While there are signs of a recovery from the global financial crisis, its effects are still being felt in the aviation sector, notably in defense spending. Cash-strapped nations are only now starting to spend, and many of them may still be looking for bargains at the Paris Air Show this year.
“In the West, the economic crisis has had a major impact over the last couple of years,” says Craig Caffrey, aviation analyst for military aircraft programs for Jane’s. “European countries in particular have seen significant cuts to their defense budgets over the last two years that have seen a number of military aircraft programs delayed, cut or cancelled outright. In the U.S., by far the largest market for military aircraft, the effects have been far less severe — however growing concerns over the budget deficit and national debt there are likely to ensure that spending remains flat for at least the next five years.”
Overall, military spending of all kinds increased 1.3 percent globally in 2010, the smallest annual increase in a decade, according to the Stockholm International Peace Research Institute, SIPRI. In Western Europe, it actually declined 2.8 percent.
Jane’s estimates that $70 billion will be spent globally on procurement and major upgrades for military aircraft during the course of 2011, and much of the buying — or at least window shopping — could occur in Paris.
Stephen Trimbull, Americas managing editor at FlightGlobal, also sees a flat marketplace.
“There will be growth in some sectors, but others are in a decline,” says Trimbull. “Unless something happens of course, but nothing is driving the market right now.”
One factor is what Trimbull calls “war fatigue".
The changing role of the American military in Iraq and Afghanistan, says Trimbull, makes it hard to predict the future of aviation defense spending.
“With America pulling back in both Iraq and Afghanistan that could be huge spending that goes away," he says. "Something always seems to fill the gap in the security world, but we’ll have to see what happens this time.”
Question marks aside, certain aircraft suppliers are better positioned than others, says Wayne Plucker, aviation analyst for research firm Frost and Sullivan. He says Lockheed Martin is looking good with its F-35 program, as is Boeing with its FA/18 and C-17.
“Lockheed will be fine, as they have the C-130, and I think variants of it will be around forever, ” says Plucker.
The Middle East market remains a dynamic one.
Even as America downsizes its role in Iraq and Afghanistan, it's unclear to the experts how much they will spend or even can spend on military aircraft. More importantly, given the continued threat of insurgency in both nations, the role aircraft will play is not so clear.
“The need for aircraft in Afghanistan is going to be pretty low,” says Plucker. “The same may hold true in Iraq.
Iraq already has plans in place to buy a squadron of combat aircraft over the next few years, but the focus in these nations — as with many other Middle Eastern countries — could be helicopters, as well as fixed wing aircraft that are able to provide logistical and surveillance capabilities.
“The clear cut winners in military aircraft industry are those who can produce multi-role aircraft of any kind, especially unmanned,” says Trimbull. “That market is going to be growing over the next decade, and we’re seeing a huge amount of investment as well as the potential for business growth.”
Unmanned Aerial Vehicles, UAVs, could be one growth sector, and Plucker says it will be interesting to see how many UAV platforms show up in Paris.
“So far the contenders haven’t been enormously successful, but companies you’d never expect bring UAVs to the show," he says.
Additionally, the high price of oil has further ensured that many of the traditional Middle Eastern nations may once again be looking at major investment in their Air Forces.
While U.S. relations with Saudi Arabia have cooled in recent months, the experts don’t believe that the Saudis will look to either China or Russia when it comes to aircraft spending. Saudi Arabia, as well as the United Arab Emirates are currently investing vast sums of money in modernizing and expanding air forces as a hedge against ongoing instability in the region.
“Saudi Arabia traditionally purchases European or American military hardware and there have been few signs over recent years that this stance will alter any time soon,” says Caffrey.
Trimbull adds that the Saudis have signed a deal for new American made F-15s and area looking at an upgrade of their existing F-15s.
"The Saudis will stick with the West," says Trimbull, who notes the Saudis have been in talks to purchase eight Russian S-400 anti-aircraft platforms, as part of a deal worked out with the West. "Basically they did the deal with the Russians, so the platforms weren't sold to Iran.
Russia will continue to be both a big spender and supplier. China and even India are also expected to increase spending on defense significantly over the next decade, just as they had done over the previous decade.
“Russia remains one of the key suppliers of military aircraft on the international market in almost all sectors,” says Caffrey," adding that helicopter sales have experienced a resurgence over the past five years.
Russia's aircraft, however, are still based on designs from the Soviet era, but the government is beginning to invest in the modernization to retain the country's position as a major exporter.
Going forward, "Moscow will have to find replacements for its traditional main markets — China and India — which are increasing their self sufficiency," says Caffrey
China, on the other hand, remains a relatively minor player in the manufacture of military aircraft, but Caffrey says the country’s aerospace industry is developing quickly and is increasingly able to provide China’s armed forces with the equipment it requires.
“They still have major issues and gaps in capability in certain areas but by 2020 they are likely to start to have an increasingly significant impact upon the market," he says. "Given the relatively low cost of Chinese aircraft, the country is also likely to become an increasingly capable competitor for Russia in the export market over the medium to long term.”
“Right now they’re sort of an importer,” says Plucker. “On the horizon I could see them becoming a producer of aircraft for smaller non-aligned countries. The Chinese could be export worthy in the not too distant future," including something resembling the F-15.
Beijing's move into aerospace includes a number of partnerships with western companies. The result is that China may actually produce better products for the export market than they would use domestically.
China's major current shortcoming is that it lacks indigenous jet engine development. As a result, it could dive ahead in other technology.
“We don’t know how much they know about stealth, but stealth is going to be the future in the defense sector," says Trimbull. "China can’t be ignored and they can’t be just dismissed as rip- off artists.”