Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018
TABLE OF CONTENTS 1 Introduction... 9 1.1 What is this Report About?... 9 1.2 Definitions... 9 1.3 Summary Methodology...11 1.4 SDI Terrorism Index...12 1.5 About Strategic Defence Intelligence...12 2 Executive Summary... 13 3 Market Attractiveness and Emerging Opportunities... 15 3.1 Defense Market Size Historical and Forecast...16 3.1.1 Greece expected to invest US$ billion in defense over the forecast period... 16 3.1.2 Conflict with Turkey and military modernization and the upgrade of existing systems to drive defense expenditure... 18 3.1.3 The Greek defense expenditure as a percentage of GDP set to decline... 19 3.2 Analysis of Defense Budget Allocation...21 3.2.1 Capital expenditure share in the defense budget to increase over the next five years... 21 3.2.2 Greece expected to invest US$ billion in the acquisition of defense equipment over the forecast period... 23 3.2.3 Defense expenditure allocation for the Army and Air Force expected to be strong... 25 3.2.4 Hellenic Army expenditure to average US$ billion over the forecast period... 27 3.2.5 Hellenic Air Force expenditure to hover around US$ billion... 29 3.2.6 Naval expenditure to register a growth rate of % over the forecast period... 31 3.3 Homeland Security Market Size and Forecast...33 3.3.1 Homeland security market to record a CAGR of % over forecast period... 33 3.3.2 Illegal migration predicted to drive homeland security procurements... 35 3.3.3 Threat of terrorism in Greece considered moderate... 36 3.4 Benchmarking with Key Global Markets...38 3.4.1 Greek defense expenditure is small in comparison with its procurement level and is expected to decline over the forecast period... 38 3.4.2 The country will continue to be a small contributor in the global arms market... 40 3.4.3 As a percentage of GDP, Greek defense expenditure is the highest among EU nations... 41 3.4.4 Greece faces a moderate level of terrorist threat... 42 3.5 Market Opportunities: Key Trends and Growth Stimulators...44 3.5.1 Frigates... 44 3.5.2 Submarines... 45 3.5.3 Fighters and Multi-role Aircraft... 46 2
3.5.4 Rotorcraft MRO... 47 4 Defense Procurement Market Dynamics... 48 4.1 Import Market Dynamics...49 4.1.1 Economic pressures affected the country s defense imports... 49 4.1.2 Aircraft and armored vehicles constitute the majority of Greek defense imports... 50 4.1.3 The US and Germany emerged as the leading arms suppliers to Greece... 51 4.2 Export Market Dynamics...52 4.2.1 Greece has negligible arms exports... 52 5 Industry Dynamics... 53 5.1 Five Forces Analysis...53 5.1.1 Bargaining power of supplier: low... 54 5.1.2 Bargaining power of buyer: high... 54 5.1.3 Barrier to entry: low... 54 5.1.4 Intensity of rivalry: low to medium... 54 5.1.5 Threat of substitution: medium... 54 6 Market Entry Strategy... 55 6.1 Market Regulation...55 6.1.1 Offset obligations are attached to all defense deals... 55 6.1.2 European Defense Agency promote defense procurements within EU... 56 6.2 Market Entry Route...57 6.2.1 Foreign OEMs enter the market through collaboration with domestic defense firms... 57 6.3 Key Challenges...58 6.3.1 Economic crisis will affect current and future procurements... 58 6.3.2 IMF and EU regulations on Greek defense expenditure to limit Greece s flexibility in military maintenance... 58 7 Competitive Landscape and Strategic Insights... 59 7.1 Competitive Landscape Overview...59 7.2 Key Domestic Companies...59 7.2.1 Hellenic Aerospace Industry: overview... 59 7.2.2 Hellenic Aerospace Industry: product focus... 59 7.2.3 Hellenic Aerospace Industry: recent announcements and strategic initiatives... 60 7.2.4 Hellenic Aerospace Industry: alliances... 61 7.2.5 Hellenic Aerospace Industry: recent contract wins... 61 7.2.6 Hellenic Defence Systems S.A: overview... 62 7.2.7 Hellenic Defence Systems S.A: product focus... 62 7.2.8 Hellenic Defence Systems S.A: recent announcements and strategic initiatives... 63 7.2.9 Hellenic Defence Systems S.A: recent contract wins... 63 3
7.3 Key Private Sector Companies...64 7.3.1 ISI Hellas: overview... 64 7.3.2 ISI Hellas: product focus... 64 7.3.3 ISI Hellas: recent announcements and strategic initiatives... 65 7.3.4 ISI Hellas: recent contract wins... 65 7.3.5 Hellenic Shipyards S.A: overview... 66 7.3.6 Hellenic Shipyards S.A: product focus... 66 7.3.7 Hellenic Shipyards S.A: recent announcements and strategic initiatives... 66 7.3.8 Hellenic Shipyards S.A: recent contract wins... 66 7.3.9 SSMART S.A: overview... 67 7.3.10 SSMART S.A: product focus... 67 7.3.11 SSMART S.A: alliances... 68 7.3.12 Signaal Hellas: overview... 69 7.3.13 Signaal Hellas: product focus... 69 7.3.14 Signaal Hellas: alliances... 69 7.3.15 Theon Sensors: overview... 70 7.3.16 Theon Sensors: product focus... 70 7.3.17 Theon Sensors: recent announcements and strategic initiatives... 70 7.3.18 Theon Sensors: recent contract wins... 71 7.3.19 Ordtech Military Industries: overview... 72 7.3.20 Ordtech Military Industries: product focus... 72 7.3.21 Intracom Defense Electronics: overview... 75 7.3.22 Intracom Defense Electronics: product focus... 75 7.3.23 Intracom Defense Electronics: recent announcements and strategic initiatives... 76 7.3.24 Intracom Defense Electronics: recent contract wins... 76 7.3.25 Hellenic Vehicle Industry S.A: overview... 78 7.3.26 Hellenic Vehicle Industry S.A: product focus... 78 7.3.27 Hellenic Vehicle Industry S.A: recent announcements and strategic initiatives... 78 7.3.28 Hellenic Vehicle Industry S.A: recent contract wins... 78 8 Business Environment and Country Risk... 79 8.1 Demographics & Social Statistics...79 8.1.1 Population Rural... 79 8.1.2 Population - Urban... 80 8.1.3 Population Number of Households... 81 8.2 Economic Performance...82 8.2.1 Gross Domestic per Capita... 82 8.2.2 Gross Domestic Product, current US$... 83 8.2.3 Exports of Goods and Services... 84 4
8.2.4 Imports of Goods and Services... 85 8.2.5 Manufacturing Output... 86 8.2.6 Manufacturing Output... 87 8.2.7 Consumer Price Index... 88 8.2.8 Consumer Price Index... 89 8.2.9 Local Currency Unit per US$... 90 8.2.10 Local Currency Unit per US$... 91 8.2.11 Local Currency Unit per US$... 92 8.2.12 Goods Imports as a % of GDP... 93 8.2.13 Goods Trade Surplus/Deficit as a % of GDP... 94 8.2.14 Services Imports as a % of GDP... 95 8.2.15 Services Exports as a % of GDP... 96 8.2.16 Services trade surplus/deficit as a % of GDP... 97 8.2.17 Net Foreign Direct Investment... 98 8.2.18 Net FDI as a percentage of GDP... 99 8.2.19 International reserves, including Gold... 100 8.3 Energy and Utilities... 101 8.3.1 Total Conventional Thermal Electricity Net Generation... 101 8.3.2 Hydroelectricity Net Generation... 102 8.3.3 Total Conventional Thermal Electricity Installed Capacity... 103 8.3.4 Total Electricity Imports... 104 8.3.5 Total Electricity Imports... 105 8.3.6 Total Petroleum Consumption... 106 8.3.7 Crude Oil Proved Reserves (Billion Barrels)... 107 8.4 Infrastructure Quality and Availability... 108 8.4.1 Rail lines, total network... 108 8.5 Minerals... 109 8.5.1 Mining, Manufacturing, Utilities Output... 109 8.6 Technology... 110 8.6.1 Patents Granted... 110 8.7 Telecommunication... 111 8.7.1 Telephone lines... 111 8.7.2 Telephone lines Penetration Rate... 112 9 Appendix... 113 9.1 About SDI... 113 9.2 Disclaimer... 113 5
LIST OF FIGURES Figure 1: Greek Defense Expenditure, 2009 2013... 16 Figure 2: Greek Defense Expenditure, 2014 2018... 17 Figure 3: Greek GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2009 2013... 19 Figure 4: Greek GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2014 2018... 20 Figure 5:Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2009 2013... 21 Figure 6: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2014 2018... 22 Figure 7: Greek Defense Capital Expenditure, 2009 2013... 23 Figure 8: Greek Defense Capital Expenditure, 2014 2018... 24 Figure 9: Greek Defense Expenditure Breakdown (%), 2009 2013... 25 Figure 10: Greek Defense Capital Expenditure Breakdown (%), 2014 2018... 26 Figure 11: Hellenic Army Expenditure Allocation (US$ Billion), 2009 2013... 27 Figure 12: Hellenic Army Expenditure Allocation (US$ Billion), 2014 2018... 28 Figure 13: Hellenic Air Force Expenditure Allocation (US$ Billion), 2009 2013... 29 Figure 14: Hellenic Air Force Expenditure Allocation (US$ Billion), 2014 2018... 30 Figure 15: Hellenic Navy Expenditure Allocation (US$ billion), 2009 2013... 31 Figure 16: Hellenic Navy Expenditure Allocation (US$ billion), 2014 2018... 32 Figure 17: Greek Homeland Security Expenditure Allocation (US$ Billion), 2009 2013... 33 Figure 18: Greek Homeland Security Expenditure Allocation (US$ Billion), 2014 2018... 34 Figure 19: SDI Terrorism Heat Map, 2013... 36 Figure 20: SDI Terrorism Index, 2013... 37 Figure 21: Benchmarking with Key Markets 2007 2011 vs. 2012 2016... 39 Figure 22: Defense Expenditure of the World s Largest Military Spenders (US$ Billion), 2013 and 2018... 40 Figure 23: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2013... 41 Figure 24: Frigates Market Size (US$ Million), 2013 2023... 44 Figure 25: Diesel Electric Submarines Market Size (US$ Million), 2013 2023... 45 Figure 26: Fighters and Multi-role Aircraft Market Size (US$ million), 2013 2023... 46 Figure 27: Rotorcraft MRO Market Size (US$ million), 2013 2023... 47 Figure 28: Greek Defense Imports (US$ Million), 2008 2012... 49 Figure 29: Greek Defense Imports by Category (%), 2008 2012... 50 Figure 30: Greek Defense Imports by Supplier (%), 2008 2012... 51 Figure 31: Industry Dynamics Porter s Five Forces Analysis... 53 Figure 32: Greece s Population Rural (In Millions), 2009 2018... 79 Figure 33: Greece s Population Urban (In Millions), 2009 2018... 80 Figure 34: Greece s Population Number of Households (In Millions), 2009 2018... 81 Figure 35: Greece s GDP per capita, 2008 2017... 82 Figure 36: Greece s Gross Domestic Product (current US$ Billion), 2008 2017... 83 Figure 37: Greece s Exports of goods and services (current US$ Billion), 2002 2011... 84 Figure 38: Greece s Imports of goods and services (current US$ Billion), 2002 2011... 85 Figure 39: Greece s Manufacturing Output (US$ Billion), 2002 2011... 86 Figure 40: Greece s Manufacturing Output (US$ Billion), 2002 2011... 87 Figure 41: Greece s Consumer Price Index, 2008 2017... 88 Figure 42: Greece s Consumer Price Index, 2002 2011... 89 Figure 43: Greece s LCU per US$, 2009 2018... 90 Figure 44: Greece s LCU per US$, 2003 2012... 91 Figure 45: Greece s LCU per US$, 2002 2011... 92 Figure 46: Greece s Goods Imports as a % of GDP, 2002 2011... 93 Figure 47: Greece s Goods Trade Surplus/Deficit as a % of GDP, 2002 2011... 94 Figure 48: Greece s Services Imports as a % of GDP, 2002 2011... 95 Figure 49: Greece s Services Exports as a % of GDP, 2002 2011... 96 Figure 50: Greece s Services trade surplus/deficit as a % of GDP, 2002 2011... 97 Figure 51: Greece s Net Foreign Direct Investment (current US$ Billion), 2002 2011... 98 Figure 52: Greece s Net FDI as a percentage of GDP, 2002 2011... 99 Figure 53: Greece s International reserves, including Gold (US$ Billion), 2002 2011...100 Figure 54: Greece s Total Conventional Thermal Electricity Net Generation (Billion Kilowatt Hours), 2002 2011...101 Figure 55: Greece s Hydroelectricity Net Generation (Billion KWH), 2002 2011...102 Figure 56: Greece s Total Conventional Thermal Electricity Installed Capacity (Million...103 6
Figure 57: Greece s Total Electricity Imports (Billion Kilowatt Hours), 2002 2011...104 Figure 58: Greece s Total Electricity Imports (Billion Kilowatt Hours), 2002 2011...105 Figure 59: Greece s Total Petroleum Consumption (Thousand Barrels per Day), 2003 2012...106 Figure 60: Greece s Crude Oil Proved Reserves (Billion Barrels), 2002 2011...107 Figure 61: Greece s Rail lines (total route-km), 2002 2011...108 Figure 62: Greece s Mining, Manufacturing, Utilities Output (US$ Billion), 2002 2011...109 Figure 63: Greece s Patents Granted, 2003 2012...110 Figure 64: Greece s Telephone lines, 2002 2011...111 Figure 65: Greece s Telephone lines Penetration Rate (per 100 people), 2002 2011...112 7
LIST OF TABLES Table 1: Greek Defense Expenditure, 2009 2013... 16 Table 2: Greek Defense Expenditure, 2014 2018... 17 Table 3: Greek GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2009 2013... 19 Table 4: Greek GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2014 2018... 20 Table 5: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2009 2013... 21 Table 6: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2014 2018... 22 Table 7: Greek Defense Capital Expenditure, 2009 2013... 23 Table 8: Greek Defense Capital Expenditure, 2014 2018... 24 Table 9: Greek Defense Expenditure Breakdown (%), 2009 2013... 25 Table 10: Greek Defense Capital Expenditure Breakdown (%), 2014 2018... 26 Table 11: Hellenic Army Expenditure Allocation (US$ Billion), 2009 2013... 27 Table 12: Hellenic Army Expenditure Allocation (US$ Billion), 2014 2018... 28 Table 13: Hellenic Air Force Expenditure Allocation (US$ Billion), 2009 2013... 29 Table 14: Hellenic Air Force Expenditure Allocation (US$ Billion), 2014 2018... 30 Table 15: Hellenic Navy Expenditure Allocation (US$ Million), 2009 2013... 31 Table 16: Hellenic Navy Expenditure Allocation (US$ billion), 2014 2018... 32 Table 17: Greek Homeland Security Expenditure Allocation (US$ Billion), 2009 2013... 33 Table 18: Greek Homeland Security Expenditure Allocation (US$ Billion), 2014 2018... 34 Table 19: Benchmarking with Key Markets 2009 2013 vs. 2014 2018... 38 Table 20: SDI Terrorism Index... 42 Table 21: Greek Defense Offset Guidelines... 55 Table 22: Hellenic Aerospace Industry Product Focus... 59 Table 23: Hellenic Aerospace Industry Alliances... 61 Table 24: Hellenic Aerospace Industry Recent Contract Wins... 61 Table 25: Hellenic Defence Systems S.A Product Focus... 62 Table 26: Hellenic Defence Systems S.A Recent Contract Wins... 63 Table 27: ISI Hellas product focus... 64 Table 28: ISI Hellas Recent Contract Wins... 65 Table 29: Hellenic Shipyards S.A Product Focus... 66 Table 30: Hellenic Defence Systems S.A Recent Contract Wins... 66 Table 31: SSMART S.A Product Focus... 67 Table 32: SSMART S.A Alliances... 68 Table 33: Signaal Hellas product focus... 69 Table 34: Signaal Hellas Alliances... 69 Table 35: Theon Sensors product focus... 70 Table 36: Theon Sensors Recent Contract Wins... 71 Table 37 Ordtech Military Industries Product Focus... 72 Table 38: Intracom Defense Electronics Product Focus... 75 Table 39: Intracom Defense Electronics Recent Contract Wins... 76 Table 40: Hellenic Vehicle Industry S.A Product Focus... 78 Table 41: Hellenic Vehicle Industry S.A Recent Contract Wins... 78 8
1. Executive Summary The Greek defense budget is projected to register a CAGR of % over the forecast period The ongoing economic crisis and cuts mandated by the EU (European Union), International Monetary Fund (IMF), and European Central Bank have affected the growth of the Greek defense industry. During the review period, the country s government reduced its military expenditure from US$ billion in 2009 to US$ billion in 2013. However, Greece and Turkey not only share a long-standing territorial dispute involving Cyprus, but are also involved in a maritime border dispute in the Gulf of Aegean. The situation has nearly escalated to an armed conflict twice, and has historically been the driving factor behind Greek defense procurements; it is expected to continue to be so over the forecast period. As a percentage of GDP, the country is expected to reduce its defense expenditure over the forecast period, from % in 2013 to % by 2018. Total defense expenditure for the forecast period is projected to value US$ billion and, in accordance with its commitment to the protection of civilians and critical infrastructure, Greece is expected to allocate an average per capita defense expenditure of US$. Over the forecast period arms procurement is forecast to value US$ billion, which corresponds to % of the country s total defense expenditure for the same period. The remaining % is forecast to be invested in the training of the Hellenic Armed Forces, the MRO activities of existing defense systems, and the salaries and pensions of military personnel. 9
2. Market Attractiveness and Emerging Opportunities Greece is one of the largest importers of arms in Europe and, of all the EU nations, allocates a high percentage of its GDP for defense purposes, making it one of the most sought after markets for foreign OEMs. Despite the weakness of its financial sector, both the country s minimal domestic defense capabilities and the threat of the Turkish military have driven Greece to continue to invest in defense, with particular focus on fighter jets, submarines, missile systems, and armored vehicles. The country primarily imports arms from EU nations and the US, and is assisting in the development of the domestic industry by sub-contracting deals achieved through defense offset obligations. Over the forecast period, the Greek Ministry of Defense (MoD) is estimated to allocate a cumulative of US$ billion for the procurement of military equipment. In 2013, the country invested US$ billion on homeland security (HLS), as part of its alignment with the international guidelines regarding the introduction of the biometric identification of citizens and travelers. Consequently, Greece is expected to make significant acquisitions in order to implement biometric profiling. 10
Defense Expenditure Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018 2.1. Defense Market Size Historical and Forecast 2.1.1. Greece expected to invest US$ billion in defense over the forecast period The ongoing national debt crisis forced the country s government to reduce its military budget from US$ billion in 2009 to US$ billion in 2013, at a CAGR of % during the review period. On a cumulative basis, the country is forecast to spend a total of US$ billion over the forecast period on its armed forces, compared to US$ billion spent during the review period. Over the forecast period, the allocation of funding for the acquisition of military hardware and technology is projected to value US$ billion. The following table and figure show the Greek defense expenditure during the review period: Table 1: Greek Defense Expenditure, 2009-2013 Year Defense expenditure (US$ bn) Defense growth percentage 2009 2010 2011 2012 2013 CAGR 2009-2013 % Source: Greek Ministry of National Defense and SDI analysis Figure 1: Greek Defense Expenditure, 2009-2013 2009 2010 2011 2012 2013 Revenue Expenditure Capital Expenditure Growth Rate (%) Source: Greek Ministry of National Defense and SDI analysis 11
Defense Expenditure Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018 The following table and figure show projected defense expenditure of the Greek over the forecast period: Table 2: Greek Defense Expenditure, 2014-2018 Year Defense expenditure (US$ bn) Defense growth percentage 2014 2015 2016 2017 2018 CAGR 2014-2018 % Source: Greek Ministry of National Defense and SDI analysis Figure 2: Greek Defense Expenditure, 2014-2018 2014 2015 2016 2017 2018 Revenue Expenditure Capital Expenditure Growth Rate (%) Source: Greek Ministry of National Defense and SDI analysis 12
2.2. Analysis of Defense Budget Allocation 2.2.1. Capital expenditure share in the defense budget to increase over the next five years During the review period, the country allocated an average of % of the total defense budget to capital expenditure, and the remaining % to revenue expenditure. The country s revenue expenditure is characterized by high levels of investment in military operations, such as MRO activities and salaries, and the pensions of retired personnel. Over the forecast period, the government is proposing to cut operational expenditure and salaries, resulting in a lower share of revenue expenditure, an average of %. The following table and chart display the Greek defense budget share of capital and revenue expenditure during the review period: Table 3: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2009-2013 Year Capital Expenditure Share Revenue Expenditure Share 2009 2010 2011 2012 2013 Source: Greek Ministry of National Defense and SDI analysis Figure 3: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2009-2013 %Percentage of Defense Expenditure 100% 80% 60% 40% 20% 0% 2009 2010 2011 2012 2013 Revenue Expenditure Capital Expenditure Source: Greek Ministry of National Defense and SDI analysis 13
Percentage of Defense Expenditure % Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018 The following table and chart display the Greek defense budget share of capital and revenue expenditure over the forecast period: Table 4: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2018 Year Capital Expenditure Share Revenue Expenditure Share 2014 2015 2016 2017 2018 Source: Greek Ministry of National Defense and SDI analysis Figure 4: Greek Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2018 100% 80% 60% 40% 20% 0% 2014 2015 2016 2017 2018 Revenue Expenditure Capital Expenditure Source: Greek Ministry of National Defense and SDI analysis 14
Homeland Security Expenditure Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018 2.3. Homeland Security Market Size and Forecast 2.3.1. Homeland security market to record a CAGR of 0.45% over forecast period Greek homeland security (HLS) expenditure, valued at US$ billion in 2013, registered a CAGR of % during the review period. The country s HLS expenditure is expected to grow at a CAGR of % during the forecast period, to reach an estimated US$ billion by 2018. With Greece s proximity to several other countries, the chances of illegal immigration are heightened. Over the next five years, HLS equipment manufacturers will experience increased demand for border surveillance equipment such as CCTV and biometric identification systems. Increased demand is also expected for equipment for the protection of critical infrastructure, borders, and maritime security. The following table and figure show the Greek HLS budget during the review period: Table 5: Greek HLS Budget (US$ Billion), 2009-2013 Year HLS budget (US$ bn) 2009 2010 2011 2012 2013 Source: Ministry of Defense, Greece and SDI analysis Figure 5: Greek HLS Budget (US$ Billion), 2009-2013 2009 2010 2011 2012 2013 Source: Ministry of Defense, Greece and SDI analysis 15
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Homeland Security Expenditure Future of the Greek Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2018 The following table and figure show the Greek HLS budget over the forecast period: Table 6: Greek HLS Budget (US$ Billion), 2014-2018 Year HLS budget (US$ bn) 2014 2015 2016 2017 2018 Source: Ministry of Defense, Greece and SDI analysis Figure 6: Greek HLS Budget (US$ Billion), 2014-2018 2014 2015 2016 2017 2018 Source: Ministry of Defense, Greece and SDI analysis 17