IHS Jane S World Defence Industry Survey 2015

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IHS Jane's World Defence Industry Survey 2015

Budget issues, changing customer requirements, shifting political environments, and price pressures
continue to drive competition in global defence markets, according to the 'IHS Jane's World Defence
Industry Survey 2015'. Guy Anderson and Jon Kozan report
A picture of a defence market characterised by ongoing growth in the east and greater stability elsewhere
emerged in the sixth 'IHS Jane's World Defence Industry Survey'.
Survey respondents spoke of their expectation of a return to job growth following the payroll cuts of
recent years and an easing of the rapid increase in competition that has characterised markets during a
period of great change and budget reductions.
However, the greatest challenges have shifted from internal to external factors.
Respondents believe that budget issues, political and regional stability, and the economy are now the
greatest challenges to success in the coming year.
At last, consolidation expectations have moderated, with anticipation of increasing industry consolidation
having reached its lowest level since 2010. Nevertheless, expectations of ongoing mergers and acquisitions
(M&A) activity are still positive.
[Continued in full version]
Employment
The pessimism evident in the 2013 and 2014 surveys concerning the employment outlook took a turn for
the better in 2015. Last year expectations of employment growth showed a positive result, a net increase
of 15%, while this year the positive net result increased sharply to 27%. This shows that the optimism for
hiring that emerged in the the last year has taken hold more generally and that, although pessimism
persists in Europe (expectations of increased jobs remain at a net 17%), there is greater optimism evident
in North America and the rest of the world.
The shift in attitudes of those representing the largest organisations (those with revenues greater than
USD1 billion) was particularly notable. In 2014 expectations of an increase in employment were a net 6%: a
figure that jumped to 27% in the 2015 survey. Smaller companies were also more optimistic than in 2014,
suggesting that the defence industry jobs market more generally has turned a corner.
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Article 1 Page 1 of 12
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How will your organisation's payroll change in the next 12 months? (IHS)
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Competition
The majority of respondents believe that competition in their industry increased in the last 12 months (net
increase: 45%). The figure was below the 2014 total (55%), but was broadly in line with the five-year trend.
The view that competition increased during the last 12 months was down in all regions, with the sharpest
fall among North American respondents.
Budget issues continue to drive competition, according to 64% of respondents. Fully 63% of respondents
made reference to political and conflict changes: an increase from 43% in 2014. Other issues cited were
costs and prices (42%); changing requirements and technologies (42%); and the economic crisis (33%).
How has competition changed in the last 12 months

Net Increase - %
By location of respondent
2014
2015
North America
74%
45%
Europe
65%
57%
Rest of the World
75%
60%
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By size of respondent's organisation
2014
2015
Annual revenues greater than USD1 billion
77%
55%
Annual revenues of less than USD1 billion
60%
52%
Confidence
As in past years there was a spirit of optimism apparent in the 'IHS Jane's World Defence Industry Survey'
of 2015. When asked if they expected their organisation to be in a better position in 12 month's time, a net
total of 44% gave a positive response. This is down on the 2014 level (55%) but is in line with the five-year
trend.
Confidence was highest in North America, with European respondents marginally more pessimistic than
their counterparts in other regions. In common with previous surveys, respondents took the view that their
own organisation was likely to fare better than their competitors. The 2015 survey was no exception,
although a strong increase in those expecting better times ahead for their peers pointed to a general
perception of improved market conditions. North American respondents once again took the most
pessimistic view on the prospects of competitors.
What market position do you expect your peers to hold in the next 12 months? (IHS)
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1568950
Challenges
The challenges faced by defence organisations are evolving. Asked to identify the top three, only 11%
ticked budget challenges (2014: 22%), 10% cited political and regional stability (2014: 5%), and 9%
identified the economy (2014: 7%).
This reflects the greater external instability that faced the world's defence markets over the past year in
terms of political upheaval and security threats in numerous regions of the world, as well as ongoing
economic uncertainty, in contrast with the perception of greater defence spending visibility in most key
military markets.
Defence spending outlook

Research by IHS Jane's Defence Budgets shows that global defence spending decreased by 3% in real terms
between 2010 and 2015 as decline in the Western world was partially offset by growth in emerging
markets. IHS forecasts point to 5% global growth to the end of this decade.
Survey respondents were broadly in agreement with the view of IHS, with the vast majority of respondents
anticipating either static spending or growth in all regions of the world.
Participants were most optimistic about the prospects of the Asia-Pacific and Middle Eastern regions, with
75% and 74% respectively expecting growth overall between 2015 and 2020. Meanwhile, 60% expect
spending in Russia and the CIS region to rise.
However, expectations of growth were more muted elsewhere, with just 24% of respondents expecting
Latin American markets to show growth.
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Looking at specific countries, how do you expect their defence spending will change over the next five
years? (Jane's Defence Budgets)
1568949
Industrial consolidation
The defence markets of Europe and North America were reshaped by an acquisitions boom in the 2000s
that focused on the United States. Defence companies in the West sought exposure to the world's largest
military market during a virtually unprecedented spending boom. Beyond 2010, however, M&A
transactions declined at the upper levels although lower-tier activity continued, driven in part by
divestments of businesses by upper-tier contractors.
Continuing the theme of activity and recovery, now more than half of respondents (55%) expect
consolidation activity to remain constant in the next 12 months (2014: 4%), while only 36% believe activity
will increase (2014: 50%). On a net increase basis only 29% are expecting M&A activity to increase, in sharp
contrast to expectations of the previous five years where the expectations have averaged +42%.
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It is notable, however, that views on the outlook for consolidation differ markedly by region. The 2015
survey showed a strong expectation of consolidation in markets beyond Europe and North America: a view
that has been borne out in recent M&A activity tracked by IHS Jane's and that reflects the growing
sophistication and aspirations of some emerging markets.
Methodology and participants

The survey was conducted online and was open to respondents from 16 April to 8 May 2015.
A sample frame of approximately 35,000 defence industry contacts was compiled from both internal and
open-market sources. These contacts were then invited to participate in the survey via an email containing
a dynamic link to the survey. A total of 470 respondents undertook the survey, although the number of
respondents for any specific question may be lower due to the filters and routings applied, triggered by
answers to previous questions, or as respondents dropped out as they progressed through the survey.
Fully 37% of respondents were based in North America, while 32% were from Europe. Respondents' roles
spanned managerial, business development, sales, analysis, manufacturing, R&D and procurement roles
within their companies. Survey participants represented companies from small ventures with fewer than
100 employees (18% of respondents) to organisations employing more than 10,000 people (33%).
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Nature of business of respondents. (IHS)

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Copyright IHS Global Limited, 2015

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IHS Jane's Defence Industry and Markets Intelligence Centre

This analysis is taken from IHS Janes Defence Industry & Markets Intelligence Centre, which
provides world-leading analysis of commercial, industrial and technological defence developments,
budget and programme forecasts, and insight into new and emerging defence markets around the
world.
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IHS Jane's World Defence Industry Survey 2015

[Continued in full version]

How has competition changed in the last 12 months

Rest of the World

By size of respondent's organisation

Annual revenues greater than USD1 billion

Annual revenues of less than USD1 billion

[Continued in full version]

Defence spending outlook

Methodology and participants

Nature of business of respondents. (IHS)

Copyright IHS Global Limited, 2015

IHS Jane's Defence Industry and Markets Intelligence Centre

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