applying the ceo 360 and mega trends to develop growth strategy in aerospace, defense and security...
TRANSCRIPT
Agenda
Chair/ Moderator
Wayne Plucker - Industry Manager, Aerospace, Defense & Security, Frost & Sullivan
2:00 #1- Frost & Sullivan CEO 360 Executive Insight- Aerospace & Defense
Wayne Plucker – Industry Manager, Aerospace, Defense & Security, Frost & Sullivan
2:30 #2- INNOVATION AND GROWTH SUCCESS STORIESZaki Saleh– Vice President – Northrop Grumman Information Systems
One Company’s Recompete is Another’s Takeaway – Organic Growth in a Tough Market
. 2 .
3:00 #3- INTERACTIVE Executive Panel DiscussionGary Leikin – Vice President – Frost & Sullivan
Finding Opportunities in a Challenging Market
3:40 Networking, Refreshment, and Exhibition Break
4:10 #3- INTERACTIVE – An Exercise in Scenario PlanningGary Leikin – Vice President – Frost & Sullivan
5:30 A&D Track Close
The CEO 360 Perspective : Opportunity Despite Reduced Budgets
Prepared for:
GIL Silicon Valley 201210 September 2012, San Jose, CA
Growth, Innovation & Leadership
Wayne Plucker, Industry Manager, Aerospace & Defense
CEO 360
Key Take-Aways:
•The defense sky isn’t falling, it is just a overcast
•Aerospace has a fragmented future
•Security is secure, but international
Table of Contents
Global Aerospace &
Market Dynamics Analysis
Global Spending & Sector Highlights
. 5 .
Aerospace & Defense Outlook
Defense Megatrends
Regional Overview
CEO’s Perspective
2
Economic conditions will dominate the
aerospace market and will have effects
on both defense and security
1
Despite recent budget reductions, U.S.
defense spending is at very high levels.
Proven systems, and research to meet
emerging threats, will continue
. 7 .
3
Market consolidation will increase with
fewer programs of record as mature
technology dominates the next decade.
4
Competition for partnership/acquisition
of innovative firms who can translate
commercial into military applications
5
Defense will follow rapidly developing
commercial standards-based
technology..
Aerospace Industry Outlook:In
du
str
y I
mp
ac
t
High
Economic and Political
Stability in APAC and
Cost effective
solutions
Modular, Upgradable
Platforms
Green/Efficient
Platforms
Industry shares R & D
investment with other
players Emerging markets
becoming the key
target for US and EU
industry
Technology
dependent
future
Technology
. 8 .
2012 – 2021 perspective
Ind
us
try I
mp
ac
t
CertaintyLow High
Modernisation
Requirements
Stability in APAC and
MENA
Incentive to local
Industry – Demand for
technology know how
through partnerships
(JV, Industrialisation,
M&A)
Strong markets
becoming opportunity
hubs for smaller
markets (indirect
access to extended
footprint)
Importance of TLCM
COTS products
increasingly become a
cost-effective option /
increased power of
lower tier suppliers
Merger and
Acquisitions
New market entrantsNew
Competition
New
Competition
Cost concerns.
Technology
Convergence
Defense Industry Outlook:In
du
str
y I
mp
ac
t
High
Modernisation
Requirements
Economic and Political
Stability in APAC and Cost effective
Importance of TLCM
COTS products
increasingly become a
cost-effective option /
increased power of
lower tier suppliers
New market entrants
(other industry)
Security spending
outstrips defence
expenditure
Emerging markets
becoming the key
target for US and EU
industry
Investment in
new market
segments
Dealing with a
cost conscious
customer.
Technology
Convergence
. 9 .
2012 – 2021 perspective
Ind
us
try I
mp
ac
t
CertaintyLow High
Stability in APAC and
LATAM
Incentive to local
Industry – Demand for
technology know how
through partnerships
(JV, Industrialisation,
M&A)
Strong markets
becoming opportunity
hubs for smaller
markets (indirect
access to extended
footprint)
Cost effective
solutions
Smart, multi-purpose,
Upgradable Platforms
Green/Efficient
Platforms
Industry forces to share
R & D investment with
other players
The rise of open
innovation
Merger and
Acquisitions
Competition
with a new
face
Competition
with a new
face
Security Industry Outlook:
High
City Cloud Solutions
PSIM CCTVs
Video Analytics
Networks
UAV’sBiometrics
Ind
us
try I
mp
ac
t
Technology
Existing
Technologies
Existing
Technologies
. 10 .
LowCertainty
Low High
Smart Phones
4G network Long Term Evolution
Police Mobile Office
Sensors
C3i
Networks & Storage
Anti-Cyber
Source: Frost & Sullivan analysis
GIS
Data Mining/Fusion
Ind
us
try I
mp
ac
t
Technology
from other
industries
Newer
technology
applications
Newer
technology
applications
Table of Contents
Global Aerospace &
Global Spending & Sector Highlights
. 11 .
Aerospace & Defense Outlook
Commercial Aerospace
600
800
1000
1200
1400
1600
Air
cra
ft D
eli
ve
rie
s
Air Transport Deliveries
Main-line aircraft fleets• Deliveries ≈ 1000 through 2014
with measured growth
• 787 and A350 will increment and
cannibalize existing model
sales.
• C-Series, C919, A320NEO and
737 MAX drive some increment
. 12 .
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Regional Jets 185 193 192 174 189 248 272 328 237 223
Regional Turboprops 110 109 115 102 110 105 106 104 100 98
Multi-Deck Fleet 17 30 19 7 35 41 40 41 46 55
Twin-Aisle Fleet 167 169 188 181 183 209 235 286 294 320
Single-Aisle Fleet 691 733 768 764 793 761 722 689 805 802
0
200
400
600
Air
cra
ft D
eli
ve
rie
s
737 MAX drive some increment
2015-2020
Regional aircraft fleets• New players-
Sukhoi, Mitsubishi, COM
AC
• Demand has been
falling
• Turboprop strength
Carbon-Tax
Business Aviation
1500
2000
2500
3000
Air
cra
ft D
eli
ve
rie
s
Business Aircraft Deliveries
• Jet orders decline in 2008, but OEMs delivered at record numbers
• 2010 made big dents in jet order books and new OEM model deliveries
• Turboprops slow decline
. 13 .
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Rotary Piston 403 415 433 442 450 455 475 475 485 485
Rotary Turbine 487 528 492 453 450 525 600 660 690 675
Fixed Turboprops 459 535 439 362 357 403 426 447 448 454
Fixed Jets 1040 1154 870 910 760 879 947 976 986 1001
0
500
1000
1500
Air
cra
ft D
eli
ve
rie
s• Piston helicopter market
virtually owned by Robinson Helicopters
• Turbine helicopters dampened by economic conditions.
• Turboprops slow decline
General Aviation
2000
2500
3000
Air
cra
ft D
eli
ve
rie
s
General Aviation Aircraft Deliveries
• 2007 was second best year since GARA
• Market significantly affected by recession
• Recovery is unlikely
• Many long-term OEMs
. 14 .
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Aircraft Deliveries 2675 2119 966 904 1048 1050 1129 1192 1226 1229
0
500
1000
1500
Air
cra
ft D
eli
ve
rie
s
• Many long-term OEMs are now out of business
• North America and Europe are the market, with limited opportunities elsewhere
• Low pilot demand
Civil Aerospace Electronics
5,000
6,000
7,000
8,000
$ M
illi
on
s
Forward Fit Avionics Installation Revenue
Avionics
• Affected most by new
aircraft
• Parts and services add
about 25% to the
Comm/Nav areas and
50% to the Surveillance
. 15 .
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Integration 437 485 498 481 494 512 530 560 592 646
Surveillance 2,66 2,52 2,79 3,05 3,30 3,41 3,63 3,73 3,71 3,88
Navigation 1,74 1,72 1,71 1,70 1,86 1,97 2,02 2,08 1,94 1,90
Communication 937 904 902 899 957 996 1,03 1,07 1,11 1,15
0
1,000
2,000
3,000
4,000
$ M
illi
on
s
50% to the Surveillance
• Integration is the future
Cabin Systems
• Traditional IFE is a
limited future market
• COTS equipment will be
the core
• Connectivity is the future
Defense Budget Cuts: Is it time to panic?
• Military acquisition is
now cost conscious
manner
• Significant cuts in the
US and Europe, but
global defense budget
continues to grow
steadily, now driven by
. 16 .
• Industry is looking at
new markets and new
sectors
• Decline in R&D budget
is one of the biggest
menace.
steadily, now driven by
emerging countries.
Defense Budget Segments
• Only C4ISR and CSSE
exceed a 4% CAGR
over the period
• Missiles, Ordinance, R
otary Wing Aircraft and
Training all exceed a
2% CAGR
. 17 .
• Fixed Wing
Aircraft, Vehicles and
Unmanned Systems
have less than 2%
CAGRs
• CBRNE and Ships
have essentially flat
growth
Aerospace Regional Assessment
0
500
1000
1500
2000
2500
NA EU APAC MENA ROW Private Leasing Cargo
Un
its
Narrow Body Wide Body Regional Jet Regional Turboprop Piston Turboprop BizJets Helicopter
Civil Aerospace Production (Global) 2011
• North America still
dominates the overall
market for aircraft. That is
on the strength of Business
and GA production
. 19 .
0
5
10
15
20
25
30
35
NA EU APAC MENA ROW Private Leasing Cargo
Region
Bil
lio
n $
US
Narrow Body Wide Body Regional Jet Regional Turboprop Piston Turboprop BizJets Helicopter
Civil Aerospace Market Revenues (Global) 2011
• Once price per unit is
factored in, North America
lagged behind APAC and
Europe as an attractive
market. The leased aircraft
are also principally
purchased for use in MENA
and APAC
Defense Procurement Spending Forecasts
. 20 .
Note: All figures are rounded. The base year is 2010. Source: Frost & Sullivan analysis.Note: CAGR is calculated from the base year of 2010.
Security Spending Forecasts
. 21 .
Note: All figures are rounded. The base year is 2010. Source: Frost & Sullivan analysis.Note: CAGR is calculated from the base year of 2010.
Are US Primes International?
US Defence Prime and the International Market:
% of Annual Revenue from Non-US customers
2004
5%
2008
5%
2011
6%
2004
18%
2008
20%
2011
25%
. 22 .
Traditional
International Markets
• Budget cuts force the US to migrate to other
markets (making the European market tougher and
increasing competition in the emerging markets.)
• Industrialization
First Wave of International
Markets (90’s + 00’s)
Current Wave of
International Markets
(2011 onwards)
2004
33%
2008
39%
2011
50%
2004
17%
200
8
17%
2011
19%
2004
17%
2008
17%
2011
19%
Market Conclusions
The United States will remain the largest manufacturer, consumer, and exporter of defense products. Growing economic power and natural-resource competition will drive India and China to have the fastest procurement-spending growth rates.
The European region will experience the sharpest decline in defense-procurement spending and will experience significant defense-industry consolidation and will invest in U.S. defense technology firms because of limited regional and export opportunities.
The top global defense firms will continue to dominate for the forecast period. Expect further
. 23 .
The top global defense firms will continue to dominate for the forecast period. Expect further consolidation among European manufacturers. State subsidized Russian, Chinese, and Korean companies have price advantage and will experience the fastest grow rates
Economic competition, border security, counter insurgency, and counter terrorism requirements will increase. Unmanned vehicles, embedded sensors and computing, information collaboration, nonlethal munitions, cyber operations, and industrial espionage will be prominent global technology themes through 2016.
•The Defence-Security convergence might benefit companies which are focusing on both sectors overall (i.e. Israeli Industry)
The European Union’s Energy Trading Scheme Has Started
• The EU estimates 25% of their greenhouse gas from transportation. Air travel between Europe and the rest of the World is estimated at 9% of that.
• The EU says that air travel emissions have grown by 87% in the last 20 years.
Aviation CO2
212 million MT
. 25 .25
20 years.
• Mandated an emissions trading scheme (ETS) for travel to and from Europe. To operate in Europe, flight operators must open carbon registry accounts
• In 2012, 85% will be a free allowance. In 2013-2020
Strategic Materials
• Rare earth materials, very limited sources as shown on the right.
• China leveraging dominance. They want to provide finished goods, not raw materials and have tightened the market.
• In addition to the rare earths, metals such as titanium, nickel, cadmium and chromium are used heavily in
. 26 .26
chromium are used heavily in aerospace. The sources for many of those elements can be challenging
• Alternative is to replace the materials that are price or supply constrained with another material that is more available or less expensive.
• Product certification/quality assurance may restrain manufacture and materials
Rare Earth Production and Reserves (2009 Data)
Country
Production
(Metric Ton) Reserves (Metric Ton)
United States insignificant 13,000,000
Australia insignificant 5,400,000
Brazil 650 48,000
China 120,000 36,000,000
Commonwealth of Independent States not available 19,000,000
India 2,700 3,100,000
Malaysia 380 30,000
Other countries not available 22,000,000
World total (rounded) 124,000 99,000,000
Aircraft Networks
• Digitally controlled systems are becoming the norm.
• As weight and reliability become greater issues, digital systems will be increasingly needed
• New aircraft are “electric” aircraft with digital controls for everything. Trend will accelerate as fuel savings become even more critical
. 27 .
• The networked aircraft is an evolving market.
• Fly-by-Wire controls
• On-board operating systems included in some networks
• Networked information systems for the crew
• Aircraft health management systems are in their infancy.
North American and European Trends
• Engineering was once a desirable career in North America and Europe.
• Aircraft maintenance was also considered to be one of the more interesting career fields.
• Over the past 20 years, aircraft engineers and mechanics have become expendable
. 28 .28
become expendable
• Engineers tend to be “life of the contract” workers.
• Mechanics are furloughed with every market contraction.
• Pay for both engineers and mechanics has not kept pace with pay changes for others.
Speaker’s Details
Thank You
. 29 .
Wayne PluckerIndustry ManagerAerospace & Defence
Tel. 210-247-3869
Fax. 210-348-1003
Email: [email protected]