The military aircraft modernization and retrofit market in NATO countries is projected to grow with a CAGR of more than 3% during the forecast period.
– The NATO countries are committed to integrating new and advanced technologies in their current fleet to accomplish this in an economically affordable cross-country defense think tank. Thus, many modernization and upgrade programs are currently underway or envisioned to be initiated during the forecast period.
– The aging fleet with no plausible replacement on the horizon has driven the countries to modernize the existing generation of aircraft to extend their effective life and prevent the fleet from becoming obsolete. The US and its NATO allies are therefore focusing their resources to upgrade their combat and multirole aircraft fleet with new block weaponry and systems to enhance their survivability in a rapidly emerging technological battlefield.
– 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.
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Key Market Trends
Fixed-Wing Segment to Continue its Dominance During the Forecast Period
The NATO countries are avid users of fixed-wing aircraft. The fleet of fixed-wing aircraft is comparatively much larger than the helicopter fleet, hence the scope of modernization is much higher for the fixed-wing aircraft. The defense expenditure of the NATO countries is expected to account for USD 984 billion in 2019. The prominent NATO member countries, such as the US, 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. Similarly, in December 2019, the Greek government awarded a USD 279.7 million contract to Lockheed Martin Corporation to upgrade its fleet of 150 F-16 combat aircraft to the Viper class configuration by 2027. Such developments are envisioned to drive the growth prospects of the market in focus during the forecast period.
United States is Projected to hold the major share in the Market
In 2019, the US accounted for the largest market share due to its gigantic defense spending which is multifold compared to other NATO countries. The US defense expenditure witnessed a 5.3% YoY growth to account for USD 732 billion in 2019. For FY2021, the requested US defense budget of USD 704.6 billion is aimed at improving the military readiness and invest modernization of its armed forces. On this note, in June 2020, Raytheon Technologies Corporation was awarded a USD 202.6 million contract for F-15 RADAR modernization. The APG-82(V)1 AESA radars are designed to incorporate with F-15E Strike Eagle dual-role fighter jets for the simultaneous detection, identification, and tracking of multiple targets. Similarly, in June 2019, L3Harris Technologies Inc. announced receiving a USD 499 million contract from the US Air Force (USAF) to upgrade the fleet of 176 C-130H aircraft under the C-130 Avionics Modernization Program Increment 2 initiative.
The NATO military aircraft modernization and retrofit market is moderately fragmented with major players, such as Lockheed Martin Corporation, Leonardo S.p.A., BAE Systems plc, THe Boeing Company, and Airbus SE dominating the market. The stringent safety and regulatory policies in the defense segment are expected to restrict the entry of new players. However, a trend of strategic collaboration has been observed in the market wherein the market players enter into a mutual partnership to develop advanced aircraft and associated subsystems as per the specifications of the end-users. For instance, in 2019, the Greek military received the delivery of the first P-3B maritime patrol aircraft under the Hellenic Navy P-3B maritime patrol aircraft mid-life upgrade and modernization program implementation, which was signed between the United States and Greece in 2015. In addition to that this agreement also includes the modernization of four Hellenic Navy P-3B aircraft under the Mid-Life Upgrade Program.
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Furthermore, the sales of military aircraft and subsystems are primarily influenced by the prevalent economic situations in dominant markets such as the US and UK. Hence, in periods of economic downturn, purchases may be subjected to deferral or cancellation and a relatively slower rate of adoption, which in turn, can adversely affect the market dynamics. Moreover, the contracts are often subjected to include offset clauses which enhances the risks pertaining to the timely completion of the project. Due to the associated risks regarding the technical aspects, scheduling of activities and costs are subjected to change based on macroeconomic factors, and subsequently, influence the associative profits of the associated parties in a contract.
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