Airborne Countermeasure Systems Industry Gears Up For Dramatic Global Growth.

Business Editors

LONDON--(BUSINESS WIRE)--Sept. 8, 2003

The proliferation of advanced threats, such as the modified QW-1, China's second-generation shoulder-fired air defense missile, and the quest to combat international civil and commercial aviation terrorism, spell a bright future for the global airborne countermeasures market.

Defying the effects of global defense budget restraints and rising costs of research, development, test and evaluation (RDT&E), production and procurement, the airborne countermeasures industry continues its upward trend, aided by new platform introductions and upgrade and modernization programs.

A new study by Frost & Sullivan, the international market consultancy, identifies the aversion to ground warfare and ongoing improvements in advanced infrared (IR) and radio frequency (RF) targeting systems as further catalysts behind the continued need for advanced airborne countermeasure systems.

Furthermore, the growing conduct of low-altitude operations helps accentuate the imperative to equip military aircraft with the ability to recognize and defeat ground-to-air and air-to-air attacks.

Manuel Magalhaes, Program Manager at Frost & Sullivan, is in optimistic mood.

"Reflecting the increasing procurement of a number of aircraft requiring advanced self-protection systems, revenues in the world airborne countermeasures market will soar from US$1.27 billion in 2003 past the US$2.2 billion mark in 2012," he reports.

Frost & Sullivan notes that defense ministries worldwide are set to allocate approximately 4 percent, equating to US$36 billion, of their total defense procurement and RDT&E budget towards electronic warfare (EW) over the next 10 years. The U.S. alone is forecast to spend US$25 billion on EW during this timeframe. Airborne countermeasures are predicted to account for 50 percent of total EW expenditure.

"In the last two decades, infrared guided missiles have represented half of the total aircraft losses in theatre. With the development of advanced infrared-guided surface-to-air missiles (SAM), which have improved attack capability and immunity to some flares, we are confident that funding for infrared and electro-optical countermeasure systems will show rapid growth over the next few years," Mr Magalhaes continues.

New Missile Warning Systems (MWS), directed IR countermeasures (DIRCM), and Jamming systems are currently at different stages of development and testing, with each supplier developing a small number of variations at significant price differences. The U.S. continues to be the dominant force in R&D funding and procurement for these systems, with France and Israel planning to significantly increase their R&D resources over the next five years.

Hot on the heels of the market's star performer, IR countermeasure systems, follows the integrated systems segment, according to Frost & Sullivan's review of the main airborne countermeasures systems types. By 2012, these segments will have accumulated US$4.8 billion and US$4.6 billion respectively.

Northrop Grumman currently holds the leadership spot, followed by Lockheed Martin, ITT Industries, Thales and BAE Systems. These five heavyweights are expected to command around half of the total market in 2003, with the top 10 defense clients accounting for 80 percent of the world's military expenditure. Frost & Sullivan believes that a small number of Israeli suppliers, namely Elisra, Elta/IAI and Rafael, should make major forays into the export market in the coming years, with the potential to clinch more than 10 percent of the overall pie.

"These companies are developing advanced countermeasure systems and suites at more attractive prices than their European and U.S. counterparts in an effort to meet their ambitious export goals. The market is also seeing a number of collaborations with European and U.S. primes in the field of development and commercialization of countermeasure suites," Mr Magalhaes points out.

A handful of Asian countries are ramping up investment in the development of an EW industry to complement the development and/or production of airborne platforms and subsystems, influenced mainly by American, French and Israeli high-tech hybridization. Frost & Sullivan warns that this move will eventually compromise some potential opportunities in traditional export markets over the next decade.

The U.K., France, Israel and the U.S. continue to focus on developing integrated systems with an emphasis on IR technology for their own defense capabilities, while the remaining territories under analysis in Frost & Sullivan's study remain predominately a systems upgrade market for the next few years. The study further draws attention to the potential displayed by the emerging market for advanced lightweight airborne countermeasures for combat and tactical unmanned aerial vehicle (UAV) systems.

The key challenges which European suppliers in this market are confronted with include the glut of more attractively-priced U.S. and Israeli products, the politics presiding over sound procurement decisions and the perception that U.S.-produced technology enjoys superiority.

Frost & Sullivan values Western European airborne countermeasures market at around $270 million in 2003, with the U.K., France, Italy and Germany responsible for the main thrust of sales, occupying more than two-thirds of the market.

Frost & Sullivan anticipates the Western European market to expand at a compound annual growth rate (CAGR) of 2.8 percent between 2002 and 2007, and close to 4 percent between 2008 and 2012. This growth is mostly attributable to the production and introduction of new platforms like the Eurofighter, Gripen, A400M, Rafale, Harrier GR7, Tiger attack helicopters, UAVs/UCAVs and a number of upgrade programs.

Meanwhile, sales in the Asian market are pegged at around $96m in 2003, with China, Japan, Taiwan, South Korea and India claiming the overwhelming accounting for more than four-fifths of the market.

Governments in this region have recognized the degree of insufficient funding of their airborne countermeasures' capabilities. As many countries in the region suffer a deficit in cash injections and struggle to acquire new platforms with advanced EW systems, most of their procurement efforts will be focused on upgrading and extending the life of existing platforms with new EW countermeasure systems.

Frost & Sullivan, an international consultancy firm, has been supporting clients' growth for over four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies include strategic consultancy, market intelligence and management training. Our mission is to work with our clients' management teams to deliver market insights and to create value and drive growth through innovative approaches. Frost & Sullivan's network of more than 750 consultants, industry experts, corporate trainers and support staff, spans the globe with 19 offices worldwide.

   Frost & Sullivan's Analysis Of The World Airborne Countermeasure
                            Systems Market

                             Report: B226