Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2019
LONDON, Dec. 16, 2014 /PRNewswire/ -- Product Synopsis
This report is the result of SDI's extensive market and company research covering the US defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
Introduction and Landscape
Why was the report written?
The Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the US defense industry.
What is the current market landscape and what is changing?
The US has a defense budget of US$607.5 billion (including allocation for OCO) in 2014 and the government is expected to sustain a high level of expenditure over the forecast period. Although the allocation for overseas operations is estimated to remain stable at US$37.3 billion over the forecast period, the country is expected to increase its base military expenditure at a CAGR of 1.75%. The expenditure will be triggered by the government's plan to acquire advanced defense equipment coupled with replacement of old and obsolete arms and ammunitions. The looming threat of budget cuts and sequestration is not expected to terminate or affect the existing contracts, but will impact DoD's future contracts and the number of military hardware to be procured under these contracts. Significant opportunities are expected to exist in the fields of C4ISR, aircraft, cyber security, missile defense systems and submarines. Foreign defense companies and new entrants have the option to cater to the US defense market via joint development programs, strategic alliances, or acquisition of domestic players. The US government's encouragement of foreign direct investment (FDI) in the defense sector will also help foreign companies in entering the market.
What are the key drivers behind recent market changes?
Certain factors pertaining to the security of US are expected to drive the defense expenditure of the nation in the coming years. These include the country's efforts to retain its military supremacy over other nations and conflicts in Middle East. Additionally, ammunition modernization initiatives will also be an area of focus for military spending over the forecast period.
What makes this report unique and essential to read?
The Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
Key Features and Benefits
The report provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
The report includes trend analysis of imports and exports, together with their implications and impact on the US defense industry.
The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.
The report helps the reader to understand the competitive landscape of the defense industry in US. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
Key Market Issues
The 2011 Budget Control Act (BCA) has set a cap on total national defense budget funding, starting with US$546 billion in 2013, to be reduced by US$54.3 billion each subsequent year. BCA required the US Department of Defense (DoD) to take US$487 billion of reductions in its expenditure over the period of 10 years. Sequestration, if allowed to go into effect, would alter virtually every aspect of DoD's planning. It would force a uniform reduction in budget authority of approximately 10.3% across all accounts, apart from military personnel.
The US must modernize its aging fleet of equipment, such as fighter aircraft, helicopters, land defense systems, and maritime equipment; however, the rising unit cost of defense systems poses a challenge to procurement funding. The cost of military hardware is increasing due to technological advancements and a shortage of skilled labor in the design, engineering, and manufacturing sectors, coupled with the rising cost of input materials such as metal. In addition, the per-unit overhead costs at production facilities increased due to a reduction in the number of units manufactured; for example, in the shipbuilding industry the cost of ship construction has been increasing 1.4% per year faster than the price of final goods and services in the US economy. The US government has reduced the amount of military hardware to be procured, resulting in a reduction in the number of units to be produced, a loss in profits, and increasing unemployment in such sectors
With the US aiming to reduce the country's defense expenditure by US$60 billion during 2013-2018, and rising personnel and health costs, the country's capital expenditure on defense is anticipated to decrease. Furthermore, the government encourages companies throughout the defense market to increase the efficiency of the organizations and sell unprofitable units. In addition, reverse engineering by countries like China and Iran will enable the defense companies of these countries to offer defense equipment at lower price, posing a challenge to the domestic defense companies of the US. According to SDI's Defense Industry Business Outlook 2013-2014 survey, 43% of respondents from the North American region agree that the reverse engineering from countries is the biggest concern for the defense industry in the coming five years, and as a result, defense companies will be compelled to take greater risks and accept lower profits on the limited number of available government contracts. Due to a combination of the above factors, unemployment is expected to increase, negotiations with suppliers and customers will become tense, and efforts to reduce expenses will increase across the board. Companies such as Lockheed Martin and Northrop Grumman have already taken strategic steps, such as the sale of unprofitable units and redundancy packages for senior managers, in order to reduce executive payrolls.
Key Highlights
The US is currently the leading military superpower in the world and has undertaken well-defined measures towards investing in the defense sector to reinforce its position as the most militarily powerful nation in the world. With this objective, the US is embarking upon a nuclear defense modernization plan and missile defense program that is expected to drive defense expenditure. Additionally, the government is working on enhancing its command, control, computers, communications, and intelligence systems to increase inter-operability between various branches of the armed forces. The other major military powers in the world - China and Russia - have consistently increased their defense expenditures significantly over the last couple of years. These countries have also taken steps to upgrade their military hardware and facilities. While China is developing a new-generation intercontinental ballistic missile (ICBM) capable of destroying targets all across the world, Russia is also developing a heavy-liquid-fuel, non-nuclear, precision-guided payload capability for a new class of ICBMs, which would give Russia near-global coverage. Despite these measures adopted by China and Russia, the US remains determined to retain its military supremacy.
Over the last couple of years, the US has faced a number of terrorist attacks and this has propelled of the DHS to undertake measures to counter any terrorist attacks and ensure adequate protection. The DHS's counterterrorism responsibilities focus on preventing the unauthorized acquisition, importation, movement, or use of chemical, biological, radiological, and nuclear (CBRN) materials and capabilities within the United States. The department is also engaged in protecting the vital infrastructure and key resources of the country and identifying any events that might lead to terrorist attacks and other hazardous movements within the nation. The Boston Marathon bombings and the Los Angeles International Airport shooting have reinforced the need for counter terrorism measures and the country is expected to increase fund allocations for this purpose. As part of the 2014 budget, the DHS increased funding for research and development to address CBRN threats and undertaking the construction of a bio-containment facility, NBAF. Other significant fund allocations under this budget are for TSA Pre (security initiative for safeguarding the nation's transportation systems), Securing the Cities (STC) program, and intelligence and targeting programs.
The US has a highly developed defense industry that is capable of fulfilling the majority of domestic military requirements, and the nation is also the largest global exporter of defense equipment due to its highly advanced defense industrial base. Despite this, the US has become increasingly open to importing arms goods from foreign defense equipment suppliers in the UK and Canada, and consequently, arms imports registered a steady increase during the review period; the majority of imports consist of subsystems and components for aircraft and armored vehicles. Despite the global economic slowdown, US defense exports continued to grow that year; the largest consumers of US defense goods during 2008-2012 were South Korea, Australia, and the UAE. While the country exports all types of defense equipment, the majority consists of fighter aircraft, missile defense systems, armored vehicles, engines, and sensors.
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