Missiles: 2013 In Review & Forecast Outlook Ben Goodlad February 2014 www.ihs.com/jdsf
In this report IHS analyst Ben Goodlad assesses trends and developments in the global missiles market and looks ahead to what the developments could mean for markets over the coming ten-year forecast period. This report is abridged. The full report, including the most significant identified market opportunities, is available to subscribers to IHS Jane s DS Forecast. Introduction In 2013, Air and Missile Defense continued to be the most important area of the Missile market, with the Anti-Air and Anti-Missile functions forecast to have a 2013-22 value of USD161.15 billion. This represents 52 percent of the total 2013-22 forecast Missile market, which is valued at USD307.51 billion. Lockheed Martin in particular has fared very well with robust sales of its PAC-3 and THAAD missiles to countries such as Kuwait and the United Arab Emirates. As a result, Lockheed Martin will be the leading producer of missiles over the 2013-22 forecast period, with forecast production revenue of USD32.65 billion. The Air and Missile Defense sector has not provided completely good news for everyone, however, with the termination of the US SM-3 Block IIB program, and Turkey s selection of the Chinese MQ-9 missile over Lockheed Martin s PAC-3 and MBDA s Aster 30 to meet its T- LORAMIDS requirement. The political fallout from the latter decision continues while the companies involved pursue fresh opportunities. These opportunities may be found in the form of missile defense requirements in the Gulf region, with Saudi Arabia expected to procure additional missiles, and in Eastern Europe and East Asia where the threat of ballistic missiles remains prominent. It is in the midst of this threat that spending on missiles in the Middle East is experiencing significant growth, driven by the build of both missile defense and precision strike capabilities. The termination of the SM-3 Block IIB program represents the main missile casualty of continued spending cuts in the United States. The FY2014 budget resulted in a reduction in the size of the 2013-22 US market forecast, with Research and Development (R&D) spending reduced by USD12.6 billion from our forecast at this point in 2013. Production spending has also been reduced by eight percent in the light of cuts to programs such as SM-3 and SM-6. Despite the gloomy US defense outlook, US manufacturers Raytheon and Lockheed Martin continue to lead the way in the missile market and although MBDA has had a successful year it is unlikely that the top two positions in the market will change in the near term. Market View: Suppliers In terms of overall program revenue, Raytheon remains the top supplier with a forecast 2013-22 market value of USD46.2 billion, while Lockheed Martin is second with USD40.17 billion. Both figures are significantly lower than the IHS forecast made in January 2013 www.ihs.com/jdsf 2
down from USD53 billion and USD44.9 billion respectively which is primarily due to a more conservative estimate of the value associated with Supplier Logistic Support (SLS). There has also been a downward trend in R&D spending, which is largely due to reductions in the US budget; as such the 2013-22 R&D forecast values for Raytheon and Lockheed Martin were reduced by USD1.9 billion and USD3.64 billion respectively. It is by looking at production values that the biggest change in 2013 can be seen, with the value of Lockheed Martin s 2013-22 production forecast increasing by 6 percent over the last twelve months from USD30.9 billion to USD32.65 billion. This points to a successful year for Lockheed Martin Missiles and Fire Control, with export orders for PAC-3 and THAAD missiles as well as expected orders from Poland for the Joint Air to Surface Stand-off Missile (JASSM). At the same time, Raytheon s production market has continued to decline as a result of its exposure to US budget cuts: the FY2014 US budget request saw a reduction in procurement funding for Raytheon s missile programs of USD801 million for FY2014-17. The curtailment of the SM-3 Block IIB program also accounts for a USD1.605 billion drop in development funding during this period. If the US is excluded then the picture is different, with Raytheon leading Lockheed Martin in terms of production revenue. In the face of declining revenue in the US, Raytheon has been successful in boosting its export sales with 2013-22 production outside of the US increasing by 11 percent this year www.ihs.com/jdsf 3
from USD11 billion to USD12.3 billion. At the same time, Lockheed Martin has seen a 7.4 percent jump in production revenue outside the US, with the 2013-22 value increasing from USD10.9 billion to USD11.8 billion. Moving away from the top two companies, EUROPAAMS has had the best year in terms of revenue increase, with production value for the ASTER family of missiles increasing by 264 percent from USD1.08 billion to USD2.86 billion. MBDA produces the ASTER missiles for the EUROPAAMS consortium; when this forecast value is combined with that of MBDA s core business, the total 2013-22 value is USD12 billion, placing the company third in the global market. MBDA was further boosted by the confirmation in December 2013 that its Missile Moyenne Portee (MMP) antitank missile system has been selected to meet France s Anti-Char Moyenne Portee (ACMP) Program. MBDA will deliver 2,850 missiles and 400 launchers to the French Army from 2017. Market View: End-User Countries United States The United States has a 2013-22 total program value of USD82.9 billion; this represents 27 percent of the global market. This has fallen compared to the 2013-22 USD107.4 billion forecast provided in January 2013, a reduction of 23 percent. USD6.37 billion of this drop is as a result of our more conservative estimates of the value associated with Supplier Logistic Support (SLS); however, over half of the decrease is caused by a drop in projected R&D spending, with the 2013-22 R&D spend for the US falling by USD12.6 billion from USD34.06 billion to USD21.46 billion. Termination of the SM-3 IIB, for example, caused a USD1.7 billion reduction in R&D spending. Forecast production spending fell by eight percent compared to January 2013, declining from USD54.04 billion to USD49.78 billion. This is as a result of the procurement reductions in the FY2014 budget. India India has the second highest market value as it seeks to modernize all aspects of its weaponry while continuing to develop and field the AGNI family of ballistic missiles. There has been no significant change to the overall 10-year forecast for India since January; however, the value for 2013 has fallen by 40 percent from USD3.61 billion to USD2.15 billion at the end of the year. This is due to the fact that 2013 has seen a significant number of delays to Indian programs, with deliveries of Nag, Akash, Spike and AAD missile systems being moved to the right. The Nag anti-tank missile continues to have technical problems with its IR seeker, while the Akash air defense system remains in testing. Despite reports that a contract had been awarded, the procurement of Spike anti-tank missiles from Rafael has been postponed due to procurement procedure rules, with Rafael being the only bidder in the program. While these programs have been delayed, work www.ihs.com/jdsf 4
continues in other areas with confirmation that the AGNI VI Inter- missiles to equip the F-15SA aircraft on order. This was followed by a request in Continental Ballistic Missile (ICBM) is being developed. The Middle East While last year saw the United Arab Emirates move into the top 10 countries above Saudi Arabia, increased spending by Saudi Arabia in 2013 has moved it up to 7th while pushing the UAE into 11th. This is despite the fact that spending by the UAE has increased slightly to USD7.2 billion for 2013-22. At the same time, the total program forecast for Saudi Arabia has almost doubled from USD5.87 billion in January 2013 to USD11.2 billion. Indeed, 2013 has seen Saudi Arabia submit Foreign Military Sales requests to the US for a large number of missiles, including a request in October for 650 AGM-84H SLAM-ER air to ground missiles and 450 AGM-84L Harpoon anti-ship December for a total of 15,545 TOW anti-tank missiles; 1,750 units are for the Saudi Arabian Army while the remaining 13,750 are for the Saudi Arabian National Guard (SANG). In addition Saudi Arabia has procured European missiles, ordering 72 Shahine Fire Units from France equipped with the Thales VT-1 missile. IHS estimates that a total of 1776 VT-1 missiles have been ordered. Given the high levels of spending by countries such as the UAE and Saudi Arabia, it is unsurprising that the Middle East is expected to see the most significant growth during the forecast period with a Compound Annual Growth Rate (CAGR) of 2.84% from 2013 to 2022. The short term growth figure is forecast to be greater still, with a CAGR of www.ihs.com/jdsf 5
23.1% from 2013 to 2017. The 2012 End of Year Report stated that spending in the Middle East would reach a peak of USD4.59 billion in 2016; the figure for 2016 is now USD5.38 billion with a peak of USD5.51 billion expected to be seen in 2017. This growth is being driven by the Gulf States, with Qatar for example seeking to procure a large number of missiles from the US via the FMS program. 2012 saw 700 Hellfire, 768 PAC-3 and 150 THAAD missiles requested. This was followed by a request in 2013 for 500 FGM-148 Javelin Block 1 anti-tank missiles and 50 Javelin Command Launcher Units. The missile market in Qatar is forecast to increase from just USD4 million in 2013 to a peak of USD1.316 billion in 2016. Western Europe Despite budget reductions in recent years, the Western European Missile market is expected to strengthen with a 2013-22 CAGR of 2.36%. 2013 saw France commit to a number of programs which will ensure that it remains the largest missile customer in the region. These include the AMCP program and Aster 30 Block 1 NT. The United Kingdom also remains steadfast in modernizing its missile stocks awarding, for example, MBDA a contract in September worth GBP250 million (USD408 million) for production of the Sea Ceptor system which will fire the Common Anti-Air Modular Missile (Maritime) (CAMM-M). Outlook Missile Defense is expected to continue to be a major driver in the Missile market. Despite apparent improvement in relations with Iran, there is still a desire by both the US and Gulf States to provide a coordinated missile defense capability in the region. East Asia also is likely to be a key region for missile defense given the continued tensions with North Korea. At present South Korea lacks an independent missile interception capability, and this is a shortcoming that IHS expects it to address in the coming years. Air defense will also remain important, particularly with the need to replace ageing systems such as HAWK. In this sector there is expected to be increased competition, demonstrated this year by Turkey s selection of the Chinese HQ-9 system over EUROSAM s SAMP/T and Raytheon s Patriot systems. The willingness of Chinese manufacturers to offer solutions at both low cost and with favorable technology transfer arrangements means we are likely to see an increase in Chinese missile exports. In terms of suppliers, no change in the top three companies is expected. Both Raytheon and Lockheed Martin have now positioned themselves well in the international missile market and now are less dependent on a US revenue stream. This means that the leading suppliers in the market are better positioned to withstand further cuts to the US budget. The impact of any cuts in the future is uncertain and is largely dependent on world events. The US strategic pivot towards Asia has seen an increased requirement for airwww.ihs.com/jdsf 6
to-air missiles, with the budget cuts of 2012 in this area reversed in 2013. Demand for these missiles is set to remain strong, particularly in the light of tensions in the skies over the East China Sea. Further improvement of relations with Iran could see the demand for missiles in the Middle East dampen; however, at this time the possibility that a continuing build-up of missiles in the region will cease appears remote. If the buildup of land-based missile defense systems continues, IHS expects Lockheed Martin to continue to increase its market share. IHS also expects MBDA to continue to build on its export success of 2013, having formed key partnerships with companies such as Lockheed Martin in offering the ability to fire its missiles from the Mk 48 Vertical Launch System (VLS). The company is now in a position to offer missiles for use in Mk 48 VLS equipped ships, providing an alternative to Raytheon s missiles. However, whether many of these countries will look away from the Foreign Military Sales program remains to be seen. All forecasts within this report are expressed as constant 2013 USD. Please be aware that IHS market forecasting databases are under continual review and that therefore the forecasts described in this report may be revised at any time. www.ihs.com/jdsf 7
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