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Middle East Military Air – Towards Absolute Air Superiority

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Lessons from the past wars in the region have taught regimes how Air Superiority underpinned by
total situational awareness acts as the ultimate deterrence. This has convinced them that the only
way to safeguard national security is to invest in cutting edge air assets. The Middle East resurge in
defence spending is a new phenomenon that came with the dramatic growth in economy since
2005, driven by the rise in the oil and gas price.

Published in: Business, News & Politics
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Middle East Military Air – Towards Absolute Air Superiority

  1. 1. March 2011Middle East Military Air – Towards Absolute Air Superiority By Sabbir Ahmed, Research Analyst Aerospace, Defence & Security
  2. 2. Introduction Lessons from the past wars in the region have taught regimes how Air Superiority underpinned by total situational awareness acts as the ultimate deterrence. This has convinced them that the only way to safeguard national security is to invest in cutting edge air assets. The Middle East resurge in defence spending is a new phenomenon that came with the dramatic growth in economy since 2005, driven by the rise in the oil and gas price. For this market insight piece, we have considered the Gulf Cooperation Council (GCC) countries comprising Saudi Arabia, United Arab Emirates (UAE), Qatar, Kuwait, Oman and Bahrain. This is because of the fact that these markets are homogenous and also for the fact that these markets are set to present most opportunities in the regional military air market, at least until 2020.Middle East Military Air – Towards Absolute Air Superiority Key Market Characteristics Middle East defence acquisition strategy is influenced and shaped by the members of the ruling royal family in respective countries, and institutional power though growing, still comes second in the most procurement decisions. Political clout of a country of origin influences procurement decision as mush as the credibility of a company. This is particularly a dampener for the European companies against the US counterparts; most new air platforms are being procured from the US under Foreign Military Sales (FMS) for geo-political reasons. But at times the governments tend to balance the relationship through sourcing from elsewhere, to Europe and Russia. The GCC countries are moving towards integration of all platforms including air platforms, air defence and homeland security under the “Peninsular Shield” initiative, though the pace of progress has been slow. The US and European arms regulations (such as ITAR in US, End-user monitoring clauses, etc) often restrain export of sensitive defence technology and skill to the Middle East (except for Israel). This is particularly a dampener for the Western defence companies. Military Air Market - Revenue Forecast by Region (Middle East) - 2010 to 2020 10,000 9,000 8,000 Revenues ($ Million) 7,000 6,000 5,000 4,000 3,000 2,000Market Insight 1,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year Saudi Arabia UAE Oman Qatar Kuwait Bahrain All figures are rounded. The base year is 2010 Source: Frost & Sullivan © 2011Frost & Sullivan Page 2
  3. 3. Saudi Arabia is by far the largest military air market studied. Almost a half the total market revenue is expected from this market alone over 2010-2020. UAE is a notable growth market; significant opportunities emerging on all segments of the market, as it continue to rebuild on defence capabilities (increasingly at the centre of UAE military thinking). In Oman the large defence deals are coming through only recently due to recent economic buoyancy. Qatar military air market is also poised to grow robustly, underpinned by dramatic growth on defence budget over the study period. Key Opportunity Overview The market is primarily driven by big ticket purchases as well as increasing support revenues. As the new procurement takes place so is the number of platforms that need support. The countriesMiddle East Military Air – Towards Absolute Air Superiority mostly outsource support services from whoever supplied the platform. But this outsourced support model is gradually opening to competition and local provider AMMROC is poised to take on a significant stake. The market has total $62.90 billion forecasted revenue projected between 2010 and 2020; it includes revenues from new procurement as well upgrade and in-service support (including spending on training and simulation). The platforms included in above projection include both fixed and rotary wings of all three services but exclude unmanned platforms (which is scanty in the current inventory). The market is dominated by Combat and Transport air platforms as usual, but Special mission platforms such as early warning and control, special mission helicopters as well as tankers have growing importance. The need for integrated C2 and total situational awareness, and greater recognition of ISR assets to that effect has underpinned the stable revenue outlook in C4ISR segment. We at Frost & Sullivan forecast total spending on C4ISR at $20.24 billion over 2010-2020. With the purchase of new platforms the training & simulation market is also picking up. However, most revenues are attributed to operational/routine training rather than upfront investment in new simulation system. Rather the market is tending towards outsourcing training from private providers under real and simulated setting. Unmanned Systems in the Region As part of its technology acquisition strategy, the UAE has invested in development of the Austrian Schiebel rotary Camcopter S-100. The project has been co-ordinated within the UAE ‘UAV Research and Technology Centre’. Schiebel has recently teamed with Boeing in order to marketMarket Insight the S-100, which has begun to attract the attention of the German, US and France military. Given the interest in C3I capability that a UAS can deliver, it is expected that the UAE will be keen to acquire a range of platforms with varying capabilities, along with relevant training and support. It is also seeking to advance its own technologies and services in this area through Abu Dhabi Autonomous Systems. © 2011 Frost & Sullivan Page 3
  4. 4. The Camcopter S-100 has been developed with a maritime capability in mind. It can operate aboard even small vessels, as well as from land. It has already seen success in some regional countries. The U.S. State Department has recently approved export version of ISR-only UAS to countries beyond the NATO bloc. That would allow sales in the Middle East and elsewhere to governments previously ineligible to buy the planes. General Atomics see the potential for sales of as many as 100 units in the Middle East and Pakistan of the Predator XP model (ISR only MQ-1), which is already approved for export. In the region, UAE is fronting in developing indigenous version in theMiddle East Military Air – Towards Absolute Air Superiority Middle East. A few countries such as UAE and Saudi Arabia, among others use tactical UAVs and keen on acquiring MALE UAVs. But the bottom line is UAS are still untapped potential in the Middle East; future procurement would see all round competition between regional and global companies. Offsets as a way of Economic Diversification The GCC countries are emphasizing on diversifying economy through building up indigenous defence industry and local skills. Therefore, there is greater chance of winning businesses for the companies who are willing to co-produce with local partners. The offset requirements in terms of local investment vary among countries by a range of 30 %- 60%. It comes in terms of local sourcing of components, hiring local employees, technology transfer etc, which can distort market competition. In Saudi Arabia, offsets are increasingly enabling local companies move up the value chain and set that sight on the regional market. In the UAE, offset conditions apply to all military procurement contracts in excess of US$10 million. The conditions require a foreign supplier to invest 60 per cent of the contract value in Abu Dhabi’s economic development. This requirement is a cornerstone of the UAE’s (or, rather, Abu Dhabi’s) policy of promoting self-sufficiency, and then to build an export capability for products and services throughout the region. Key Messages for Suppliers Tier 1 suppliers are recommended to take note of the new procurement opportunities and position their equipment accordingly. They are advised a take a hard look on what’s not available in the current inventory of a particular country in terms of mission/role specific platform. Although there are not many upgrade opportunities identified the GCC countries tend to insertMarket Insight capability on an adhoc basis. Specifically, upgrades on C4ISR equipment including self protective suites is a promising segment which relevant companies should pursue. © 2011 Frost & Sullivan Page 4
  5. 5. Due to lack of adequate in-house support capability the GCC countries are moving towards outsourcing the support service activities, mostly in line with through-life support model. This segment of the market looks a lot promising as shown in the revenue forecast, therefore companies should pursue service contracts in earnest. Due to lack of adequate training infrastructure and skilled trainers as opposed to the volume and types of new purchases there is significant potential in this segment. The countries are also increasingly outsourcing training, and going towards virtualisation of training, an opportunity which relevant companies might pursue.Middle East Military Air – Towards Absolute Air Superiority enquiries@frost.com http://www.frost.com http://www.aerospace.frost.com 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 ofMarket Insight experience in partnering with Global 1000 companies, emerging businesses and the investment community from over 40 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com. © 2011 Frost & Sullivan Page 5

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