By John McHale
LONDON - Analysts at Frost & Sullivan Europe say that they expect the European electronic warfare (EW) market to show steady growth over the next few years.
“We expect to see a combined annual growth rate of some 2.8 percent over the period of 2004 to 2007 and a further combined annual growth rate of about 4 percent between 2004 and 2007,” says Christopher M. Dabrowski, defense analyst at Frost & Sullivan Europe. “This depends on the introduction of next-generation platforms like the Tigre, Europfighter, and Saab Gripen as well as the approaching product life cycle of current EW platforms.
“I would note that we expect two system types to grow most strongly,” Dabrowski continues. “First, warning and detection systems can be expected to grow at a CAGR [compound annual growth rate] of 3.6 percent over the next eight to 10 years. Second, jamming systems can be expected to grow at a CAGR of some 3.2 percent. As I mentioned before this is due to the uptake of advanced aerial and tactical strike capability by European nations. In Eastern Europe, we expect to see a CAGR of 2.7 percent over the 2002 to 2007 time period, and 3.5 percent from 2008 to 2012, due again to MiG modernization and the ‘next generation’ fighter purchases by Poland, the Czech Republic, and Hungary.”
Dabrowski says that the United Kingdom, France, Italy, and Germany are the strongest Western European national markets for EW over the next eight to 10 years. “This is due to the fielding of advanced fighter and tactical rotorcraft as well as the emergence of requirement for suppression of enemy air defenses that will be defined with reference to ELITE 2004, a German-sponsored EW exercise conducted in Germany in mid-2004,” Dabrowski says. “In Eastern Europe, Soviet fighter modernization is the prime driver. Additionally, programs such as Poland’s F-16s and the Czech and Hungarian Gripen purchases are strong potential markets although there are considerable fiscal restraints.”
Regarding the traditional breakdown between research and development versus procurement in defense budgets Dabrowski says that “R&D is suffering in Europe. Bear in mind that European procurement at this point is based around replacing aging platforms, enhancing or acquiring new capabilities and creating (at least) a battlefield info structure for the Forces. The R&D burden is sitting with industry at this point.”
“If the cost-sensitive Europeans want top-of-the-line product, then they will need to invest more,” he continues. “Incidentally, the currently mooted Draft European Constitution (to be enacted before 2007, with most referenda in the next 18 months) contains passages allowing for the creation of what is in effect a Euro-DARPA. The EU nations recognize the importance of RT&E, but are unwilling to go-it-alone on the funding. They therefore envision pooled resources as the (only) most logical and cost-effective path forward.”
Dabrowski says that in Europe contractors break down into 1st, 2nd, and 3rd tier contractors much like the U.S.
“BAE Systems, GIAT, Rheinmetall DeTec, Thales, Finmeccannica, Saab, and EADS are probably the biggest six or seven,” he says. “Although there are many niche contractors like Terma-a Danish radar and EW producer worth checking out for the IR jammer they fitted to Dutch Apaches recently-who occupy specialist areas. Otherwise, it really depends on the market segment. Nevertheless, the division is similar to that in the USA.”
European Defense Agency
Many observers of the European defense industry are curious about how the new European Defense Agency will develop.
“The EDA was founded approximately four months ago,” Dabrowski says. “It is headed by a British civil servant named Nick Witney, who is in charge of putting together an organization that will (potentially) act as a coordinating body for the European Defense Equipment Market (EDEM). EDEM is an effort by the nations to create a more logical, cost effective, and streamlined European defense market while avoiding predatory business combinations or other such disruptions.
“This can be interpreted in a several ways,” Dabrowski continues. “First, as a plot by Germany, France, and the United Kingdom to give their respective defense industries a ‘soft’ guided landing ahead of wider EU-wide consolidation. Alternatively it can be seen as an honest attempt at rationalizing a market in which nations hide their defense subsidies behind SEA article 296 that creates a national security exception to the EU competition laws. Yet another concern is that it is BAE’s attempt at cracking into France and Germany’s protected markets (the EDEM Green Paper was authored by the United Kingdom). The truth is probably somewhere in between the three.
“In terms of altering the market structure, I think that U.S. companies will always find it somewhat difficult to deal in Europe due to certain national preferences. However, in terms of the field of competition, EDA and EDEM in the most probable scenarios will simply result in more EADS-type conglomerates.”
Which scenarios provide better market opportunities-more, weaker, protected competitors versus fewer stronger, more diversified actors-is a matter of opinion at this point, Dabrowski explains. “A rationalized EDEM could go either way. I suspect that it would eliminate the process of downselecting and thus make the market a little more challenging to get into for U.S. firms. Notwithstanding it becomes a product- and incentive-based competition at that point.
“That said, the U.S. Government and the [International Trafficking in Arms Regulations] ITARs are the biggest obstacle to operating in European markets,” he says.
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