The Asia-Pacific defense market is anticipated to grow at a CAGR of over 4% during the forecast period.
- The economic growth, territorial disputes, and military modernization plan to replace aging defense equipment has propelled the growth in defense spending of the countries over the last decade and reached to USD 506.9 billion in 2018.
- There is a rise in terrorist activities in countries like Afghanistan, Pakistan, India, and the Philippines, among others over the past few years. This has led to an increase in anti-terrorism funds to fight against terrorism, externally, and internally. This is acting as another significant driver to support the growth of the defense market in the Asia-Pacific region.
- The technological development has led to the purchase of new and advanced defense equipment like C4ISR systems, smart weapons, unmanned systems, missile defense systems, etc.
- Various government initiatives to support the indigenous manufacturing of arms and ammunition in countries like China, India, and Japan among others are bolstering the growth of local companies.
Key Market Trends
The Air Force Segment Recorded the Highest Market Share in 2019
Air Force segment currently has the highest market share in the Asia-Pacific defense market. The countries are heavily investing in procurement of new aircraft, UAVs and required training and simulation, missiles and ammunition. This rapid procurement is to strengthen air superiority and modernize their military equipment. With territorial issues and political issues acting as a major driver to the market, the demand for UAVs and patrol aircraft is increasing for intelligence, surveillance and reconnaissance missions. Countries, like New Zealand, the Philippines, South Korea, Thailand, and India, have placed orders for new maritime patrol aircraft during the past few years. In 2019, the Indian Navy had received eight Boeing P-8I Neptune aircraft out of 12 ordered aircraft. Another four aircraft will be delivered in 2020. Also, India is in plans to purchase about 600 drones to boost surveillance capability along the borders of Pakistan and China. In addition to developing their ISR capabilities, the countries boosting their attack capabilities. Japan previously planned to acquire 42 F-35A models. However, in December 2018, Japan announced its plans to procure approximately 150 F-35 stealth fighter jets from the United States as part of Japan’s new defense plan. In October 2019, The United States State Department approved foreign military sale to Japan for the upgradation of 98 F-15J aircraft to a Japanese Super Interceptor (JSI) configuration for an estimated cost of USD 4 billion. Similarly, HAL, the state-owned defense aircraft manufacturer of India is currently developing a fifth-generation fighter aircraft under Advanced Medium Combat Aircraft (AMCA) program. The first flight of a full-scale prototype is expected to be scheduled in 2032. The countries in the region are also increasing their inventories of air-to-air missiles and air-to-ground missiles. In March 2019, Australia received AIM-120C-7 Advanced Medium-Range Air-to-Air Missiles (AMRAAM) and related equipment for an estimated cost of USD 240.5 million from Unites States. The development and procurement of advanced radars and communication equipment along with the air-to-air and air-to-surface missiles is anticipated to generate demand significantly during the forecast period.
China to Dominate the Asia-Pacific Defense Market
China currently has the highest market share in the Asia-Pacific defense market. The country is next to the United States in military spending and has increased its spending significantly until 2018. In 2018, it has increased its spending by approximately 9.7% compared to 2017 and reached USD 250 billion. In early 2019, the government announced the defense budget of CNY 1.19 trillion (USD 177.61 billion), with an increase of 7.5% compared to the previous year's budget allocation. This rising military investment is to gain upper hand in various political and border disputes like South China Sea tension with several sovereign states within the region, border issues with India and ultimately prevailing tensions between the US and China. In 2017, the government announced its plan to complete the modernization of its armed forces by 2035 and to build a world-class military that can counter any type of threat against the country by 2050. To achieve this goal, the country has been continuously expanding its indigenous manufacturing capabilities over the years. It has successfully launched its first domestically manufactured aircraft carrier in April 2018, with two more aircraft carriers in construction. The country’s state-owned enterprise Chengdu Aerospace Corporation developed and commissioned Chengdu J-20 the stealth fifth-generation fighter aircraft in March 2017. The country is leading in the development of combat drones with custom-built weapon systems. With advancements in technology and growing in-house capabilities, it is anticipated to support the growth of Chinese defense market in the forecast period. However, the on-going China-US trade war and slow economic growth of the country are anticipated to hamper the growth of the country in the coming years.
The Asia-Pacific defense is a highly fragmented market with many suppliers who provide various types of equipment like training systems, C4ISR systems, smart weapons, unmanned systems, missile defense systems, etc. Some of the prominent players in the market are Lockheed Martin Corporation, The Boeing Company, Aviation Industry Corporation of China, Rostec, BAE Systems. The majority of the arms and ammunition are imported from the US and Russia and some smaller countries import from China. However, the indigenous manufacturing of arms and ammunition in countries like China, India, and Japan among others is picking up pace, which is anticipated to support the local manufacturing companies’ growth in the region. Aviation Industry Corporation of China, China Aerospace Science and Technology Corporation, and China Shipbuilding Industry Corporation are some of the major state-owned defense companies of China, which play a major role in the China defense market. Also, through the Make in India initiative, the Indian government aims to procure 70% of requirements from domestic firms, up from the current 40%. Such initiatives are anticipated to support domestic players. In June 2017, under Make in India initiative Lockheed Martin and Tata Advanced Systems signed an agreement to produce F-16 Block 70 aircraft in India. Nevertheless, the brand value of the international players may act as a barrier for domestic players to expand into new geographic presence.
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