The Europe military aircraft modernization and retrofit market is anticipated to grow at a CAGR of more than 3% during the forecast period.
- As per the 2016 Global Strategy, Europe seeks to attain strategic autonomy by 2025. Thus, the European Union (EU) nations have undertaken a multifaceted modernization program to achieve a higher degree of military capability. Hence the European nations are investing significantly towards the modernization of aerial capabilities to address an evolving threat scenario in the region fostered by geopolitical conflicts.
- However, the complexity of international security challenges has become more prominent, and the economic recession in the wake of the COVID-19 pandemic is envisioned to force governments to make difficult choices in their defense budgets that will greatly affect their near- and long-term military capabilities.
- Advancements in stealth technology and precision aerial weaponry are expected to create several opportunities for the market players during the upcoming period.
Key Market Trends
Enhanced Defense Spending Closely Linked to Defense Sector Growth
As per SIPRI, Europe’s military spending in 2019 witnessed a 5% YoY growth to reach USD 356 billion and account for 19% of the global military spending. Additionally, Russia, France, Germany, the UK, and Italy have consistently ranked amongst the highest global defense spending nations each year, signifying substantial investments towards the R%D of advanced weaponry and procurement of sophisticated military assets. For instance, in January 2019, the French government signed a USD 2.3 billion to upgrade the Rafale fleet with the F4 standard. The aircraft fleet is expected to be validated by 2024 and would include upgraded radar sensors and front-sector optronics and improved helmet-mounted displays (HMDs). The upgrade would also include provisions to use MBDA’s Mica NG air-to-air missile and the 1,000-kilogram AASM air-to-ground modular weapon and the Scalp missiles. Several such modernization programs are currently underway in most nations in Europe, thereby creating a positive outlook for the market in focus during the forecast period.
Russia to Dominate the Market During the Forecast Period
The Russian leadership has developed a political-military strategy for the armed forces based on its security policy goals and threat perceptions. This strategy involves the military carrying out five key tasks: strategic deterrence; regional dominance within the non-Baltic former Soviet Union, expeditionary operations, preparedness in case of a major war, and domestic stability. Russia’s 2019 defense expenditure amounted to USD 65.1 billion and was mainly focused on long-range strikes, C4ISR, and air defense capabilities to strengthen strategic deterrence. While the Russian Air Force started inducting the Su-57 combat aircraft in 2019, in September 2019, Russia initiated development and testing on a sixth-generation combat aircraft. While featuring advanced features such as enhanced speed, maneuverability, and imperception, the sixth-generation aircraft is envisioned to be unmanned with pilot control being optional. As of May 2020, Russia’s new Su-57 stealth fighter was reportedly undergoing unmanned testing. Such developments are envisioned to drive the market in Russia during the forecast period.
Several factors work against the European defense industry collaboration, such as domestic procurement regimes organized to ensure privileged access for favored national firms. The EU member states prefer domestic companies and hence around 80 percent of their defense equipment is sourced domestically. In the pursuit to achieve strategic autonomy, the EU nations are required to tackle a considerable lack of interoperability among weapon systems and the wasteful inefficiency of defense investments.
However, significant monetary resources have been invested in developing superior aerial capabilities. For instance, the French 2019-2025 Military Planning law earmarks EUR 295 billion to plug the capability gaps in the aviation sector by renewing a fleet of combat aircraft that have been intensively deployed on combat operations. The European military aircraft industry is looking towards two sixth-generation aircraft programs, namely the Franco-German-Spanish Future Combat Aircraft System (FCAS) and the British-led Tempest fighter project. On this note, in June 2019, Germany, France, and Spain inked a framework agreement for the joint construction of the Future Air Combat System (FCAS). In May 2020, the countries agreed on a set of performance benchmarks to help their governments guide the development of the FCAS program scheduled for induction in 2040. To date, France and Germany have formally invested USD 85 million each towards the development of technology demonstrators for the program.
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