‘Peak Defence’ on Horizon as US, UK & Europe Erodes Competitive Edge

  ‘Peak Defence’ on Horizon as US, UK & Europe Erodes Competitive Edge

IHS: Asia’s Defence Budgets Bigger than North America by 2021;

Global Arms Trade Explodes, up 30 percent Since Cuts & Economic Downturn

Business Wire

LONDON -- June 24, 2013

Asia Pacific budgets are set to outstrip USA and Canada by 2021, fuelled by an
explosion in global arms trade that threatens the competitive edge and
dominance of US, UK and European defence trade according to the biggest budget
and export study since the economic downturn. The study – The Balance of Trade
– is presented to clients on 25 June by IHS Inc. (NYSE: IHS), the leading
global source of information and analytics.

     Asia Pacific’s defence budgets are forecast to outstrip North America by
1.  2021, up 35 percent from 2013 levels to $501bn. Total global defence
     budgets are forecast to continue rising, reaching $1.65tn by 2021, an
     increase of 9.3 percent over 2013 levels.
     Israel will sell twice as many UAV (‘drone’) as the USA in 2014 and will
2.   become the biggest exporter by the end of 2013. The top UAV (‘drone’)
     exporter is currently the USA not Israel (despite press reports).
     Global arms trade (exports and imports between countries) is up
     significantly despite the global economic downturn, increasing 30 percent
     between 2008 and 2012, from USD56.5bn to USD73.5bn. At this rate, defence
3.   trade between countries will have more than doubled by 2020. The global
     defence export and services market will have reached $100bn by 2018. IHS
     analysis suggests that world trade is at least 30 percent higher than as
     stated in other prominent studies publicly available. Western Europe’s
     share of exports declined, Asia Pacific’s rose.
     Asia Pacific’s exports are up. Western Europe’s exports are down. Western
     Europe’s share of the global market was 34.5 percent in 2008 and fell to
4.   27.5 percent in 2012. Asia Pacific’s share (including China) rose from
     3.7 percent ($2.0bn) in 2008 to 5.4 percent ($3.7bn) in 2012 – with many
     in Asia doubling exports. China has jumped up from 10th place in 2008 to
     be the world’s 8th largest exporter today.
     USA has imported $10.5BN in military related equipment and services since
5.   2008 – foreign imports to USA are forecast to continue rising through
     2013. Rise of Asia Pacific exports threatens US dominance of global
     defence industry.

Guy Anderson, Senior Principal Analyst (A&D), IHS Jane’s, said: “The global
arms market is about to get very turbulent. We may already have reached ‘peak
defence’ with the US dominance of the global defence market under threat. The
big Western defence companies have no option – export or shrink – but this
could be sowing the seed of their own demise; the opportunities in the East
are a double edged sword, fuelling a trend which threatens US dominance of
defence. Low end defence equipment dominates the global market now but the
West’s edge on technology will erode this decade as Asia outspends the USA and
Europe. However, money alone is not enough. India is proof of that. And size
doesn’t matter. Israel is set to complete its domination of the UAV (‘drone’)
market in 2013. Turkey, Singapore, South Korea and China are also racing to
innovate. Give Asia and the Middle East a decade and they will be selling
world class kit. The US is now buying significant amounts of foreign imports.”

Paul Burton, senior manager, IHS Jane’s DS Forecast, said: “Two things are
happening: budgets are shifting East and global arms trade is increasing
competition. This is the biggest explosion in trade the world has ever seen.
At this rate, defence trade between countries will have more than doubled by
2020. China is decreasing imports as it improves its own industrial
capabilities, and while Beijing’s exports have doubled since 2008, South
Korea’s are up 688 percent, putting it into the global top 20 with $753m.
Chinese sales go to Indian neighbours and low end developing countries or
those that have fallen out with the West. The Middle East is very open to
buyers from all over the world, perhaps more than has previously been
acknowledged. Iraq in particular is looking to East and West sellers. With
India, Saudi Arabia and UAE importing nearly $13bn worth of defence equipment
between them in 2012, it is little wonder that so many companies are focusing
their attention on exporting to those markets.”

Top 10 2021 Defence Budgets for Asia Pacific         Top 10 2021 Defence Budgets for rest of the
2021                  2012      2021      Change     2021                           2021      Change
Rank  Country       $bn      $bn      on         Rank  Country    2012 $bn   $bn      on
                                          2012                                                2012
1.     China          126.29    207.24    64.1%      1.     United      656.21      472.25    -28.0%
2.     India          44.55     68.43     53.6%      2.     Russia      58.96       106.39    80.4%
3.     Japan          65.67     65.71     0.1%       3.     United      60.95       60.83     -0.2%
4.     Australia      30.01     37.16     23.8%      4.     France      51.27       52.85     3.1%
5.     South Korea    29.52     35.23     19.3%      5.     Brazil      30.62       41.78     36.5%
6.     Taiwan         15.43     18.93     22.7%      6.     Saudi       35.89       40.26     12.2%
7.     Indonesia      7.17      15.29     113.2%     7.     Germany     41.22       38.22     -7.3%
8.     Singapore      10.09     12.89     27.7%      8.     Italy       27.19       28.92     6.4%
9.     Pakistan       7.87      9.58      21.6%      9.     Iran        23.96       28.32     18.2%
10.    Thailand       5.41      6.52      20.5%      10.    Canada      20.67       19.55     -5.4%
      Top 10 Total   $342.03   $476.97   39.5%            Top 10      $1,026.17   $907.51   -11.6%
Top 10 Exporters Globally                            Top 10 Importers Globally
2012   Exporting                          Change     2012   Importing                         Change
Rank   Country        2008 $m   2012 $m   on         Rank   Country     2008 $m     2012 $m   on
                                          2008                                                2008
1.     United         20.08     28.53     42.1%      1.     India       3.09        5.27      70.2%
2.     Russia         8.31      10.06     21.0%      2.     Saudi       1.91        3.74      96.2%
3.     France         4.04      4.56      12.9%      3.     UAE         1.63        3.53      116.4%
4.     United         2.72      4.06      49.1%      4.     Turkey      1.21        3.30      172.5%
5.     Germany        4.54      3.03      -33.3%     5.     Egypt       1.13        2.42      114.4%
6.     Israel         1.38      2.41      74.2%      6.     South       2.06        2.26      9.3%
7.     Italy          1.46      2.30      57.0%      7.     Australia   1.49        2.26      51.2%
8.     China          1.16      2.22      92.2%      8.     Iraq        0.83        2.15      158.2%
9.     Canada         0.92      1.67      82.8%      9.     United      2.45        2.05      -16.3%
10.    Sweden         1.41      1.43      1.2%       10.    Algeria     1.59        1.97      23.4%
       Global Total   $53.41    $68.08    27.5%             Global      $51.12      $65.95    29.0%
Top 10 Primary Supplier Exporters Globally           UAV (‘Drone’) Exports
2012                                      Change     2012                                     Change
Rank   Company        2008 $m   2012 $m   on         Rank   Company     2008 $m     2012 $m   on
                                          2008                                                2008
1.     Lockheed       3,898     6,446     65.4%      1.     USA Total   379.26      430.07    13.4%
2.     Boeing         4,170     5,614     34.6%      2.     Israel      160.99      238.24    48.0%
       United                                               Italy
3.     Aircraft       2,924     4,061     38.9%      3.     Total       77.29       87.14     12.7%
4.     Raytheon       3,028     3,731     23.2%      4.     France      81.12       57.66     -28.9%
5.     BAE Systems    2,956     3,728     26.1%      5.     OTHER       35.96       31.24     -13.1%
6.     EADS           2,243     2,923     30.3%
7.     United Tech    1,633     2,268     38.8%
8.     Finmeccanica   1,106     2,133     92.8%
9.     General        1,713     1,877     9.6%
10.    Thales         1,650     1,604     -2.8%                                           
       Top 10 Total   $25,321   $34,385   TBC%              Top Total   $734.62     $844.35   32.1%


  *USA – Imports have fallen since 2008 making them the 10th largest import
    market globally
  *Exports have increased dramatically by 42.1 percent to $28.5bn and total
    market share has increased from 35.5 percent to 38.8 percent. Most sales
    come from Iraq, Afghanistan and military aircraft sales
  *The US government is softening its position on export controls, with
    industry-driven export reforms
  *The USA, UK, Pakistan, Canada and South Korea have all seen declines in
    imports since 2008


  *Exports have increased by 83% to $1.7 billion and their market share has
    risen from 1.6% to 2.5%.
  *Most of the sales are to the USA


  *Exports have increased to $10bn but its market share has remained roughly
    the same at 14.8 percent
  *Russia’s export base for larger defence equipment is under threat, which
    is a concern to Russia
  *Russia continues to pursue its 2020/2025 rearmament target and to
    reinvigorate military exports - but massive state funding and reform
    efforts have failed to close capability gaps


  *UK exports rose by 49 percent since 2008 and its market share rose from
    4.8 percent to 6 percent
  *UK export order books already indicate UK defence exports will be up by a
    minimum 25% by 2015
  *The UK saw its share of global trade rise significantly. Only the USA’s
    share of trade grew more, between 2008 and 2012, in total value $USD
  *The increase in UK export is driven by military aviation sales to Saudi
    Arabia – Typhoon exports to Saudi and Tornado support contracts.


  *French exports rose by 13 percent since 2008, from USD4.0bn in 2008 to
    USD4.6bn in 2012
  *France remains a very closed market to imports
  *Austerity has not triggered broad co-operation, alliances are ad hoc ahead
    of multilateral co-ordination


  *Exports have decreased by a third since 2008 and its market share has
    fallen from 8 percent to 4.5 percent
  *Austerity has not triggered broad co-operation, alliances are ad hoc ahead
    of multilateral co-ordination


  *Israel’s exports increased 74 percent to $2.4bn and their market share has
    risen from 2.4 percent to 3.5 percent. Mainly with sales to India


  *Turkey has seen the largest proportionate increase in imports since 2008,
    buying 172% more in 2012 (USD3.3bn) than it did in 2008 (USD1.2bn)
  *Turkey, Saudi Arabia, UAE and India account for 23.3 percent of all global
    imports up from 13.9 percent in 2008


  *Exports rose 57 percent since 2008 percent to $2.3bn. Its market share
    rose from 2.6 percent to 3.4 percent
  *Italian sales have sold a range of platforms and mission systems to a very
    wide range of countries


  *Exports have increased by 92 percent to $2.2bn and its market share rose
    2.0 percent to 3.3 percent
  *China has jumped up from 10th place to be the world’s 8th largest exporter
    since the 2008 downturn
  *China exports to Bangladesh, Pakistan, Venezuela and others that are not
    politically close to the West
  *Imports fell as China develops its own equipment rather than importing
    from Russia and elsewhere
  *Defence industrialization is at heart of the China’s current Five Year
    Plan (2011-2015) driven by global acquisitions, militarization of
    commercial technologies and big research and development investment


  *India largest global importer in 2012 (USD5.3bn from USD3.1bn in 2008)
  *India is widening its sources for military equipment and is not tied to
    Russia or other single sources
  *India, Turkey and the UAE have dramatically increased defence imports
    since the economic downturn
  *India, Saudi Arabia and the UAE remain the largest importers of arms.
    India and the UAE are building domestic defence industries but only India
    has seen any growth and this remains small
  *India, Saudi Arabia, Turkey and UAE account for 23.3 percent of all global
    imports up from 13.9 percent in 2008

South Korea

  *Exports rose 688 percent to $753m since 2008 and market share rose from
    0.2 percent to 1.1 percent
  *Indonesia and the Philippines are the primary recipients

Latin America

  *Brazil imports up 87% between 2008 to 2012 (from USD497mn to USD931mn)
  *Latin American imports up 16% between 2008 and 2012 (from USD3.42bn to
  *A defence industry rebirth is underway, linked to growing wealth, social
    and employment challenges
  *Internal security issues are a greater driver than external threats in
    most markets
  *Defence industry ties are emerging between South America and Sub-saharan
    and South Africa
  *Brazil’s defence imports doubled between 2008 and 2012
  *Latin America’s Defence Industry in New Boom

Saudi Arabia

  *Saudi Arabia second largest importer in 2012 (USD3.7bn from USD1.9bn in
  *Saudi Arabia, Turkey, UAE and India account for 23.3 percent of all global
    imports up from 13.9 percent in 2008


  *UAE third largest importer in 2012 (USD3.5bn from USD1.6bn in 2008)
  *UAE, Saudi Arabia, Turkey and India account for 23.3 percent of all global
    imports up from 13.9 percent in 2008


The Balance of Trade, a study by IHS Jane’s DS Forecast, is world’s most
comprehensive study of government past and future budgets, export and import
since the economic downturn of 2007/8. The study includes a total 34,000
defence acquisition programmes. It is the only study to include the full
market scope, every market and geography, individual mission systems, research
and development, production and services. The study is more comprehensive than
any other publicly available but is not shared in full with the general public
– used instead to alert industry, governments and other clients to specific
issues and opportunities. Constant US dollars are used as the base for the
study. Asia Pacific is defined as being India, Pakistan, South Korea,
Australia, Japan, China, Singapore, Taiwan and Indonesia.

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Amanda Russo, +44 (20) 8276 4727
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