As European military acquisitions are decreasing, the market in Asia and the Middle East is growing. This transition masks underlying complexities in the international defense market. European nations are shifting from buying tanks and fighter jets to purchasing cyberwarfare and networking equipment while Asian militaries consider maritime surveillance platforms, missile defense systems and power projection capabilities, such as submarines and aircraft carriers.
Global defense markets shrank slightly in 2012 and 2013, mostly because of cutbacks in the United States and Europe, explains Tom Captain, vice chairman and U.S. aerospace and defense leader for Deloitte LLP. U.S. defense spending contracted by 3.3 percent during this period because of a combination of budget cuts and its withdrawal of forces from Iraq and winding down operations in Afghanistan. Large European militaries, such as the United Kingdom and France, also cut their spending. But while defense acquisitions shrank, spending in other sectors, such as Asia and the Middle East, helped to make up for some of this deficit, Captain explains.
Europe’s decline in defense spending is driven by shifting national priorities and external issues such as the European debt crisis. The result has been concern about the need for big-ticket platforms, such as warships and attack aircraft. The nationalized nature of Europe’s defense industries is another factor in the decline. Most European defense firms are partially owned by the government, which leads to additional inefficiency, Captain observes. Consolidation since the end of the Cold War has created major multinational consortia such as Airbus and EADS, he notes, but many small national firms remain. While Europe’s combined defense budgets rival the size of the U.S. defense budget, Captain observes the inefficiencies are causing problems. Issues include job and industry protectionism in the defense sector.