FALLS CHURCH, Va., 4 May 2007. The European defense electronics market -- excluding all platforms and weapon systems -- will grow to $15 billion next year (related story), up 11 percent from $13.5 billion projected for 2007, according to analysts at market researcher Documental Solutions LLC in Falls Church, Va.
Company experts are making these predictions after five years of building a bottom-up database, through analysis and examination of more than 7,000 European defense electronics program business opportunities to get a picture of the European market for command, control, communications, intelligence, computers, surveillance, and reconnaissance (C4ISR) market.
Several market segments stand out in the Documental Solutions report -- in particular electo-optical markets and vehicle mission systems. Between 2007 and 2008 sales of vehicle mission systems will increase by $400 million, primarily electro-optics, analysts say.
Helicopter mission system markets, meanwhile, will grow by $142 million -- a 17.6 percent increase -- and space and submarine mission systems will grow by 48.5 percent and 78.2 percent respectively.
Geographically the growth in spending over the next year will focus on Spain and the United Kingdom with 20.2 percent and 18.2 percent growth respectively.
Electro-optics a spending leader
Electro-optical markets are expected to grow 22.9 percent -- far more than any other area. Man portable electro-optics, vehicle electro-optics and electro-optic electronic warfare equipment are the leading market segments.
BAE Systems and SAFRAN will lead European growth between 2007 to 2008 with confirmed defense electronics growth 22.7 percent and 23.7 percent respectively and Thales-Raytheon systems can expect at least 19.9 percent growth. Further program wins this year could further increase these figures.
The largest share of the 2007 market makes Thales the market leader with a $2 billion turnover in defense electronics. Next largest is Finmeccanica with $1.3 billion. Both have arguably succeeded because of their capture of domestic and United Kingdom markets.
Several companies held leading market shares in the European defense electronics mission systems markets in 2006. EADS turned over $1.1 billion, SAAB group turned over $560 million, BAE Systems turned over $550 million, Lockheed turned over $514 million, and SAFRAN turned over 480 million in 2007.
Raytheon, ITT, and Northrop Grumman turned over some $400 million each in 2006. Beyond the larger contractors there are more than 200 companies in the C4ISR market turning over $4 billion each year in more than 3,000 program business opportunities in the 2006 to 2016 period. These figures do not include joint operations without a leading partner.
The majority of the market segments are either mature or in decline, but the aggregate of all markets is growing at some 1 percent a year (not including inflation). This is because segments are growing at remarkably high rates.
Examples of high growth areas are vehicle protection systems, satellite communications on the move, tactical battle management, man portable electro-optics, and wideband network radios and naval electro-optics. Some 1911 program business opportunities or more worth $2 to 3 billion a year of European unawarded defense electronics programs will be awarded from 2007 to 2016.
France and U.K. lead spending
The biggest defense electronic spenders are France and the United Kingdom, both spending some $2.5 billion each year on defense electronics from 2006. France will see a growth rate of around 3 percent from 2007 to 2016.
Bulgaria, meanwhile, is expected to see an 8 percent growth rate from 2007 to 2016. Switzerland and Finland are both expected to see declines of around 8 percent from 2007 to 2016 in defense electronics spending. However, it should be noted that the high cost of embedded mission systems in platforms can have a dramatic effect on smaller countries ability to spend in other areas.
Military aviation mission systems spending is expected to rise from $2.1 billion in 2006 annually to $2.2 billion in 2016. The United Kingdom, Netherlands, and Norway are all expected to see significant growth. Germany, Sweden, and Poland are set for a fall.
Naval mission systems will climb to around $2.1 billion each year in 2012 but will fall back to $1.8 billion by 2015. Submarine platforms in particular will see a marked decline in almost all areas except for communication systems.
Land mission and joint systems account for the bulk of spending with some $6.4 billion in spend and will hold its value through to 2016. Man-portable elements will increase from $500 million to $1 billion a year by 2012, although it is expected once the main soldier modernization programs have gone through it will fall slightly.
European Military communications markets (more than 1,300 program business opportunities) are worth some $3.5 billion each year and this is expected to be steady through to 2015. The majority of market growth will come from software definable radios and unmanned aerial vehicle (UAV) data links.
There also will be high growth in niche connectivity areas such as ISR data links, wideband network radios, squad-level communications, and local area networks.
Naval communications are also expected to see a revival in the longer term. Thales and EADS clearly lead the market and are set to retain much market share. There are not many opportunities in the next year but between 2009 and 2011 the number of opportunities to improve market share will increase.
Rockwell Collins currently has bright long term prospects through communication systems for the Joint Strike Fighter. Leading the growth are Sweden, Finland, and Belgium who will each see more than 12 percent growth over the 2007-2013 period as they upgrade and improve various communications capabilities.
European radar markets (more than 1,600 program business opportunities) are worth around $4 billion annually and are expected to hold that value until at least 2013. While there are areas of growth the emphasis of different types of sensing equipment and lack of a substantiated air threat is leading to a decline in funding.
Space based radar (likely to drop to a third of its current value), ground/fixed radars (likely to halve in value over the next 10 years) and naval radars (negative 4.8 percent combined annual growth rate) will see significant decline. Areas that will increase include land based close-in protection radar systems (growing to some $50 million a year post 2012) vehicle protection systems (set to be worth some $300 million) and airborne fixed wing radar (growing to $1.6 billion in 2012 and then slightly declining to $1.35 billion by 2016) spending.
Thales and Finmeccanica dominate the market with more than $600 million each, with BAE Systems, SAAB, and Lockheed Martin following in a second grouping with more than $300 million each. The longer term will see Northrop Grumman become a major radar player in Europe through JSF and its other existing systems.
European Electro-optical and infrared markets (2,300 program business opportunities) will see a big jump between 2007 to 2008. But the market will then remain very stable at $4 billion over the next four years. This was surprising because of the lack of stated or projected future space based electro-optic opportunities (a drop from $300 million to 30 million a year is expected between 2006 and 2015).
The electro-optics growth comes from naval and vehicle-mounted systems. Remote over head weapon systems, vehicle protection systems and naval electro-optical staring technologies (all with growth rates more than 9 percent CAGR between 2006 and 2015) will significantly boost the market in the long term. In the short term man-portable electro-optic requirements will boost the market by about $300 million between 2006 and 2011. Whilst Thales, Finmeccanica and SAFRAN dominate the market, it is Lockheed Martin and EADS who are set to retain their respective market shares going forwards through to 2015.
European Command and control markets (1,010 program business opportunities) will increase from $2.5 billion a year to around $3 billion a year between 2006 and 2016. This is by far the fastest growing segment because the main connectivity programs in Europe are now either in or going into service.
France, Italy and Germany have already made extensive digitization steps. Yet the United Kingdom, Spain, Sweden, and Eastern Europe will see higher growth because. The market for logistic systems and tactical battle management will boost the market in the short term whilst ISR, integration and infrastructure programs will provide longer term growth.
By 2008, around $800 million a year of the European defense electronics market will be mounted on unmanned systems. This unmanned mission system market will remain stable to 2010 but is then expected to fall because the larger UAV programs will have reached their peak production timelines.
Two areas of noticeable decline are due to platform decline. Naval platform markets falling continue to affect the market for naval mission systems. Although ballistic missile defense requirements may well provide a strong boost post 2012. The second area is military satellite markets.
The very strong decline in Europe in demand for space based mission systems dramatically effects the value of the market. Although this is off set by the market for satellite services in Europe which is no less than $400 million each year, although with urgent operational requirements it will rise higher over time.
In 2006 Europe imported 20.7 percent of its defense electronics mission systems requirements, almost entirely from Israel and North America. Some 944 program business opportunities in the European defense electronics market were made by overseas firms.
Lockheed Martin is the non European market leader with some $500 million each year in Europe in 2006. Northrop Grumman turned over $350 million in 2006 and Raytheon turned over $300 million in 2006. Europe imported $210 million of defense electronics from Israel and another $70 million from Russia in 2006. Total European defense electronics mission systems imports showed that Radar based products accounts for $785 million in 2006, whilst Command and control accounted for $428 million in 2006, communication systems accounted for $495 million in 2006, and Electro-optical products accounted for $725 million in 2006.
Eastern Europe continues to support many companies, yet this is not supportable in the long term, as has been demonstrated in Western Europe, and there needs to be a cross border consolidation between these companies and/or Western European companies. This will enable the Eastern European companies to survive in specialist niche roles. Most Eastern European countries already use Western equipment especially in Communications. However, in radar, Command and Control and electro-optics they are still quite reliant on either Russian or domestic capability.
It is clear that while Europe can support several defense electronic businesses in most areas there are some that require consolidation. This is especially true in the naval radar and command and control mission systems market because of the downturn that is expected to occur over the next ten years.
Naval Command and Control and Radar both need consolidating as the market is stagnant. There also needs to be consolidation in the land command-and-control domain. An example being that almost every European country has a different artillery support command and control system. However, with medium to high growth in this area it is unlikely that there will be any political pressure for this to occur.
Thales is leading the pack with specialist houses in the Netherlands, France, and the United Kingdom. While Spain. Italy, Germany, and Sweden must determine which of Finmeccanica, Rheinmetall, EADS and Saab is going to lead which market electronic segments. Yet with such few cross border programs in defense electronics between these countries a badly needed reorganization isn't going to happen soon. Yet it is the key to these companies competing against Thales and to enable them to compete in the medium and long term internationally.
For more information contact Documental Solutions online at www.documentalsolutions.com.
