middle east and north africa defense markets · 2015. 2. 18. · 2015-2020 * note: “other...

PRIVATE & CONFIDENTIAL

Implications for the Global Defense Industry on the eve of IDEX and NAVDEX

Middle East and North Africa Defense Markets

February 18, 2015

Prepared for:

Participants of the Avascent and NDIA Webinar

PRIVATE & CONFIDENTIAL | AVASCENT | 2

Panel Participants

Amb. Patrick TherosPresident, US-Qatar Business Council• Avascent International Advisor• General Partner, Theros & Theros, LLP• Thirty-five year career at US Dept. of State

– Ambassador to Qatar– Political Advisor to US Central Command– Served in Syria, Jordan, and UAE

• Board of Directors, Middle East Policy Council

Jon BarneyManaging Director, Avascent• Fifteen years of experience in strategy in the

global A&D sector• Focus on Avascent’s Global Expansion and

M&A efforts• Former Naval Officer, NATO Fellow; MBA

Harvard, B.S. Honors Naval Academy

Aleksandar D. JovovicPrincipal, Avascent• Twelve years of experience in the A&D sector

and consulting• Expertise in defense systems, global markets,

and international political risk• Positions at Brookings and Georgetown

University; M.A. SAIS-JHU

Avascent expresses its appreciation to the National Defense Industrial Association (NDIA) for co-hosting this event


Avascent Overview

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Offices in Washington, DC and Paris

120 full-time staff and network of 40 international advisors worldwide

Multiple partner organizations, including across MENA and Asia

Analytics covering US and 50 top international markets

30 years of experience supporting diverse clients

Distinguished alumni now in leadership positions across industry and government

Client Industries & Sectors

Capabilities

Innovation & Agility

Organization

Avascent Global Coverage: Selection of Recent Projects


Through 2020, the Middle East and North Africa defense sector boasts nearly $100B of addressable but unawarded spending, along with tens of billions of dollars in trailing services and sustainment support

Dramatic developments in the Middle East and North Africa (MENA)

region have put governments to the test, as they navigate the

complexity of leadership transitions, the rise of ISIS, failed states on

their periphery, and the economic consequences of low oil prices

Government revenue and defense spending in MENA are closely tied to

energy prices, particularly in the Gulf, but while an extended downturn

will put pressure on defense spending, the exacting security situation

and robust reserves ensure current defense coffers are amply funded

Through 2020, Avascent projects $278 billion in defense investment

among MENA’s leading defense spenders: KSA, UAE, Qatar, Iraq,

Algeria and others

Over a third of these funds remains uncommitted to specific providers

and/or programs making the region highly attractive to global defense

and aerospace firms, though partnering and offsets, as well as

competitive intensity, remain a challenge sector-wide

Combat aircraft, air and missile defense, ground and maritime assets,

C4ISR, and unmanned capabilities, as well as trailing support and

services are among leading requirements across the region


The Middle East and North Africa are not unaccustomed to political and security tumult, but the region has experienced an unusually high volume of change in the recent period

Libya ImplodesAny semblance of

normalcy disappears as factions dismember last

vestiges of unified country

Syrian StalemateThe Syrian conflict appears to be in a

stalemate as moderate forces battle Assad’s

military and ISIS fighters

Detente w/WestHobbled by drastic

declines in oil revenue, Tehran considers coming to a political and security

understanding on nuclear

Oil PlummetsOil loses 50% or more of its value driving many Gulf countries into deficits; GCC countries still hold the energy reigns though

ISIS Digs InISIS makes major inroads in Iraq, disrupting the country’s recovery; despite intervention it is hard to dislodge

Saudi SuccessionThe accession of King

Salman of Saudi Arabia occurs at a particularly tense time in the Gulf

Egypt StabilizesAscendance of Gen. Abdel Fattah el-Sisi to the civilian presidency solidifies secular regime and military’s influence

Yemen CollapsesHouthi rebels now control a large portion of the country, including its seat of power challenging regional interests


In 2020, annual MENA defense spending is expected to hit nearly $200 billion, with roughly one third destined for defense investment and O&M each—as long as oil & gas prices recover in the medium term

$-

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2015 2016 2017 2018 2019 2020

Bill

ion

s

Jordan

Morocco

Egypt

Qatar

Kuwait

Oman

Algeria

Iraq

UAE

Saudi Arabia

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Procurement

Research & Development

Non-MOD Support

Operations & Maintenance

Personnel

Equipment Relevant Services Relevant

Defense Investment = Procurement + R&D

Note: Captures only formal Egyptian defense spending; the country’s Ministry of Defense and armed forces have a significant stake in the civilian economy, with most funding believed to support Personnel accounts


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2016 2017 2018 2019 2020

$33 $31

$28

$23

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$4 $6

$6

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$3 $4 $7

$13

$18

$5 $5 $5 $5 $5

Bill

ion

sBetween 2016-20, Avascent projects nearly $100 billion in uncommitted and industry-addressable defense equipment and systems opportunities across MENA’s top markets

UnaddressableDefense investment spending directly earmarked for government agencies or other entities

Projected White Space

Funding available for future projects: highly shapeable for industry within the confines of countries’ defense context

Projected Opportunity

Yet to be defined opportunities whose major requirements are emerging according to Avascent analysis

Stated Opportunity

Stated defense requirements or programs that have yet to be awarded: near term industry opportunities

Contract Awarded

Programs that are ongoing: prime or integrator typically selected, but sub & partnering opportunities may exist

Industry Addressability

Even in the “Contract Awarded” segment, opportunities to sub, partner, or perhaps displace a competitor, may exist working with both foreign and indigenous primes or major systems integrators

Limited High

Legend:

Note: This and subsequent slides evaluate defense investment spending in the following addressable markets: Morocco, Algeria, Egypt, Jordan, Oman, Qatar, UAE, Saudi Arabia, Iraq, and Kuwait


Large Western OEM/integrators capture roughly half the market, but there is a large group of mid-tier firms that book hundreds of millions annually in the region; services and MRO are additive

Note: “Other” includes over 180 local, regional, and global integrators and OEMs, both private and public sector; also includes JVs, partnerships and other ventures that operate independently of their parent firms, US Government EDA transfers, as well as unknown/undefined primes; if this query is conducted at the major sub-contract level, the share of the top dozen firms diminishes significantly while the composition of the firms stays roughly the same. Source: Avascent Analytics

Snapshot of the Aggregate Competitive Landscape 2012-14(Prime View - Defense Equipment Spending Only)

While the largest global firms have a solid foothold in the region, local, regional and emerging prime contractors and integrators have an increasingly notable presence

$113BOther


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Platforms Weapons C4I Sensors EW/IW Other

Bill

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2012

2013

2014

Unsurprisingly, vehicle, ship and aircraft platforms, structures, and engines comprise the largest segment of MENA’s defense hardware spending, but this sector captures less than half of the addressable market

Note: The “Platforms” category includes structures, hulls, propulsion, power, engines, armor, integration and other elementsSource: Avascent Analytics


Successfully addressing MENA’s defense markets requires not only a sound understanding of its programs and projects, but also a strong grasp of its mission-based underpinnings

Defense Investment Spending Forecast by Mission Area2015-2020

* Note: “Other Missions” includes Undersea Warfare, Amphibious Assault, Information Dominance, Military Space Operations & Control, as well as equipment that has multiple or undefined missions; Unattributed Spending captures existing white spaceSource: Avascent Analytics

Land Combat

Air Warfare

Air & Missile Defense

Unattributed Spending

Naval Warfare

Mobility & Lift

Ground Attack & Strategic Deterrence

ISR

Homeland Defense

Other Missions

$278B

Land Combat investment continues to dominate the sector at a time when air and naval power are ascendant in other regions


Total Offset Obligations in Kuwait, UAE, and Saudi Arabia Incurred between 2012-14 = $24.5B (est.)

Kuwait - $0.6B

UAE - $4.2B

Saudi Arabia - $8.9B

US Obligors $13.7B

European Obligors

$4.5B

Other Obligors

$6.4B

$0.1B - Kuwait

$2.1B - UAE

$2.3B - Saudi Arabia

Offset obligations incurred by foreign defense companies within the Middle East’s three biggest defense markets are estimated to total over $24 billion in just the past three years

Note: Oman has recently established an offset policy, but did not have any notable obligations outstanding in this 3 year period; “Other” includes Russian, Canadian, Chinese Pakistani, South African & other providersSource: Avascent Analytics

US Obligations by Country

European Obligationsby Country

Despite greater emphasis on obligation retirement, the robust pace of accrual coupled with the complexities of retirement drive a relentless accumulation of obligations for foreign OEMs


Saudi Arabia is the unquestioned military leader of the Gulf Cooperation Council, but its leadership has been rattled by developments in Iraq and Yemen

Sources: Avascent Analytics, Avascent Analysis, International Monetary Fund, World Economic Outlook DatabaseNote: Defense Investment funding shown above captures Procurement, R&D, and any additional acquisition or industry-accessible equipment budgets

Relevant Developments

Royal transition at a critical geo-strategic juncture

Taking leadership role among GCC regarding Syria, Iran, and Egypt

Facing increasing challenges along Iraqi and Yemeni border

Uncertainly about West-Iran talks

US$

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Saudi Arabia

De

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Tren

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Cap

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Massive modernization & recapitalization of air combat

assets

Continued focus on missile defense

capability in response to Iran

Longtime interest but slow

movement in growth of

maritime assets

Ground Tactical and Combat

VehiclesC4ISR & Cyber Unmanned

Assets

Surface and Undersea

Maritime AssetsMissile Defense

$600

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Defense Investment GDP (right axis)


The Emirates are undertaking an unprecedented military modernization, while considering a major consolidation of their indigenous defense capabilities

Sources: Avascent Analytics, Avascent Analysis, International Monetary Fund, World Economic Outlook Database Note: Defense Investment funding shown above captures Procurement, R&D, and any additional acquisition or industry-accessible equipment budgets

Relevant Developments

Outsized defense spending continues in face of Iranian challenge

Assertive military stance across the region, including against ISIS

Growing presence on economic and regional diplomatic front

US$

bill

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United Arab Emirates

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Cap

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Ongoing fighter procurement

seemingly stalled

Major investments in missile and air

defense in response to Iran

Push to develop indigenous

defense industry with support of

offsets

Air and Missile Defense

Maritime AssetsGround Tactical

and Combat Assets

C4ISR & CyberUnmanned

Assets

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020



Mirroring its vast per capita wealth, Qatar is investing in large-scale & sophisticated defense capabilities; Egypt, long a market dominated by US FMF, looks elsewhere, while Kuwait’s spending is likely to grow

De

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Note: Defense Investment funding shown above captures Procurement, R&D, and any additional acquisition or industry-accessible equipment budgets; only formal Egyptian budget shown here.Source: Avascent Analytics, Avascent Analysis, International Monetary Fund, World Economic Outlook Database;

Egypt

US$

bill

ion

s

• Fighter jets, fast missile craft, anti-ship missiles, and M1A1 tanks on hold; Apache released

• Reliance on US FMF to continue, but significant turn to other providers such as France, Russia…

Combat Aircraft

Ground Tactical and Combat Vehicles

Rotorcraft

C4ISR

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Kuwait

US$

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• Uptick in defense procurement after years of lower spending

• Major investments in additional US Patriot AMD systems

• Fighter upgrade and subsequent replacement decisions on horizon

Air & Missile Defense

Combat Aircraft


Coastal Defense

$140

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Qatar

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• At a time of turmoil with GCC neighbors, major spending increases including attack and utility rotorcraft, tankers and AEWC aircraft, and missile defense systems

Combat Aircraft

Maritime Assets

C4ISR & Cyber

Unmanned Assets

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While KSA and UAE get the majority of attention, some of the smaller MENA markets have gathered momentum; Iraq’s defense investments focus squarely on ISIS threat

Iraq

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Oman

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Algeria

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• Major recapitalization of armed forces coincides with Coalition withdrawal from country; new ISIS threat radically changes dynamics

• Investments redirected to short-term COIN needs & foreign assist.

• Despite carefully balanced relationship with GCC and Iran, significant modernization afoot

• Contract for Eurofighter, F-16 upgrades, maritime patrol aircraft, frigates and coast patrol

• Notable growth in defense spending, largely focused on European and Russian equipment

• Investments in ground, air combat and coast defense

Combat Aircraft


Border & Coastal Defense

Maritime Assets

COIN and Light Attack Aircraft

Coast Defense and Riverine Assets

Rotorcraft

Combat Aircraft

Air and Missile Defense


Coastal Defense

Maritime Assets

De

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Note: Defense Investment funding shown above captures Procurement, R&D, and any additional acquisition or industry-accessible equipment budgets Source: Avascent Analytics, Avascent Analysis, International Monetary Fund, World Economic Outlook Database

$185 $190 $195 $200 $205 $210 $215 $220 $225

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To effectively counter increasing uncertainly over the coming decade, MENA players will require a host of new and advanced capabilities—below are just some illustrative segments

Priority Capabilities Capability Description Top Potential Markets

Air and Missile Defense• Sophisticated systems aimed largely at countering air

and missile threats from Iran• US, European, but China & Russia in the mix


• Combat, tactical and logistics vehicles are all in demand driven by geography and regional threats

• One of the few global bright spots for this segment

Airborne Combat• Most competitive fighter aircraft market globally• Largely a battle between US and European players• Major choices pending in UAE, Qatar, Kuwait, etc.

Maritime Assets• Massive build up of fleets to include ASW, mines,

though marquee programs in KSA slow-moving• Talk of undersea assets in KSA and UAE is a new twist

Unmanned Assets• Unmanned systems are in demand (to include UCAV),

with budding indigenous players emerging• US controls are loosened, suggesting more exports

Rotorcraft Assets• Logistics and attack requirements remain vital,

particularly as countries develop SOF and mobile forces; humanitarian uses also emerge

C4ISR• Situational awareness growing requirement as

regional players seek self-sufficiency from US • Cyber and networks increasingly interesting as well

MRO and Sustainment Services

• Effort to improve sustainment and MRO to increase operational readiness, historically a challenge in the region; many indigenous providers in the mix


Taking the Next Step: Growing sales across MENA’s largest defense markets

MENA’s defense sector presents a host of opportunities for global

defense firms, with US and European industry particularly well-

positioned; a prolonged, multi-year, plunge in energy prices,

however, will have some consequences for defense spending

Making and maintaining major in-roads in MENA’s addressable

markets requires a strong understanding of the local and regional

dynamics fueling defense spending

Along with increasingly-demanding requirements, firms need to

carefully consider the competitive landscape, offsets and local

industrial participation demands, and export control restrictions

Increases in the airborne and maritime domains mirror similar

trends globally; almost unique at this time, land forces spending

will continue as well; MRO and services offerings including cyber

also present a growing set of opportunities

Perhaps more so than ever in recent history, the region is seeking

military and security self-sufficiency; achieving this in terms of

capabilities, often in conjunction with local partnerships, is key to

success in the region


Avascent Europe59, rue des Petits Champs

75001 ParisTel: +33 1 73 77 56 19

www.avascent.com

Avascent US1615 L Street, NW, Suite 1200Washington, DC 20036Tel: +1 202 452 6990www.avascent.com

Jon BarneyManaging Director

[email protected]

Alek JovovicPrincipal

[email protected]

We look forward to seeing many of you at IDEX; if you are attending and would like to further discuss these findings please contact us.

middle east and north africa defense markets · 2015. 2. 18. · 2015-2020 * note: “other...

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