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Defense market expands at record pace to be worth $65 billion

Total defense spending accelerated in Asia Pacific: IHS
Global defense trade market blows up to $65B
Trader: Buy aerospace & defense sector

The global defense trade increased at a record pace last year, with the value of the market expanding by $6.6 billion to be worth $65 billion in 2015, according to a new report by IHS Jane's.

The annual increase was in part fuelled by tensions in areas including the South China Sea, sustained demand in the Middle East, and a "revival" of the French defense sector, the report released Sunday explained.

A list of top defense importers was dominated by the Middle East, which received about $21.6 billion in equipment deliveries over the year.

Saudi Arabia and the United Arab Emirates together imported equipment worth $11.4 billion to account for about 17.5 percent of total global defense imports more than all of Western Europe combined. That's compared to $8.6 billion the year before.

The U.S., meanwhile which is the largest exporter to the Middle East held the top spot as the world's largest exporter, supplying $22.9 billion worth of defense equipment up from just $12.9 billion in 2009. While the report says the rise can't be tied to one particular factor, it does highlight a ramp up in deliveries of newly developed F-35 fighter jets.

France: A big surprise

However, report author and senior IHS analyst Ben Moores told CNBC in a phone interview that one of the biggest surprises was France's defense sector revival, having sold $18 billion worth of equipment in 2015, up from just $8 billion in 2014.

"France was very's almost unheard of for a major exporter to double its backlog in 24 months," Moores explained.

The uptick in exports has been driven in part by Middle East demand for aviation equipment, Moores explained, with France able to deliver more quickly than the U.S., where sales must be approved by the central. government.

At this rate, France is set to overtake Russia as the world's second largest defense exporter by 2018, the report said.

South China Sea

An unmanned Antares rocket is seen exploding seconds after lift off from a commercial launch pad in this still image from NASA video at Wallops Island, Virginia October 28, 2014.
NASA | Reuters

Countries in the Asia-Pacific have accelerated defense spending, meanwhile, in an effort to counter threats by China in and around disputed waters in the South China Sea.

Defense imports to the region rose 71 percent from 2009, with South Korea's becoming the world's fifth largest importer with deliveries totaling $2.18 billion, ahead of the United Arab Emirates and United Kingdom.

Even some of Australia's imports the third largest globally in 2015 have been sparked by regional tensions, Moores said. Australia's defense imports last year were worth $2.3 billion.

Biggest opportunities

Some of the fastest growing defense sector trade opportunities observed over the past year were in Baltic states which have been looking to bolster security in light of tensions with Russia.

Moores explained that trade opportunities are measured by the size and number of open defense contracts.

Estonia and Latvia's open contracts are driven "purely by Russia," and Moscow's involvement in and around Ukraine, Moores told CNBC. Russia still has western sanctions imposed on it linked to its backing of separatists in eastern Ukraine and the annexation of Crimea.

Estonia has $634 million worth of open contracts, while Latvia has $458 million worth of contracts up for bids.

Poland, however is looking for military equipment worth $16.3 billion, Moores said. Some of it is due to equipment upgrade needs, but the real demand is for weaponry that can be used close to come.

"If you look at what they're buying, it's not power projection equipment for helping the U.S. in Iraq. It's heavy equipment like tanks for conventional war on their eastern border," Moores said.

Projects by IHS predicts defense trade will rise further to be worth $69 billion in 2016.

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