Industry Overview: Modernization of Asian Military Training & Simulation to Drive Military Modernization in APAC Mr. Subhranshu Sekhar Das Director Defense & Security Practice Frost & Sullivan Asia Pacific
Training and Simulation to Drive Modernization of Asian Military Forces Most Military modernization expenditure is expected to be driven by spending in training and simulation. Globally, The military Training & Simulation Industry is expected to grow at a CAGR of 2.5 per cent to gain $9.21 billion from 2012 to 2021. The APAC region is expected to witness one of the highest rates of military modernization primarily being driven by spending in training and simulation. Of all three departments of military forces (Army, Navy, and Air Force), most expenditure in training and simulation is expected to be witnessed by the Air Force in the APAC region. Spending will be driven by adoption of significant, complex combat platforms, increasing fleet sizes, and new procurements in Asia-Pacific, the Middle East, and Central Asia. 2
Significance of Training & Simulation in Military Modernization Key Takeaways Increasing Geo-Political Instabilities and demand for military modernization to better deal with threats in the region. Rise of Asymmetric warfare and a need to enhance situational awareness expected to create demand for technology adoption in Air Force. Example: Augmented Reality to be a key technology adoption by many countries armed forces. Adoption of newer platforms within Air Force and Naval forces are driving a demand for Training & Simulation across countries armed forces. Shortage of qualified Air Force Personnel and Pilots brings to light the increasing requirement to train military personnel. A number of military modernization programs being undertaken by certain APAC countries involve introduction of newer technologies which require personnel to be trained. 3
Definitions & Scope Industry Military Training and Simulation End Users Military Armed forces operating across the Army, Navy and Air Force divisions of Military. Capability Types: Training Application Support Platforms Systems Maintenance Platform based training for ab initio (or initial), conversion, and mission training intended for pilots, crew, drivers, etc. Systems-based training includes training for Strategic Training, involving C4ISR missions, and Tactical Training, involving Weapon Systems, Dismounted Soldier Training Systems, Counter Improvised Explosive Devices (IEDs) training, etc. Maintenance training is intended for military technicians to be trained to maintain and repair platform and related sub-systems, such as avionics, either for routine and/or unexpected maintenance activities, such as damage control. Training Types Live Virtual Constructive Live, Virtual, and Constructive (LVC) Training accomplished by real people, on real equipment and actual devices, in real environments or mock landscapes. Eg. Training exercises performed with aircraft produced specifically for training pilot. Training accomplished by real operators on simulators or in a simulated environment. Eg. Training performed with Flight simulators, part tasks trainers including flight deck, bridge, platform procedures, etc. Training based on computer generated forces, mostly desktop based. Eg. Real time radar software, computer 2D/3D virtual reality war gaming, etc. Training combining live, virtual, and constructive procedures into an Integrated Architecture, with linking different simulators and software 4
Industry Restraints Industry Drivers Asia-Pacific Industry Drivers and Restraints Military Training and Simulation Industry: Key Industry Drivers and Restraints, Asia-Pacific, 2013 2021 The region at large has undertaken the modernisation and expansion of most of its platform fleets, which are expected to comprise new, complex systems and subsystems Due to geographical constraints, improving naval training will be at the forefront of regional strategic priorities There is strong interest for integrated and constructive training to train armies in shorter turnaround times 1 2 Years 3 4 Years 5 9 Years Lack of skilled armed forces personnel first have to be adapted to new military structures with a joint decision-making process mindset Preferences for low-cost, indigenous programmes and restrictive offsets policies impede the compatibility of fully immersive and integrated training solutions There is a general trend to reduce armed forces personnel and to rationalise defence budgets to face global economic challenges High Medium-High Medium Low-Medium Low 5
Asia-Pacific Industry Challenges High The Unexpected The Expected Projected Impact US engagement into the Chinese disputed islands conflicts Growing concerns in regards to territorial disputes Critical need to improve naval warfare capabilities Fast growing economies, not yet significantly impacted by the global economic turmoil Regional OEMs increasingly gaining Industry shares Regional interest to acquire significant C4ISR systems Large available incomes for new advanced platforms and systems programmes Low Regional opportunities increase Industry consolidation ---- Main Challenges Low Certainty High 6
Regional Industry Attractiveness Map Key Takeaway: The Asia Pacific region is expected to witness the highest growth of Military Training and Simulation spending.. Total Military Training and Simulation Industry: Industry Attractiveness Map, Global, 2012 2021 Region CAGR High 3% 5% Industry Growth (CAGR) Latin America Low Attractiveness Middle East Central Asia Europe Asia- Pacific High Attractiveness North America Africa 0.03% Asia-Pacific 4.3% Central Asia 3.5% Europe 1.8% Latin America 3.0% Africa Low 0% 3% Low <10 $Billion Military Training Demand (Industry Size) High >150 $Billion Middle East 3.9% North America 1.0% 7
Industry Share (%) Military Training and Simulation Industry Expenditures Forecast by End Users Military Training & Simulation Percentage Industry Share Trend, 2012-2021 100% 80% 60% 40% Total Military Training and Simulation spending is expected to reach USD 46.09 Billion by 2021 from USD 36.88 Billion in 2012. APAC military Training and Simulation spending is expected to increase from USD 8.78 Billion in 2012 to USD 12.90 Billion by 2021. APAC Military Training and Simulation Expenditure is expected to increase at a CAGR of 4.3 % from 2012 to 2021. 20% 0% 2012 2021 Global 76.2% 72.0% Asia-Pacific 23.8% 28.0% The forecast demand across land forces is mainly steady, stimulated by strong new procurements, but are slightly less important due to regional geographic constraints and regional willingness to increase their force projection capabilities. 8
Expenditures ($ Million) Air Force Military Training and Simulation Industry Expenditures Forecast by End Users Key Takeaway: Air Force Military Training and Simulation spending is expected to be driven by the APAC countries. 25,000.0 Air Force Military Training and Simulation Industry: Expenditures Forecast by End Users, 2012 2021 20,000.0 15,000.0 10,000.0 5,000.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 APAC 4,175.6 4,338.1 4,505.9 4,743.9 4,958.7 5,185.3 5,423.9 5,716.1 5,986.3 6,301.1 Global 18,269.6 18,638.6 19,019.1 19,627.9 20,095.4 20,562.0 21,071.6 21,868.1 22,514.0 23,301.2 Year 9
Market Share (%) Air Force Military Training and Simulation Industry Industry Share Evolution 100% Air Force Training and Simulation Industry: Expenditures Forecast, APAC vs. Global 2012-2021 APAC Air Force Training and Simulation spending is expected to reach USD 6.30 Billion by 2021 from USD 4.17 Billion in 2012. 80% 60% 40% 20% 0% 2012 2021 Global 77.1% 73.0% APAC 22.9% 27.0% The APAC Air Force Training and Simulation Industry which comprises 22.9% of Global Air Force Training and Simulation spending is expected to contribute to 27.0% by 2012. Adoption and implementation of such solutions will be driven by the modernisation of military capabilities in Japan, New Zealand, and Australia. Rising demand for cost-efficient training solutions will drive Air Force Training and Simulation in APAC. 10
Expenditures ($ Million) Industry Share (%) APAC Military Training and Simulation Industry Expenditures Forecast by End Users Key Takeaway: Air forces are expected to hold most of the training Industry opportunities as countries with emerging industries increase their air fleets with advanced and complex platforms. Military Training and Simulation Industry: Expenditures Forecast by End Users, 2012 2021 APAC 15000 100% Military Training & Simulation Percentage Industry Share Trend, 2012-2021 APAC 80% 10000 60% 5000 40% 20% 0 2012 2021 Naval 2,603.9 3746.2 Land 2004.8 2848.3 Air 4175.6 6301.1 0% 2012 2021 Naval 29.6% 29.1% Land 22.8% 22.1% Air 47.5% 48.9% 11
Market Share (%) APAC Military Training and Simulation Industry Expenditures Forecast by End Segments APAC Military Training & Simulation Percentage Market Share Trend, 2012-2021 100% 80% 60% 40% 20% 0% 2012 2021 LVC 1.5% 1.3% Constructive 8.1% 7.9% Virtual 12.7% 12.5% Live 77.8% 78.3% As market demand is mainly dominated by air and naval platform-based training, majority of expenditure will be driven by live training, expecting to reach USD 10.09 billion by 2021. However, end users demand for virtual and constructive training will both grow at CAGRs of 4.1 per cent and 4.2 per cent, stimulated by Australian, Bruneian, Malaysian, and Indonesian demand. Nonetheless, local and costaffordable training solutions explain why the constructive training will constitute a lesser portion of overall spending by 2021. 12
APAC Military Training and Simulation Industry Expenditures Forecast by Capabilities Military Training and Simulation Industry: Expenditures Forecast by Capabilities, APAC 2013 70% 6% 24% While the region is significantly extending its military capabilities, demand will stay largely focused on platform-based training to enable regional armed forces to operate new, advanced platforms, hence generating a strong CAGR of 4.5 per cent. Maintenance platform-based training is also expected to increase during the forecast period, as militaries need to train their personnel to maintain larger, complex fleets, as is the case in Malaysia and Indonesia. Reluctance to outsource maintenance to foreign OEMs will also be responsible for maintenance platform based training. Maintenance Systems Platforms With the exception of Australia and New Zealand, systems training remains a nascent trend in Asia- Pacific, with an early integration of advanced C4ISR capacities in India, China, and South Korea. 13
Asia-Pacific Major Training and Simulation Programmes (non-exhaustive list) Programmes Quantity Timeline Cost Description Platform Acquisition programme with Transfer of Technology G2B Platform acquisition programmes Memorandum of Understanding G2B System and training Programme Training Centre 3 submarines 2013 onward $1.1 B 28 T-50 2012 Circa $840 M Platform and C4ISR simulators Japanese MCH- 101 fleet Air, Land, & Naval Australian Forces 2012 NA 2012 onward 2012 onward NA NA South Korean Daewoo Shipbuilding and Marine Engineering will deliver three 1,400-ton class dieselpowered submarines to the Indonesian Navy. Under this agreement, Daewoo will train naval crews and technicians. Korean Aerospace Industries is expected to deliver 16 T- 50s to Indonesia and potentially12 to Philippines, as both countries have expressed interest to acquire this supersonic advanced trainer, jointly developed with Lockheed Martin. The Turkish Company Havelsan has signed with the Pakistani Air and Land Forces to provide C4ISR training and flight simulators for the F-17 Thunder, F-16 Fighting Falcon, C-130 Hercules, Mil Mi-17, Super Mushak, artillery, and driving simulators. The Japanese Maritime Self Defence Force has awarded a contract to Science Applications International Corporation to provide Mine Warfare and tactical training for this helicopter Airborne Mine Countermeasures (AMCM), which includes the AN/AQS-24A mine hunting side scan sonar, the AN/AES-1 airborne laser mine detection system, and the MK-104 acoustic minesweeping system. Rheinmetall Group is opening a simulation-based training centre in Adelaide. Joint Venture Between CAE and Bruneian Air Force Multi-purpose Training Centre 2012 onward At least $169 M training contract included The Ministry of Finance of Brunei will partner with CAE within a 60:40 joint venture and has already given an award to the Canadian training firm for the Sikorsky S-70i, Pilatus PC-7, and Sikorsky S-92. 14
Asia-Pacific Training and Simulation Next Mega Trend Domestic Asia-Pacific defence companies have recently become noteworthy challengers and are gaining market share against leading global OEMs, both regionally and globally. Across the Air Training Segment: o Korean Aerospace Industries has successfully managed to procure its KT-1 light attack trainer to Indonesia, Turkey, and Peru; meanwhile the Royal Thai Air Force has chosen the Singapore-based company ST Electronics, to deliver F16A simulators, at a total estimated value of $18 Million. o China is developing the Lead-In Fighter Trainer, the Hongdu L15, in collaboration with the Russian Yak Aircraft Corporation; apart from the People s Liberation Air Force in China, this programme could also interest Pakistan and Latin American countries, such as Bolivia and Venezuela. Regarding the Naval Segment: o Daewoo Shipbuilding Marine and Engineering Co., which delivered naval vessels to Indonesia and Bangladesh, is currently developing training vessels, which could catch Malaysian and Israeli navies interests. o Because the company is consolidating its market share though US FMS, as seen in the Fast Missile Craft being built for the Egyptian Navy, ST Electronics is expanding its training products range with innovative and immersive solutions, such as the Fleet Instrumented Sea Training System (FISTSTM). Although this nascent market penetration is mainly benefiting from affordable, high training technology and COTS procurement approaches, these regional companies are slowly increasing their global presence and have already positioned themselves with less expensive and efficient cyber and LVC training products, which could significantly reduce market opportunities for traditional leading OEMs. 15
The Last Word Overall Predictions 1 2 3 4 While the APAC region is significantly extending its military capabilities, demand will stay largely focused on platform-based training to enable regional armed forces to operate new, advanced platforms. Augmented Reality will revolutionise platform-based training and platform maintenance training by significantly reducing operating costs while improving soldiers task specialisation. Global financial and political instability to challenge the current training business models, mostly affecting outsourcing, contract duration, and quantity, putting existing contract renewals at risk and restricting new contract opportunities. With the exception of Australia and New Zealand, systems training remains a nascent trend in Asia-Pacific, with an early integration of advanced C4ISR capacities in India, China, and South Korea, explaining a lower, but relative CAGR of 3.9 per cent. 16