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?
Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain a market share in the US defense industry.
What is the current market landscape and what is changing?
The US has the largest defense market in the world, and in 2012 the US defense budget stood at US$645.7 billion. Expenditure is primarily driven by the modernization of existing weapon systems as well as the acquisition of advanced defense equipment capable of enhancing interoperability among the armed forces. Due to its high levels of military spending, a large number of opportunities are available to companies keen to supply the nation with defense equipment; however, pressure to reduce the debt burden after the US financial crisis has shown a negative impact on the government budget and caused cuts in defense budget as well. The US defense budget (including OCO funding), which declined at a CAGR of -0.77% during the review period, is expected to register a CAGR of -0.12% over the forecast period to reach US$611 billion by 2017. Furthermore, defense expenditure as a percentage of GDP is also estimated to decline, from an average of 4.6% during the review period to an average of 3.4% over the forecast period.
What are the key drivers behind recent market changes?
Nuclear threat, modernization initiatives, arms race with China and Russia, and the protection of allies are expected to drive defense spending. The US perceives a potential nuclear threat from Iran and North Korea through their acquisition of long-range ballistic missiles, and the tension between the US and North Korea further increased in November 2010, when the US criticized the attacks carried out by North Korea on South Korea. Moreover, the nuclear threat from North Korea increased as North Korea announced its plans to carry out further long-range rocket launches and nuclear tests to fight against the US in January 2013.
What makes this report unique and essential to read?
Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, 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 2013 to 2017, 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 the 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 US follows a set of government regulations known as the International Traffic in Arms Regulation (ITAR) for controlling the import and export of defense-related articles and services on the US Munitions List (USML). The USML is a list of articles, services, and related technology designated as defense-related by the government. The ITAR authorizes the President to control the export and import of defense articles and services; however, in practice, amendments have been made to delegate this task to the Secretary of State. This regulation forbids the exchange of information and materials pertaining to defense and military-related technologies with foreign nationals, organizations, or government bodies, unless authorization from the Department of State is received. Furthermore, in order to manufacture or export defense articles to foreign investors, the US-based supplier should be registered with the State Department's Directorate of Defense Trade Controls (DDTC).
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 constructing ships 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 these sectors.
The US economic crisis lead to defense budget cuts in the US, which is expected to result in termination of defense programs as well as restructure of major programs such as Joint Strike Fighter. In SDI's Defense Industry Business Outlook 2013-2014 survey, 87% of the respondents from the North American region agree that budget cut is a biggest concern for the defense industry in the coming five years. Defense budget cuts announced by the DoD due to US defense expenditure is expected to decrease from 4.1% of GDP in 2012 to 3.1% of GDP by 2017, despite the engagement of the country's troops in missions in Afghanistan and many other countries worldwide. Overall, the country's defense expenditure is forecast to decrease from US$645.7 billion in 2012 to US$611.0 billion in 2017, leading to a reduction in procurement funding. Such a reduction has had a negative impact on a number of defense projects, and has resulted in delays and cancellations.
With the US aiming to reduce the country's defense expenditure by US$34.7 billion during 2012-2017, and rising personnel and health costs, the country's capital expenditure on defense is anticipated to decrease. Furthermore, the government is encouraging companies throughout the defense market to increase the efficiency of their 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. In SDI's Defense Industry Business Outlook 2013-2014 survey, 43% of the 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; as a result, defense companies will be compelled to take greater risks and accept lower profits on the limited number of available government contracts.
Key Highlights
The US encourages FDI within its economy and offers investment policies that treat domestic and foreign investors equally; however, investments that risk national security are barred using the Exon-Florio provision, a strategy that consists of three steps for reviewing proposed or pending foreign mergers, acquisitions, or takeovers, and determining if the transaction poses a risk to US national security. According to this provision, the Committee on Foreign Investment in the United States (CFIUS) conducts a review on the foreign investment within 30 days, and an investigation within 45 days, which is then submitted to the President for the decision of whether to favor or deny the transaction, a process which takes 15 days. In addition, the Department of Defense has established the National Industrial Security Program (NISP), which outlines provisions under the term 'Foreign Ownership, Control or Influence (FOCI)'. The aim of such provisions is to prevent foreign firms from gaining unauthorized access to "critical technology classified information, and special classes of classified information" through the acquisition of a US company.
The US does not have an offset policy for foreign defense procurements, and prohibits government officials, employees, and agencies to become involved in any offset transaction with a foreign defense firm. However, the country practices a 'Buy American Act', which mandates that all goods for public use, such as articles, materials, or suppliers, must be produced in the US, and manufactured items must be produced within the country using domestic materials.
The homeland security budget of the US prioritizes the mission areas of preventing terrorism, securing borders, enforcing and administering immigration laws, safeguarding cyberspace, ensuring resilience to disasters, and providing essential support to national and economic security. Securing the nation from terrorism remained as a main focus of the DHS in 2013, and during the forecast period a significant amount of the homeland security budget is expected to be allocated to the prevention of terrorism and enhancement of security. Since the 9/11 terrorist attacks the US has continued to increase security levels in all its airports. In order to prevent attacks from global terrorist organizations such as al-Qaeda, an increased focus is expected to be placed on creating a multi-layered system to strengthen aviation security from the time a passenger purchases a ticket to arrival at his or her destination.
Table of Contents
Table of Contents
1. Introduction
1.1. What is this Report bout?
1.2. Definitions
1.3. Summary Methodology
1.4. SDI Terrorism Index
1.5. About Strategic Defence Intelligence
2. Executive Summary
3. Market Attractiveness and Emerging Opportunities
3.1. Defense Market Size Historical and Forecast
3.1.1. US defense expenditure excluding OCO funding forecast to increase
to US$XX billion by 2017
3.1.2. Nuclear threat, modernization initiatives, arms race with China
and Russia, and the protection of allies are expected to drive defense
spending
3.1.3. Defense expenditure as a percentage of GDP projected to decline
over the forecast period
3.1.4. Per capita defense spending forecast to decline over the forecast
period
3.2. Analysis of Defense Budget Allocation
3.2.1. US defense budget forecast to register a decelerated growth
3.2.2. US defense base budget expected to increase to US$XX billion by
2017
3.2.3. Revenue expenditure accounts for majority of defense expenditure
3.2.4. Budget allocation for army and air force expected to decrease
3.2.5. Revenue expenditure allocation for the army expected to increase
over the forecast period
3.2.6. Naval defense budget expected to grow at a CAGR of XX% over
forecast period
3.2.7. US forecast to spend US$XX billion on its air force over the
forecast period
3.2.8. Expenditure on other category of armed forces projected to grow
at a CAGR of XX% over the forecast period
3.3. Homeland Security Market Size and Forecast
3.3.1. The US is projected to spend US$XX billion on homeland security
over the forecast period
3.3.2. Preventing terrorism, a top priority of Department of Homeland
Security (DHS) of the US
3.3.3. The nation is at "some risk" of terrorism
3.3.4. The US has a terrorism index score of XX
3.4. Benchmarking with Key Global Markets
3.4.1. The US will dominate global military spending over the forecast
period
3.4.2. US defense budget is much higher than other leading spenders
3.4.3. US defense expenditure as a percentage of GDP is the
third-highest in the world
3.4.4. US was largest global arms exporter during 2007-2011
3.4.5. The US emerged as eighth-largest global arms importer during
2007-2011
3.5. Market Opportunities: Key Trends and Growth Stimulators
3.5.1. Force Management:
3.5.2. Networking/Information Management:
3.5.3. Fighters and Multi-role Aircraft:
3.5.4. Cyber Security:
3.5.5. Missile Defense Systems:
3.5.6. Attack Aircraft MRO:
3.5.7. Space Warfare Systems:
3.5.8. Transport and Utility Aircraft:
4. Defense Procurement Market Dynamics
4.1. Import Market Dynamics
4.1.1. US primarily imports defense equipment to build strategic
relations
4.1.2. Defense imports registered steady growth during 2007-2011
4.1.3. The UK supplies the majority of US defense imports
4.1.4. Aircraft account for majority of arms imports
4.2. Export Market Dynamics
4.2.1. US arms exports are driven by political and economic factors
4.2.2. Arms exports continued to increase in 2011
4.2.3. US defense exports to increase during the forecast period
4.2.4. Aircraft are the most exported defense good
4.2.5. The US maintains controlled defense export policy
5. Industry Dynamics
5.1. Five Forces Analysis
5.1.1. Bargaining power of Supplier: Medium to low
5.1.2. Bargaining power of Buyer: High
5.1.3. Barrier to entry: Medium
5.1.4. Intensity of rivalry: Low to high
5.1.5. Threat of Substitution: Low to high
6. Market Entry Strategy
6.1. Market Regulation
6.1.1. The US defense industry is open to FDI
6.1.2. No offset policy exists in the US
6.1.3. US arms trade is heavily regulated
6.2. Market Entry Route
6.2.1. Foreign OEMs enter the market through the acquisition of domestic
defense companies
6.2.2. Joint product development programs, an attractive market entry
route
6.2.3. Formation of partnerships with domestic defense firms provide
good market entry opportunities
6.2.4. Direct sale of defense equipment provides foreign OEMs with an
opportunity to enter the market
6.3. Key Challenges
6.3.1. Decreasing economies of scale and defense inflation
6.3.2. Defense budget reductions result in project delays or
cancellations
6.3.3. Declining profit margins deter growth of domestic defense
companies
7. Competitive Landscape and Strategic Insights
7.1. Competitive Landscape Overview
7.2. Domestic Public Companies
7.2.1. Lockheed Martin Corp.: overview
7.2.2. Lockheed Martin Corp.: products and services
7.2.3. Lockheed Martin Corp.: recent announcements and strategic
initiatives
7.2.4. Lockheed Martin Corp.: alliances
7.2.5. Lockheed Martin Corp.: recent contract wins
7.2.6. Lockheed Martin Corp.: financial analysis
7.2.7. Raytheon: overview
7.2.8. Raytheon: products and services
7.2.9. Raytheon: recent announcements and strategic initiatives
7.2.10. Raytheon: alliances
7.2.11. Raytheon: recent contract wins
7.2.12. Raytheon: financial analysis
7.2.13. General Dynamics: overview
7.2.14. General Dynamics: products and services
7.2.15. General Dynamics: recent announcements and strategic initiatives
7.2.16. General Dynamics: alliances
7.2.17. General Dynamics: recent contract wins
7.2.18. General Dynamics: financial analysis
7.2.19. Boeing: overview
7.2.20. Boeing: products and services
7.2.21. Boeing: recent announcements and strategic initiatives
7.2.22. Boeing: alliances
7.2.23. Boeing: recent contract wins
7.2.24. Boeing: financial analysis
7.2.25. L-3 Communications Corp.: overview
7.2.26. L-3 Communications Corp.: products and services
7.2.27. L-3 Communications Corp.: recent announcements and strategic
initiatives
Future of the US Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 published by Strategic Defence Intelligence in February 21, 2013. This report consists of Pages: 215 and the price starts from US $ 1250.
