Global Military Electro-Optics/Infrared Systems Industry

Global Military Electro-Optics/Infrared Systems Industry

  • September 2020 •
  • 600 pages •
  • Report ID: 5799127 •
  • Format: PDF
COVID-19 has Shown How the World has Invested in the Wrong Fight. Cuts to Military Budgets & Spending to Reduce Demand for Military Electro-Optics/Infrared Systems by 15.1%

The global market for Military Electro-Optics/Infrared Systems is expected witness revenues dip by 15.1% in the year 2020 and thereafter recover and grow to reach US$14.2 billion by the year 2027, trailing a post COVID-19 CAGR of 5.4% over the analysis period 2020 through 2027. COVID-19 response has widened the fiscal deficit in major economies and has thrown defense spending on the chopping block. Reprioritization away from the defense in the medium term is the most obvious fallout. When the world plans for the next global threat, it will not be for war or national security but for healthcare given the disproportionately large expenditures governments had to make for testing and treatment in the ongoing pandemic. Undoubtedly there will be severe pressure to overhaul the world’s healthcare system to prepare for future pandemics. A large portion of budgetary grants will be directed towards the healthcare system to improve surveillance systems, update diagnostic equipment, expand hospital capacities, train staff, and improve drug manufacturing capacities. Defense spending in the midst of all this is expected to receive a major blow. Top countries until now who were the leading spenders on military & defense will now witness their budgets grow smaller. The United States, for instance, the world’s largest spender on defense will acutely feel the crunch. The US$2 trillion relief bill signed by the Trump government to fight the pandemic will expand the country’s total debt by nearly 10%. The county’s debt which averaged to nearly US$23.4 trillion before the pandemic will now grow even bigger, putting defense among the first government expenditures to be curtailed. The macroeconomic scenario discussed above means far lesser resources will be available for the department of defense (DoD). Over US$450 to US$600 billion will be reduced over the next 10 years. The reductions will likely be higher than the US$500 billion cuts over a 10-year period executed for the DoD under the Budget Control Act of 2011 enacted as part of the Congressional response to the ballooning deficit.

Poised to hurt the most will be lower-tier companies within the defense industrial chain. With Europe bearing the brunt of the pandemic, defense spending in the region is also expected to post significant declines. Europe today stands testimony to the massive human and economic losses suffered due to an unprepared healthcare system and political underestimation of COVID-19 in terms of the propensity of the disease to spread and cause harm and its ability to bring businesses and whole economies to a halt. Germany which is already in recession is looking towards defense as the first government areas to be wrung for savings. The downsizing will mean delays in defense capabilities improvements. In addition, the COVID-19 pandemic has disrupted supply chains causing massive damage for manufacturing companies reliant on China for supplies. These supply chain disruptions will step up the pressure to decouple from China. Rethinking supply chains will spur the movement of production out of China, including defense products and raw materials for producing these products. Currently, China is the low cost producer and thousands of defense related equipment and products used by the U.S. comes from this country. Production shifts away from China means DoD procurement and sustainment costs will rise in the coming years. Under this scenario, even without budgetary cuts, the ability to purchase defense products and technologies will fall, and with spending cutbacks being inevitable its hard times ahead for all players in the defense supply chain. With the risk of insolvency in defense supply chain being high, Military Electro-Optics/Infrared Systems will slump by -15.1% in 2020.

Electro-optical or EO systems refer to devices that make use of a mix of optics and electronics for generating, detecting and measuring radiation in the optical spectrum. The systems can measure electromagnetic spectrum with wavelengths in the 0.1-1000 micrometers range, which comprises visible light, infrared radiation and ultraviolet radiation. Electro optical systems or infrared systems constitute imaging systems primarily used by law enforcement and military departments for achieving better situational awareness of environments, during daytime and nights, and even in conditions of low light. Comprising of infrared sensors as well as electro-optical sensors, the EO systems are capable of offering precise optical data during the day and night. An electro-optical sensor is capable of changing light into electric signal, while the infrared sensor can identify any structure in its vicinity through the detection or emission of infrared radiation. EO or IR systems are used for airborne homeland security, surveillance, patrol, combat, search & rescue and reconnaissance programs primarily. Major features of the systems include image stabilization and long-range imaging capabilities. The sensors, typically equipped on vehicles or aircraft, are both hand-carried and deployed at sea. They work by identifying targets, tracking moving targets as well as ascertaining threats even from long distances and in difficult weather conditions and environments.

Competitors identified in this market include, among others,
  • BAE Systems PLC
  • Elbit Systems Ltd.
  • Israel Aerospace Industries (IAI)
  • L-3 Communications Holdings, Inc.
  • Lockheed Martin Corporation
  • Northrop Grumman Corporation
  • Raytheon Company
  • Rheinmetall AG
  • Rockwell Collins, Inc.
  • Textron Inc.
  • Thales Group