observation systems, naval tactical trainers, submarine and surface electronic support measurement systems, shipboard SIGINT including COMINT and ELINT systems, shipboard decoy countermeasure launching systems and unmanned surface vessels. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 20
  • 21. Under land vehicle systems, the company upgrades and modernizes tanks, other combat vehicles and artillery platforms both as a prime contractor and as a systems supplier to leading platform manufacturers. The company also develops and supplies unmanned ground vehicles and robotic devices for a variety of land based missions. In addition, it supplies training systems for tanks and fighting vehicles. The company's C4I systems are designed for real-time operational and situational awareness, assuring fighting forces constant access to command and control. As part of the 'total force' concept, the company provides its customers with the capabilities to deploy land forces on a networked and joint basis. C4I systems provide comprehensive net -centric solutions for low intensity conflicts (LIC) and counter-terror activities. In electro-optical and countermeasures systems, the company designs and manufactures a full range of electro -opticbased solutions for air, land, sea and space applications. The company covers the complete s pectrum of electro-optics based solutions with products ranging from laser and thermal imaging systems to head -up displays, through ISR systems - including payloads for space, airborne, naval and land -based missions - to ground integrated sights, electrooptic countermeasures and homeland security solutions. Under homeland security systems, the company designs, manufactures and integrates a wide range of comprehensive homeland security systems and products covering diverse scenarios and applications. These include integrated land, maritime and coastal control and surveillance systems, airport and seaport security systems, border control systems, "safe city" systems, access and border registration control systems, pilot identification systems, transportation security systems, C4I homeland security applications, facility perimeter security products, electronic fences, electro -optic surveillance systems, tactical mini-UAVs and communications systems for defense, police, airport, border patrol, coast guard, critical infrastructure protection and other homeland security uses. In EW and SIGINT Systems, through Elisra, the company supplies a range of multi -spectral self-protection suites and systems for airborne platforms including advanced EW and electronic counterm easures (ECM) systems, communications jammer solutions, missile warning systems, laser warning systems and radar warning receivers. The company also furnishes SIGINT systems, including ELINT, COMINT and direction finding (DF) systems, designed for air, ground and naval platforms and applications. Elbit's various commercial activities include medical equipment, commercial communications and mobile and wireless telephone network encryptions, microwave technologies and components and spectrum monitoring and co ntrol systems, night vision products for the automotive industry, commercial automotive fleet management products, SATCOM equipment and general manufacturing and machinery services. The company's subsidiaries include: Elbit Systems Electro-Optics Elop, Elbit Systems Land and C4I, Elbit Systems Kinetics, Opgal Optronics Industries, Elisra Electronic Systems, Elbit Systems of America, EFW, Kollsman, Vision Systems International and others. Key Metrics The company recorded revenues of $2,889 million in the fiscal year ending December 2012, an increase of 2.5% compared to fiscal 2011. Its net income was $168 million in fiscal 2012, compared to a net income of $90 million in the preceding year. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 21
  • 22. Table 8: Elbit System s Ltd.: key financials ($) $ million 2008 2009 2010 2011 2012 2,747.5 2,835.7 2,670.1 2,817.5 2,888.6 204.2 214.9 183.5 90.3 167.9 Total assets 2,934.1 3,053.7 3,615.8 3,720.5 3,810.7 Total liabilities 2,210.3 2,220.1 2,610.3 2,792.8 2,760.1 Employees 10,876 11,238 12,317 12,545 12,134 Revenues Net income (loss) SOURCE: COMPANY FILINGS M AR KE TL IN E Table 9: Elbit System s Ltd.: key financial ratios Ratio 2008 2009 2010 2011 2012 Profit margin 7.4% 7.6% 6.9% 3.2% 5.8% 38.4% 3.2% (5.8%) 5.5% 2.5% 5.2% 4.1% 18.4% 2.9% 2.4% Revenue growth Asset growth Liabilities growth (1.9%) 0.4% 17.6% 7.0% (1.2%) Debt/asset ratio 75.3% 72.7% 72.2% 75.1% 72.4% Return on assets 7.1% 7.2% 5.5% 2.5% 4.5% $252,620 $252,331 $216,782 $224,591 $238,058 $18,775 $19,123 $14,898 $7,198 $13,837 Revenue per employee Profit per employee SOURCE: COMPANY FILINGS M AR KE TL IN E Figure 13: Elbit System s Ltd. : revenues & profitability SOURCE: COMPANY FILINGS Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 22
  • 23. Figure 14: Elbit System s Ltd. : assets & liabilities SOURCE: COMPANY FILINGS Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 23
  • 24. ELTA Systems Ltd. Table 10: ELTA System s Ltd. : key facts Head office: 100 Yitzchak Hanasi Blvd. P.O.B. 330 Ashdod 77102 , ISR Telephone: 972 8857 2333 Website: www.iai.co.il SOURCE: COMPANY WEBSITE M AR KE TL IN E ELTA Systems Ltd., a group and subsidiary of Israel Aerospace Industries, is one of Israel’s leading defense electronics companies. ELTA’s operations focus on electromagnetic sensors such as radar, electronic warfare, communication, and integrated solutions. The company’s products are designed for intelligence gathering, surveillance, target acquisition and reconnaissance, early warning and control, homeland security, self-protection and self-defense, and fire control applications. ELTA operates a worldwide marketing network, which also includes customer service and after -sales support activities. Key Metrics As a private entity, ELTA Systems Ltd. is not legally obliged to release its financial results. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 24
  • 25. Israeli Military Industries Ltd. Table 11: Israeli Military Industrie s Ltd. : key facts Head office: POB 1044 Ramat, Hasharon 47100, ISR Telephone: 972 3 5485222 Fax: 972 3 5486125 Website: www.imi-israel.com SOURCE: COMPANY WEBSITE M AR KE TL IN E Fully owned by the Israeli government and established in 1933, Israeli Military Industries Ltd. (IMI) is a defense systems company specializing in the development, integration, manufacturing, and life cycle support of modern land, air and naval combat systems. IMI's combat-proven systems are developed by vertically integrated teams, with the Israel Defense Forces (IDF) being its largest customer. The company’s products have been qualified with the IDF, US Military (Air Force, Army and Navy) and NATO nations. In addition to design and development workshops, IMI operates production facilities, supported by laboratories and test facilities. IMI offers comprehensive end-to-end product support, including training and integrated logistics, maintenance, and mid-life upgrades. Key Metrics As a government controlled entity, Israeli Military Industries Ltd. is not legally obliged to release its financial results. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 25
  • 26. Lockheed Martin Corporation Table 12: Lockheed Martin Corporation: key facts Head office: 6801 Rockledge Drive, Bethesda, Maryland 20817, USA Telephone: 1 301 897 6000 Website: www.lockheedmartin.com Financial year-end: December Ticker: LMT Stock exchange: New York SOURCE: COMPANY WEBSITE M AR KE TL IN E Lockheed Martin is a global security systems and aerospace company. It provides a broad range of management, engineering, technical, scientific, logistic, and information services. The company serves both domestic and international customers with products and services that have defense, civil, and commercial applications, with its principal customers being agencies of the US Government. Its main areas of focus are in defense, space, intell igence, homeland security, and information technology, including cyber security. The company divides its business operations into four segments: electronic systems, aeronautics, information systems and global services (IS&GS), and space systems. The electronic systems segment provides surface ship and submarine combat systems; sea -based missile defense systems; littoral combat ships; nuclear instrumentation and control systems for naval submarines, and aircraft carriers, and surface warships. In addition, the segment also provides air and defense missile systems; ship systems integration, air-to-ground precision strike weapons systems; tactical missiles; munitions; and fire control and navigation systems for rotary and fixed-wing aircraft. The segment also offers manned and unmanned ground vehicles; mission operations support, readiness, engineering support, and integration services; simulation and training services; and energy programs. The segment's major programs include Aegis Combat System; Patriot Advanc ed Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD) air and missile defense programs; Multiple Launch Rocket System (MLRS), Hellfire, and Joint Air-to-Surface Standoff Missile (JASSM) tactical missile programs; Apache Fire Control System; Littoral Combat Ship (LCS); and Special Operations Forces Contractor Logistics Support Services program. Lockheed Martin's aeronautics segment is engaged in the research, design, development, manufacture, integration, sustainment, support, and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles, and related technologies. The segment also provides logistics support, sustainment, and upgrade modification services for its aircraft. Its major programs include: F-35 Lightning II Joint Strike Fighter; F-16 Fighting Falcon; F-22 Raptor; C-130J Hercules; and C-5M Super Galaxy. In addition, the segment is involved in advanced development programs incorporating innovative design and rapid prototype applications. The company's IS&GS segment provides management services, information technology (IT) solutions and advanced technology expertise to a broad spectrum of applications to the US government and other customers. The segment supports the needs of customers in human capital planning, data protection and sharing, cyber-security, financial services, health care, energy and environment, security, space exploration, biometrics, and transportation. IS&GS' major programs include: Command and Control, Battle Management, and Communications (C2BMC) contract; En-Route Automation Modernization (ERAM) contract; Hanford Mission Support contract; and National Science Foundation's US Antarctic Support program. Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 26
  • 27. The space systems segment is engaged in the design, research and deve lopment, engineering, and production of satellites, strategic and defensive missile systems, and space transportation systems. The segment also offers activities related to the Space Shuttle and its planned replacement. Its major programs include: Trident II D5 Fleet Ballistic Missile; Space-Based Infrared System (SBIRS) program; Orion Multi-Purpose Crew Vehicle (Orion) program; Advanced Extremely High Frequency (AEHF) system; Mobile User Objective System (MUOS); and Global Positioning System (GPS) III. In addition, the space systems segment also has an ownership interest in United Launch Alliance, which provides expendable launch services for the US Government, and in United Space Alliance, which provides processing activities for the Space Shuttle program. The Israeli Air Force has a fleet of almost 200 F-16 fighters, with an order in place for 20 of Lockheed’s F-35A fighters. Key Metrics The company recorded revenues of $47,182 million in the fiscal year ending December 2012, an increase of 1.5% compared to fiscal 2011. Its net income was $2,745 million in fiscal 2012, compared to a net income of $2,655 million in the preceding year. Table 13: Lockheed Martin Corporation: key financials ($) $ million 2008 2009 2010 2011 2012 41,372.0 43,867.0 45,671.0 46,499.0 47,182.0 3,217.0 2,973.0 2,878.0 2,655.0 2,745.0 Total assets 33,439.0 35,167.0 35,113.0 37,908.0 38,657.0 Total liabilities 30,574.0 30,982.0 31,616.0 36,907.0 38,618.0 146,000 140,000 132,000 123,000 120,000 Revenues Net income (loss) Employees SOURCE: COMPANY FILINGS M AR KE TL IN E Table 14: Lockheed Martin Corporation: key financial ratios Ratio Profit margin 2008 2009 2010 2011 2012 7.8% 6.8% 6.3% 5.7% 5.8% Revenue growth (1.2%) 6.0% 4.1% 1.8% 1.5% Asset growth 15.6% 5.2% (0.2%) 8.0% 2.0% Liabilities growth 59.9% 1.3% 2.0% 16.7% 4.6% Debt/asset ratio 91.4% 88.1% 90.0% 97.4% 99.9% Return on assets 10.3% 8.7% 8.2% 7.3% 7.2% $283,370 $313,336 $345,992 $378,041 $393,183 $22,034 $21,236 $21,803 $21,585 $22,875 Revenue per employee Profit per employee SOURCE: COMPANY FILINGS Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 27
  • 28. Figure 15: Lockheed Martin Corporation: revenues & profitability SOURCE: COMPANY FILINGS M AR KE TL IN E Figure 16: Lockheed Martin Corporation: asse ts & liabilities SOURCE: COMPANY FILINGS Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 28
  • 29. MACROECONOMIC INDICATORS Country Data Table 15: Israel size of population (million), 2008 –12 Year Population (million) % Growth 2008 7.3 1.8% 2009 7.5 2.4% 2010 7.6 1.8% 2011 7.8 1.9% 2012 7.9 1.8% SOURCE: MARKETLINE M AR KE TL IN E Table 16: Israel gdp (constant 2000 price s, $ billion), 2008–12 Year Constant 2000 Prices, $ billion % Growth 2008 156.1 4.1% 2009 157.8 1.1% 2010 165.7 5.0% 2011 173.3 4.6% 2012 178.7 3.1% SOURCE: MARKETLINE M AR KE TL IN E Table 17: Israel gdp (current price s, $ billion), 2008–12 Year Current Prices, $ billion 2008 201.9 20.7% 2009 195.1 (3.4%) 2010 217.4 11.4% 2011 243.1 11.8% 2012 255.1 5.0% SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED % Growth M AR KE TL IN E 0188 - 2405 - 2012 Page | 29
  • 30. Table 18: Israel inflation, 2008–12 Year Inflation Rate (%) 2008 4.6% 2009 3.3% 2010 2.7% 2011 3.5% 2012 1.8% SOURCE: MARKETLINE M AR KE TL IN E Table 19: Israel consumer price index (absolute), 2008–12 Year Consumer Price Index (2000 = 100) 2008 107.3 2009 110.9 2010 113.9 2011 117.8 2012 119.9 SOURCE: MARKETLINE M AR KE TL IN E Table 20: Israel exchange rate, 2008–11 Year Exchange rate ($/ILS) Exchange rate (€/ILS) 2008 3.5909 5.2676 2009 3.9321 5.4736 2010 3.7375 4.9596 2011 3.8500 4.9473 SOURCE: MARKETLINE Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED M AR KE TL IN E 0188 - 2405 - 2012 Page | 30
  • 31. APPENDIX Methodology MarketLine Industry Profiles draw on extensive primary and secondary research, all aggregated, analyzed, cross checked and presented in a consistent and accessible style. Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys and supported by analysis from industry experts using highly complex modeling & forecasting tools, MarketLine’s in -house databases provide the foundation for all related industry profiles Preparatory research – We also maintain extensive in-house databases of news, analyst commentary, company profiles and macroeconomic & demographic information, which enable our researchers to build an accurate market overview Definitions – Market definitions are standardized to allow comparison from country to country. The parameters of each definition are carefully reviewed at the start of the research process to ensure they match the requirements of both the market and our clients Extensive secondary research activities ensure we are always fully up-to-date with the latest industry events and trends MarketLine aggregates and analyzes a number of secondary information sources, including: - National/Governmental statistics - International data (official international sources) - National and International trade associations - Broker and analyst reports - Company Annual Reports - Business information libraries and databases Modeling & forecasting tools – MarketLine has developed powerful tools that allow quantitative and qualitative data to be combined with related macroeconomic and demographic drivers to create market models and forecasts, which can then be refined according to specific competitive, regulatory and demand -related factors Continuous quality control ensures that our processes and profiles remain focused, accurate and up -to-date Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 31
  • 32. Industry associations Metal, Electrical and Infrastructure Industries Association Tel.: 972 3 5198830 Fax: 972 3 5103152 www.industry.org.il Israeli Association of Electronics & Software Industries (IAESI) P.O. Bo x, 50026. Tel-Avi v 61500, ISR Tel.: 972 3 5118862 www.iaesi.org.il The International Coordinating Council of Aerospace Industries Associations (ICCAIA) 1000 Wilson Blvd., Suite 1700, Arlington, VA 22207, USA www.iccaia.org Related MarketLine research Industry Profile Global Defense Spending Defense Spending in Asia-Pacific Defense Spending in Europe Defense Spending in the United States Defense Spending in Egypt Israel - Defense Spending © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED 0188 - 2405 - 2012 Page | 32
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