Global Aerospace & Defense Manufacturing Industry
The global aerospace and defense manufacturing industry is worth $170 billion, according to the Society of Manufacturing Engineers. The industry involves the manufacture of defense goods, including information systems, watercraft, aircraft and weaponry. It is a highly concentrated market that sells mainly to governments who require products for military purposes or spacecraft for federal space programs.
Aerospace and defense manufacturing demand is driven by military budgets, the possibility of international warfare and airline traffic. The main success factors for companies in the industry are strong technical expertise and wise pricing of long-term contracts. Companies remain competitive by collaborating with partners and keeping costs down. Aerospace and defense manufacturing companies must collaborate with governments to remain compliant regarding regulations.
Key Market Segments
The worldwide market for airborne intelligence, surveillance and reconnaissance (ISR) was worth almost $17.5 billion in 2011, according to research from Visiongain. ISR is vital for military activities, and cutbacks affect defense budgets in many countries, though some areas spend more on defense. Despite budgetary restrictions, ISR typically still receives government funding.
The global military rotorcraft market is forecast to show yearly growth of over 4% by 2021, according to ICD Research. The market is comprised of attack and rescue, reconnaissance observation and maritime helicopters, among others. The market’s strong growth to come is due partly to the updating of EU and US fleets following the wars in Iraq and Afghanistan.
Reconnaissance, surveillance and target acquisition (RSTA) systems are necessary for all land-based military operations. Worldwide government spending on RSTA was over $3.35 billion in 2011, according to Visiongain. Widely used RSTA equipment includes counter-fire radar systems, surveillance sensors and night vision goggles.
The global market for unmanned aerial vehicles (UAV) was calculated to be worth almost $3 billion in 2011, according to research from Visiongain. The UAV market includes a range of products such as intelligence sensors, detection sensors, weaponry, infrared and lasers. Unmanned aircraft systems have also seen significant market growth over recent years as governments seek to acquire the best equipment to maximize their defense and attack systems. Companies operating in this market segment are according increasing amounts to research and development efforts to work on data links and ground control stations.
Growing Regional Market
India’s defense market is seeing rapid growth, with around $14 billion of the country’s 2010 administrative budget spent on acquiring military technology and hardware. India’s defense spending is forecast to grow at more than 6.5% a year in the five-year period ending 2015, to reach over $42.5 billion, according to Eprobe. Factors driving the market in India include a perceived threat from surrounding countries, the need to update obsolete military hardware and technology, and domestic unrest. As the market looks set to continue growing, original equipment manufacturers are being drawn to India from abroad, while domestic private-sector companies also step up to meet demand.
Statistics of India's Defense Budget, 2010-11 and 2011-12
Source: Institute for Defense Studies & Analyses
Due to the high cost of specialized materials and intensive technological innovation necessary in the aerospace and defense industry, manufacturers need to bring down costs, boost productivity and cut the time it takes to get products to the market. The industry is becoming increasingly competitive on an international scale and is being hit by economic factors, which see governments trying to cut budgets, including defense spending. Mergers and acquisitions are an attractive option for companies seeking to become more competitive. Collaboration can help partnering companies speed up delivery of innovative products, while keeping the total cost of ownership down.
International legislation regarding arms is a central factor for the aerospace and defense industry, obliged to comply with government regulations. The market is increasingly price sensitive, especially with regard to airlines forced to adapt to an unstable global economic climate. Defense companies are forced to respect fixed-price contracts to satisfy governments looking to cut defense costs to secure long-term contracts. The industry is a heavy consumer of biofuel, seeking to manufacture products while respecting environmental concerns.
The industry also needs to lead in terms of innovation, technology and highly specialized expertise. Production time is an increasingly important factor, and original equipment manufacturers can face extended costs when backlogs run into extra production time. The industry is expected to grow at a rate of between 5% and 6% over the next couple of decades.
Leading Industry Associations
- National Defense Industrial Association
- Aerospace Industries Association
- Society of Manufacturing Engineers
- Aerospace, Defense & Securities Industry Trade Organization, UK
- American Institute of Aeronautics and Astronautics
- Aviation Distributors and Manufacturers Association
- General Aviation Manufacturers Association
- National Association of Manufacturers
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