Analysis of Global Aerospace, Defence and Civil Security Markets
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Transcript of Analysis of Global Aerospace, Defence and Civil Security Markets
360 Degree CEO Perspective Series
Analysis of Global Aerospace, Defence and Civil Security Markets
“Partnering with clients to create
innovative growth strategies”
Julius Yeo
Consultant
2© 2010 Frost & Sullivan, All rights reserved www.frost.com
HELP!
THE OBJECTIVE -CAPTURE THIS CUSTOMER
COMPETITIVE THREAT
RABBIT HOLES - VERY TEMPTING TO DIVE DOWN
RESTRICTED VISION
EXCELLENT VISION
2
Strategic Thinking – A Helicopter Vision
3© 2010 Frost & Sullivan, All rights reserved www.frost.com
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
4© 2010 Frost & Sullivan, All rights reserved www.frost.com
Table of Contents
Global Analysis Aerospace,
Def ence and Ci vil Security
Markets
Global Overview of the Commercial Aerospace Market
Emerging Trends in Defence
Emerging Trends in Civil Security
Emerging Trends in Commercial Aviation
Conclusions and Recommendations
Global Overview of the Defence Market
Global Overview of the Civil Security Market
6© 2010 Frost & Sullivan, All rights reserved www.frost.com
Financial difficulties for Tier-3 sub-
component manufacturers on critical
supply line affecting delivery
2008 - 2020
Projected
Impact on the
Aerospace &
Defence
Industry
High Impact
Low Impact
CertaintyLow High
The Unexpected
Increasing Importance of After-
market Services
Adoption of Total Cost of
Ownership and TLCM Principles
Introduction of new competitors /
Partners from Asia-Pacific
Markets
Stabilisation and re-prioritization
of US Defence Budget
Afghanisation of security duties
in Afghanistan
Rapid technology cycles driving
system obsolescence
Introduction of new competitive
forces from weak public finances
Rapid growth in China’s military
capabilities
Strong growth in Asia-Pacific
Defence Markets
Reduction in defence spending in
major European markets
Major regional war in Middle East
DefenceA number of underlying and interrelated factors are combining to change the way the military procures and services its equipment – New Opportunities to emerge
7© 2010 Frost & Sullivan, All rights reserved www.frost.com
Where are the opportunities?
1
36
9
5
87
4
2
Small (<$2 billion)
Large(>$5 Billion)
Annual Market Size of Vertical Markets
Low(0-5%)
High(>10%)
CAGR for Vertical Markets
Medium($2-$5 Billion)
Medium(5-10%)
Sectors with highest total growth potentialUnmanned Systems1
Military Airlift
2 Force Protection
3
Combat Aircraft4
5 Land Combat Systems
6 Soldier Modernisation
7
8
Strategic & Tactical Comms
9
Training and Simulation
Command and Control
CAGR is calculated from 2008 - 2012
1 Counter-IED
2 Counter Rockets and Mortar
1
2
Defence
8© 2010 Frost & Sullivan, All rights reserved www.frost.com
Economic difficulty has had limited impact on global defence spending – other factors will have greater influence
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
Defence Budgets (Global), 2007-2016
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Billion $
NORTH AMERICA EUROPE ASIA PACIFIC MIDDLE EAST ROW
US$1.4 Trillion
2007
46%
23%
21%
7%
3%
US$1.65
Trillion
2016
34%
22%
30%
10%
4%
2009-2012
Strong Growth Driven by Afghanistan & Iraq conflict
Significant spend on UORs
Market unpredictable and driven by events
2013-2016
Market stabilises as forces begin withdrawing from Afghanistan (such as Canada and The Netherlands)
Market increasingly driven by Asia-Pac
Unclear how future US-PRC rivalry will impact
Defence
9© 2010 Frost & Sullivan, All rights reserved www.frost.com
Far East is expected to provide the largest growth opportunities over the next 5-10 years
India, China and South Korea are the fastest growing spenders in the region
Defence Budgets in selected Far Eastern Markets, 2007-2014
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014
Billions US$
Australia India Korea Malaysia Pakistan Singapore
Solid Growth in South Korean budget combined with major manpower
reductions
Solid growth in the Indian defence budget – from $22 Billion to $36 Billion from 2007-2014
Defence
10© 2010 Frost & Sullivan, All rights reserved www.frost.com
Global Overview of Commercial Aviation Markets
11© 2010 Frost & Sullivan, All rights reserved www.frost.com
� 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
Commercial Aviation Trends during the recession of 2008-10
12© 2010 Frost & Sullivan, All rights reserved www.frost.com
Commercial Aviation
Large Commercial Transport Trends
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
No. of deliveries (units)
Widebody Narrow body Regional
29.9%
6.4%
4.0%22.3%
31.0%
6.4%
20082017
59.8%
18.1%
22.1%
51.7%
27.3%
21.0%
Due to passenger demand and the emergence of APAC as the second biggest market worldwide, all major aircraft integrators and OEMs to establish manufacturing and assembly facilities in China and India by 2017
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
1270
1550Annual aircraft deliveries, by aircraft segment 2008-2017 (Global)
APAC Africa & Middle East Russia/CIS Europe North America Latin America
13© 2010 Frost & Sullivan, All rights reserved www.frost.com
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
No. of deliveries (units)
Large Medium Light VLJ
Private leasing and chartered operation will be an added driver for corporate travel. Citation jets contribute the approximately 28% of all deliveries in the Medium jets category. Fractional ownership programmes bringing
business aviation market expansion
15.3%
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
Annual business aircraft deliveries, by aircraft segment 2008-2017 (Global)
2008
1190
8.8%5.2%
24.1%
52.9%
9.0%
APAC Africa & Middle East Europe North America Latin America
CommercialAviation
Business Aviation Trends
1460
37.5%
30.6%
16.6%
2017
13.8%
29.3%
19.4%
37.5%
14© 2010 Frost & Sullivan, All rights reserved www.frost.com
EADS Socata to relocate
manufacturing/assembly to India
HAL to produce fuselage for over 200 G150 a/c
HAL to manufacture doors for
Airbus / Enter a $1 billion agreement with Boeing for future work
Tata Motors entering commercial aviation
manufacturing under JV with Boeing
ERJ145 Assembly in China, in a
Embraer/Harbin JV
Mitsubishi and
Kawasaki producing wings and fuselage for
B787
Airbus A320 Assembly line in China to ship over 300 units in next
10 years
Chinese AVIC component manufacturin
g for B747/B787
Boeing will keep aircraft assembly in the USA, but target more partnerships
with APAC manufacturers for components and
systems
Airbus will shift an increasing number of
assembly lines to APAC, as well as target
partnerships in the region on component and system
level
Honda, Mitsubishi and KAI
investing in the regional market by introducing own jets
Sukhoi will deliver over 240 units of the Superjet
Hawker Beechcraftopened a new
manufacturing facility in Mexico, whilst Bombardier is looking to shift
Learjet at its existing facilities there
Embraer will be looking to
outsource to lower-cost regions – with Mexico being an obvious target
IAI to grow in business aviation
manufacturing, after
partnership with Gulfstream
on G150
Hinduja the next possible major entry in the aviation market, after Tata Motors
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
Aerospace Manufacturing Trends
15© 2010 Frost & Sullivan, All rights reserved www.frost.com
0
10
20
30
40
50
60
70
80
90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Demand in Billion USD
Engines Components Line / Heavy Maintenance Modif ications
Increased bargaining power of end-users and high labour costs will drive outsourcing to Asian and East European countries
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
MRO Regional Demand Forecasting 2008- 2017 (Global), in Bio. USD
APAC
24%
Europe
24%
North America
40%
Africa & Middle East
10%
Russia / CIS
2%
2017$80.1 Billion
$46.0 Billion
Commercial Aviation
Low Cost Carriers’ outsourcing practices expected to drive MRO market globally
16© 2010 Frost & Sullivan, All rights reserved www.frost.com
Global Overview of Civil Security Markets
17© 2010 Frost & Sullivan, All rights reserved www.frost.com
Civil Security Global Civil Security Trends
Airports
• 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
and explosive detection systems for baggage, as well as cutting-edge passenger processing systems.
• 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.
• 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
innovative passenger screening technologies will push R&D efforts within this threat domain.
First Responder / C3i
• 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.
Key Trends Features & Implications
Mass Transport
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
18© 2010 Frost & Sullivan, All rights reserved www.frost.com
Greatest revenue potential lies within APAC region and the Middle East. Latin America offers reasonable returns, while a significant amount of civil security work has already been completed within the EU region.
Number of Opportunities
Cumulative Value of Opportunities
Low Medium High
Low
Medium
High
Brazil
SingaporeUS$9 billion+
AVOIDAVOID CONSIDERCONSIDER ENTERENTER
Saudi ArabiaUS$20+billion
AustraliaUS$300million
MalaysiaUS$400Million
IndiaUS$10 billion
UAEUS$12 billion
BahrainUS$5 billion
RussiaUS$9 billion
MexicoUS$2 billion
ChinaUS$2 billion
TurkeyUS$1.8 billion
Algeria
Thailand
Austria
KazakLithuania
Brunei
Portugal
Sweden
South Africa
Oman
South Korea
VenezuelaDenmark
Italy
Civil Security
19© 2010 Frost & Sullivan, All rights reserved www.frost.com
� Civil Security an events driven industry, market driven by threats rather then economics
� Brazil and Turkey represent key emerging markets through to 2012
� 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.
� 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.
Key Take Aways
Civil Security
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 security, large events security and mass transit protection will also be a catalyst for continued governments spending.
20© 2010 Frost & Sullivan, All rights reserved www.frost.com
Key Contact
Asia Pacific
Julius YeoConsultantAerospace & Defense PracticeAsia PacificDID +65.68900.989FAX +65.68900.988HP +65.8133.9195EMAIL [email protected] www.aerospace.frost.com