middle east military air – towards absolute air superiority

March 2011

Middle East Military Air – Towards Absolute Air Superiority

By Sabbir Ahmed, Research Analyst Aerospace, Defence & Security

Introduction

Lessons from the past wars in the region have taught regimes how Air Superiority underpinned by

total situational awareness acts as the ultimate deterrence. This has convinced them that the only

way to safeguard national security is to invest in cutting edge air assets. The Middle East resurge in

defence spending is a new phenomenon that came with the dramatic growth in economy since

2005, driven by the rise in the oil and gas price.

For this market insight piece, we have considered the Gulf Cooperation Council (GCC) countries

comprising Saudi Arabia, United Arab Emirates (UAE), Qatar, Kuwait, Oman and Bahrain. This is

because of the fact that these markets are homogenous and also for the fact that these markets are

set to present most opportunities in the regional military air market, at least until 2020.

Key Market Characteristics

Middle East defence acquisition strategy is influenced and shaped by the members of the ruling

royal family in respective countries, and institutional power though growing, still comes second in

the most procurement decisions. Political clout of a country of origin influences procurement

decision as mush as the credibility of a company. This is particularly a dampener for the European

companies against the US counterparts; most new air platforms are being procured from the US

under Foreign Military Sales (FMS) for geo-political reasons. But at times the governments tend to

balance the relationship through sourcing from elsewhere, to Europe and Russia.

The GCC countries are moving towards integration of all platforms including air platforms, air

defence and homeland security under the “Peninsular Shield” initiative, though the pace of progress

has been slow. The US and European arms regulations (such as ITAR in US, End-user monitoring

clauses, etc) often restrain export of sensitive defence technology and skill to the Middle East

(except for Israel). This is particularly a dampener for the Western defence companies.

© 2011Frost & Sullivan Market Insight


Source: Frost & Sullivan

Military Air Market - Revenue Forecast by Region (Middle East) - 2010 to 2020

All figures are rounded. The base year is 2010

10,000

9,000

8,000

7,000

6,000

0

Saudi Arabia UAE Oman Qatar Kuwait Bahrain

2010 2011 2012 2013 2014 201920182015 2016 2017

5,000

4,000

3,000

2,000

1,000

Revenues ($ Million)

2020

Year

Saudi Arabia is by far the largest military air market studied. Almost a half the total market revenue

is expected from this market alone over 2010-2020. UAE is a notable growth market; significant

opportunities emerging on all segments of the market, as it continue to rebuild on defence

capabilities (increasingly at the centre of UAE military thinking). In Oman the large defence deals

are coming through only recently due to recent economic buoyancy. Qatar military air market is

also poised to grow robustly, underpinned by dramatic growth on defence budget over the study

period.

Key Opportunity Overview

The market is primarily driven by big ticket purchases as well as increasing support revenues. As

the new procurement takes place so is the number of platforms that need support. The countries

mostly outsource support services from whoever supplied the platform. But this outsourced

support model is gradually opening to competition and local provider AMMROC is poised to take

on a significant stake.

The market has total $62.90 billion forecasted revenue projected between 2010 and 2020; it

includes revenues from new procurement as well upgrade and in-service support (including

spending on training and simulation). The platforms included in above projection include both fixed

and rotary wings of all three services but exclude unmanned platforms (which is scanty in the

current inventory). The market is dominated by Combat and Transport air platforms as usual, but

Special mission platforms such as early warning and control, special mission helicopters as well as

tankers have growing importance.

The need for integrated C2 and total situational awareness, and greater recognition of ISR assets

to that effect has underpinned the stable revenue outlook in C4ISR segment. We at Frost & Sullivan

forecast total spending on C4ISR at $20.24 billion over 2010-2020.

With the purchase of new platforms the training & simulation market is also picking up. However,

most revenues are attributed to operational/routine training rather than upfront investment in

new simulation system. Rather the market is tending towards outsourcing training from private

providers under real and simulated setting.

Unmanned Systems in the Region

As part of its technology acquisition strategy, the UAE has invested in development of the Austrian

Schiebel rotary Camcopter S-100. The project has been co-ordinated within the UAE ‘UAV

Research and Technology Centre’. Schiebel has recently teamed with Boeing in order to market

the S-100, which has begun to attract the attention of the German, US and France military. Given

the interest in C3I capability that a UAS can deliver, it is expected that the UAE will be keen to

acquire a range of platforms with varying capabilities, along with relevant training and support. It

is also seeking to advance its own technologies and services in this area through Abu Dhabi

Autonomous Systems.

© 2011 Frost & Sullivan Market Insight


The U.S. State Department has recently approved export version of ISR-only UAS to countries

beyond the NATO bloc. That would allow sales in the Middle East and elsewhere to governments

previously ineligible to buy the planes. General Atomics see the potential for sales of as many as

100 units in the Middle East and Pakistan of the Predator XP model (ISR only MQ-1), which is

already approved for export. In the region, UAE is fronting in developing indigenous version in the

Middle East. A few countries such as UAE and Saudi Arabia, among others use tactical UAVs and

keen on acquiring MALE UAVs. But the bottom line is UAS are still untapped potential in the

Middle East; future procurement would see all round competition between regional and global

companies.

Offsets as a way of Economic Diversification

The GCC countries are emphasizing on diversifying economy through building up indigenous

defence industry and local skills. Therefore, there is greater chance of winning businesses for the

companies who are willing to co-produce with local partners. The offset requirements in terms of

local investment vary among countries by a range of 30 %- 60%. It comes in terms of local sourcing

of components, hiring local employees, technology transfer etc, which can distort market

competition. In Saudi Arabia, offsets are increasingly enabling local companies move up the value

chain and set that sight on the regional market. In the UAE, offset conditions apply to all military

procurement contracts in excess of US$10 million. The conditions require a foreign supplier to

invest 60 per cent of the contract value in Abu Dhabi’s economic development. This requirement

is a cornerstone of the UAE’s (or, rather, Abu Dhabi’s) policy of promoting self-sufficiency, and then

to build an export capability for products and services throughout the region.

Key Messages for Suppliers

Tier 1 suppliers are recommended to take note of the new procurement opportunities and

position their equipment accordingly. They are advised a take a hard look on what’s not available

in the current inventory of a particular country in terms of mission/role specific platform.

Although there are not many upgrade opportunities identified the GCC countries tend to insert

capability on an adhoc basis. Specifically, upgrades on C4ISR equipment including self protective

suites is a promising segment which relevant companies should pursue.

© 2011 Frost & Sullivan Market Insight


The Camcopter S-100 has been

developed with a maritime capability in

mind. It can operate aboard even small

vessels, as well as from land. It has already

seen success in some regional countries.

Due to lack of adequate in-house support capability the GCC countries are moving towards

outsourcing the support service activities, mostly in line with through-life support model. This

segment of the market looks a lot promising as shown in the revenue forecast, therefore

companies should pursue service contracts in earnest. Due to lack of adequate training

infrastructure and skilled trainers as opposed to the volume and types of new purchases there

is significant potential in this segment. The countries are also increasingly outsourcing training,

and going towards virtualisation of training, an opportunity which relevant companies might

pursue.

© 2011 Frost & Sullivan

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middle east military air – towards absolute air superiority

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