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Aerospace & Defence Investment Opportunites by Frost & Sullivan


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Frost & Sullivan's Market Insight on current market environment and trends that will impact market participants and stakeholders, as well as new technologies and practices in the Aerospace & Defence sector

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Aerospace & Defence Investment Opportunites by Frost & Sullivan

  1. 1. GIL EUROPE Aerospace & Defence May 2012Dio PapiomytisPrincipal Consultant
  2. 2. Commercial Aviation
  3. 3. Major Trends in CA Segments Rising Middle Class in EMs • Shift in passenger behaviour -> focus on travel experience Shift in buying habits (mobile) • Rising fuel costs and green tax -> Green practices / tech Shift in consumption • Poor financial results habits (e.g. IFE) -> Efficiency seeking (hybrids, asset management, etc.) • Requirements for • Commercialisation low emissions / fuel of operations consumption -> restructuring -> New aircraft programmes -> requirement for ROI / technologies (composites, MEA-AEA, engines) • Caps on aeronautical charges -> focus on non-aero revenues • Rising backlog / -> Peer benchmarking pressure on supply chains -> Situational awareness (BI) -> restructuring • Passenger at the core of operations • Low unit margins -> Geolocation / LBS -> Aftermarket focus
  4. 4. Acknowledged Inefficiencies Airline Earnings (or lack of) – 2003-12 Aircraft / GSE damage - $4.3B Lost Baggage - $3B FOD Damage - $1B Source: IATA + Lost assets, low productivity, dispersed data, surplus inventories, high capex, high fuel consumption…
  5. 5. Investment Attractiveness IT AIRPORTS CABIN INTERIORS Attributes Attributes Market Size: $74B Attributes Market Size: $10B Market Size: $5B HIGH Growth 2012-16: 10% Growth 2012-16: 6% Op. Margins: 17% Growth 2012-16: 8.5% Op. Margins: 5.5% Op. Margins: 14% Concentration: Low Concentration: Very Low Concentration: Mid-High Major Trend: Integration Major Trend: Commercialisation Major Trend: Consolidation MRO AVIONICS GROUND HANDLING Attributes Attributes Attributes Market Size: $48B Market Size: $5B Market Size: $35B MID Growth 2012-16: 3.5% Growth 2012-16: 6.4% Growth 2012-16: 7% Op. Margins: 7% Op. Margins: 11% Op. Margins:4.4% Concentration: Mid-High Concentration: Mid-High Concentration: Very Low Major Trend: Alliances Major Trend: Expansion Major Trend: Consolidation AIRCRAFT OEMs ENGINE OEMs AIRLINES Attributes Attributes Attributes Market Size: $100B Market Size: $34B Market Size: $550B Growth 2012-16: 9.3% Growth 2012-16: 10.5% Growth 2012-16: 8.2% LOW Op. Margins: 3.95% Op. Margins: 10% Op. Margins: 1.3% Concentration: Very High Concentration: Very High Concentration: Very Low Major Trend: Supply Chain Major Trend: Aftermarket Optimisation Services (MRO / FHM) Major Trend: Consolidation
  6. 6. M&A activity Market Cap: $58B Market Cap: $4B Market Cap: $16B Market Cap: $30B Avg. Acquisition: IT ($870M) / Avg. Acquisition: IT ($150M) / Avg. Acquisition: IT ($400M) / Avg. Acquisition: IT ($20M) / OEM OEM ($540M) OEM ($80M) OEM ($40M) (€110M) 2008 2008 2008 2008IT & Services OEM IT & Services OEM IT & Services OEM IT & Services OEM Narus Vought (South Safelife Fairchild Eagle Group Aculight Trivec-Avant Detica Carolina facility) Systems Imaging Tapestry Solutions Universal Nantero Sparta (Cobham Telerob BHA Aero MTC Systems & Government Analytics) Oasys Composite Technologies Technology Applications Exmeritus Technology Parts MMI Research Global SIM industries Kestrel (Cobham Microwave BVT Surface Diamond QTC Holdings Global Surveillance) Systems Fleet Detectors Aeronautica ProcerusDigital Receiver IP Wireless Technologies Technology Corp Ten Advanced (minority) RVision Atlantic Ceramics Marine Research Gyrocam Solutions Insitu Argotek AMMROC Systems Made Simple Tenixtoll (minority) Thrane & Thrane Defence Argon Logistics Summit Design Ravenwing 2012 2012 2012 2012 BOTTOM LINE: Communication BOTTOM LINE: Maintenance BOTTOM LINE: Training &BOTTOM LINE: Cybersecurity Services services / Cybersecurity Simulation
  7. 7. M&A activity Market Cap: $15.5B Market Cap: $6.4B Market Cap: $3B Market Cap: $16B Avg. Acquisition: IT (n/a) / OEM Avg. Acquisition: IT (n/a) / OEM Avg. Acquisition: IT (n/a) / OEM Avg. Acquisition: IT (n/a) / OEM ($700M) ($180M) ($240M) ($300M) 2008 2008 2008 2008IT & Services OEM IT & Services OEM IT & Services OEM IT & Services OEM L-1 Identity McKechnie Aviation Kongsberg’s TEAC Solutions Aerospace Network Aviation Assets Aerospace Telair’s Actuation Services Skyline Business B&R Machine & GE Homeland Industries Protection Tool HARCO Labs Recon/Optical’s Merritt Tool SNPE Materiaux Amsafe Assets Energetiques Global Holdings Mexmil Company Cloud Cap MRO MRO MRO Technology SDU Identification Semco Instruments Saygrove Crompton Defence & Technology JV: Sagembat CEF Industries Aerospace Defence Winslow Aircraft Parts Marine Products Vought Aircraft JV: Snecbat Corporation Industries Engine Microtecnica ACME Schneller Fabritech AIS Global Holdings Dukes Inc 2012 2012 2012 2012BOTTOM LINE: Security BOTTOM LINE: Aerospace Tier 2 BOTTOM LINE: Aerostructures BOTTOM LINE: Aerospace Tier 2
  8. 8. Market Opportunities Manufacturing IT Aftermarket Electro-Mechanical Business Integration Asset Management Actuation (off-balance sheet) Asset Management Composites and Solutions (Airport, Equipment Applications MRO) Condition Monitoring PMA Cloud Computing (Welding) services Aircraft Connectivity (Satellite / Wireless) Ground Support Equipment (scale) – Geolocation & buyout and roll up Airport LBS
  9. 9. Defence
  10. 10. Global Defence Budgets: A cost conscious approach Global Defence Budget Forecast by Region (2011-2020) Global Defence Expenditure (2011-2020) 1800 1600 1400In USD Billion 1200 Budget 30% allocated to 1000 Procurement 800 600 70% Other 400 Operating 200 Costs 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North America Europe APAC Middle East Latin America Africa Global Defence Procurement Spending Forecast (2011-2020) • Defence budget continues to grow steadily, driven by EMs 510 496 500 CARG = 1.2% 490 486 • Cost conscious technology acquisition – focus on 480 476 In USD Billion 466 Equipment TLCM 470 458 460 451 450 444 439 438 438 • Decline in Supply R&D spending 440 430 420 • Suppliers increasingly looking towards new geographies 410 400 and new sectors (e.g. Security due to similar customer 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 requirements)
  11. 11. Key Defence Markets:Key Defence Markets C4ISTAR reassure their supremacy as key segments of growth Tactical Surveillance and Sectors with highest total growth potential 1 Unmanned Systems 2 Force Protection HighCAGR for Vertical Markets (>10%) 3 Military Airlift 1 2 4 Combat Aircraft 1 2 5 Land Combat Systems 3 Medium 6 (5-10%) 6 Soldier Modernisation 5 4 7 Strategic & Tactical Comms 9 7 8 Training and Simulation Low 8 (0-5%) 9 Command and Control 1 Tactical Surveillance Small Medium Large 2 C4ISTAR (<$2 billion) ($2-$5 Billion) (>$5 Billion) Market Size of Vertical Markets CAGR is calculated from 2010 - 2014
  12. 12. Market Focus Key Technology FocusUnmanned Aerial Systems • Companies looking to expand their Unmanned Systems product offerings through partnering andUnmanned acquisition • The UAS industry in the U.S. is highly concentrated with approximately 80 percent of the market heldSystems by four companies (General Atomics, Northrop Grumman, Boeing and Aerovironment) • Large UAVs are expected to see just over 2.07% CAGR between 2011-2020, whilst Small and Mini UAVs expect over 12.2%. APAC is expected to be fastest growing market in the next decade. Total Military UAS Spending Forecast – Split by Region (2011-2020) Where to invest? • New technologies can be found within universities and SMEs • Companies with multi-application solutions for the civil UAS market (i.e. firefighting, border surveillance, broadcasting, agriculture)
  13. 13. Market Focus C4ISR • Estimated to be worth over $15B in 2020, C4ISR solutions continue to be priority in MoD spending due to the rapid technological developments C4ISR • Europe will grow at1.0% CAGR between 2011-2020, with APAC and ME expected to reach 7% and 6% CAGR respectivelyGrowth C4ISR Market: Priority Product Areas 2011-2020Potential ofOpportunities High Where to Invest? UAS Ground Mobile Station SATCOM R&T • Focus on innovation and integration System Data capabilities are key for suppliers. Suppliers links MANET Fire Control System with modular and COTS products have a Vehicle Force SDR C2 competitive advantage. Tracking System Systems Soldier Medium Transport planes Systems Device • EMs with a relatively young C4ISR industry Rotary Multi- Wings band and heavy modernisation requirements in Systems Submarine Systems Airborne Radar APAC, ME and LATAM (e.g. Embraer-Atech Petrol ships Systems Consoles partial acquisition) Systems Combat Fast Jets ships • Tier 2 and 3 suppliers with early wins but in Low Low Priority Medium Priority High Priority search of further funding Low Medium High Attractiveness of Opportunities
  14. 14. Security
  15. 15. Integrated Security one of the major Global Trends Global Civil Security Spending by Region, 2010 - 2020 Green Buildings Increased Shift in Global Technological Integrated Balance of Power Sophistication 210 Increasing 15 195 Security Innovation 180 10 8 9 22 25 165 8 19 20 150 9 8 17 6 8 14 15 48 50 135 12 $ Billions 5 10 11 42 45 47 120 4 40 105 8 33 34 36 32 90 30 47 48 Top Top TenTrends Affecting Security Ten Future Global Trends 75 37 38 38.5 40 44 45 46 32 36 60 45 30 53 54.5 55 56 58 60 61 65 66 46 50 15 0 Smart New Energy 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Architecture & Improved IT Aging PopulationManagement North America Europe Backbone Preventative APAC (Including India and China) Middle East Healthcare South America The global security market size is $140 billion and is expected to reach $200 billion by 2020. Growth is primarily driven by the US and EMs such as APAC and Middle East This excludes cyber security spending (est. $60B, to grow to $140B)
  16. 16. Top 15 Security MarketsHigh 100 90 UK TURKEY PAKISTAN 80 RUSSIA SPAIN INDIA 70 ISRAEL USA Threat Levels 60 FRANCE INDONESIA GERMANY 50 CHINA SOUTH 40 KOREA BRAZIL JAPAN 30 20 10 0 Low 0 10 20 30 40 50 60 70 80 90 100 110 Low Ability to Spend High16
  17. 17. Growth Segments High (>10%) EducationCAGR for Vertical Markets Government: National and International Infrastructure: Government-backed organizations (IATA, ICAO, EUROCONTROL) are projects to prove resilient to economic unwilling to reduce security investments in favour of recession cost cutting. Healthcare Medium (5-10%) Residential Gaming and Commercial Banking and Finance CasinosLow - Negative (-5%-5%) Small Medium Large billion) Market Size of Vertical Markets
  18. 18. Emerging Technologies / Practices IP-surveillance and the use of multi-mega pixel technology has The growing importance of integration of security systems with driven growth for IT storage solutions (SAN/NAS/DAS), reducing other building management systems has led to the growth of PSIM the cost per GB of storage and enabling end users to record and solutions. Increasingly used to protect critical infrastructure, PSIM store more video at lower operational cost has gained some traction in commercial security as well. IP Storage Biometrics is increasingly becomingHigh Growth (SAN/NAS/DAS) standard in Governmental applications (e.g. e-passports etc) PSIM High Resolution Cameras Biometrics Video Analytics SaaS DVRs/NVRs (Security/Software as a Service) IP Cameras Analogue Cameras Security as a Service: Following the trend of moving security systems into more IT-related Electronic Access areas, vendors are focusing on providingLow Growth Control managed services (remote monitoring/ management). Intrusion Detection Mature Technology Emerging Technology
  19. 19. Safe Cities Integration of existing and new security infrastructure to optimise resources, reduce traffic congestion, improve services to citizens and businesses, and make the city smarter, more secure, and more efficient Los Moscow Washington Angeles Certainty Madrid Busan Extreme Sydney Houston D.C. Beijing Mexico New City York Buenos San São Singapore Shanghai Mumbai Aires Minneapolis Francisco Paulo Tokyo Seoul Toronto Atlanta Hong Certainty Jakarta Phoenix Kong Denver London High Chongqing Miami Boston Metro Manila San St. Tianjin Diego Detroit Guangzhou Tampa Osaka Petersburg Milan Rio de Fukuoka Bangkok Janeiro Certainty Melbourne Strong Monterrey Manchester Paris Chicago Baltimore Pittsburgh Dallas St. Vienna Cleveland Cairo Istanbul Seattle Philadelphia Louis Basic Level of Surveillance Deployment and Integration of Deployment and Integration of deployment and Integration Surveillance and Response Detection , Response and capabilities Mitigation capabilities Healthy Economy Strong Economy Powerful Economy Source: Frost & Sullivan analysis. 19
  20. 20. Cyber Security Cyber Security Spending by Regions, 2011 Cyber Security - Spending by Solution Segments, 2011 8% 5% 26% 38% 31% 4% 25% 2% 27% 3% 31% North America South America Network Security Security Ops Western Europe Eastern Europe Data Security Identity & Access Control Middle East & Africa Asia Pacific Endpoint Security Growing awareness and need for information security within SMEs Cost reduction and enhanced ROI driving integrated security management solutions Mobile security a major driver 20
  21. 21. ConclusionsCOMMERCIAL AVIATION: Changing business models and supply chain shifts across commercial aviation markets Opportunities in Services and AftermarketDEFENCE: Stable defence budgets, with focus on TLCM Opportunities in Mini UAVs and CommunicationsSECURITY: High growth market, driven by Critical Infrastructure projects and Cyber Opportunities in Integration and Managed Services (SaaS)21