AMI is following up on the July 2017 Hot News editorial that analyzed the sea service procurements in the Balkan and Baltic regions. Looking ahead to the September 2017 DSEI event in London (where AMI will attend), we look at the sea services making up the “Western” region of NATO, including Canada. Some general observations on the regional market and naval system and platform developments likely to be reflected at DSEI.
First, the region remains the NATO naval market center. “NATO West” new ship planned ship acquisitions make up 40% of new hulls and 70% of new spend for all of NATO countries excepting the U.S.
Spending in the NATO West region is more distributed. The UK, Canada, France, and Italy combine to make up 85% of new platforms and 90% of planned new ship spending projected for the NATO West region over the next 20 years. Spain and the Netherlands, though smaller, also have a number of advanced shipbuilding programs underway. This is in contrast to the Baltic and Balkan regions, where single countries (Germany and Turkey respectively) account for 50% or more of regional future naval spending and new hull construction.
The UK leads in planned naval spending, reflecting the cost of programs such as the Queen Elizabeth class CVF and new ballistic missile and attack nuclear submarines in addition to the acquisition of new multi-mission combatants under the Type 26 program, which just started the construction phase.
Naval Market Forecast 2017-37
- Future
- Regional
- Current Fleet
- Fleet Replacement Rate
- Future Value
- Regional
- Hulls
- %
- Navy + CG
- (40 year hull svc life)
- USD B
- %
UK
- 45
- 19.6%
- 150
- 60%
- 58.64
- 42%
Canada
- 58
- 25.2%
- 173
- 67%
- 30.14
- 21%
France
- 35
- 15.2%
- 295
- 24%
- 21.85
- 16%
Italy
- 35
- 15.2%
- 212
- 33%
- 15.19
- 11%
Spain
- 16
- 7.0%
- 246
- 10%
- 5.53
- 4%
Netherlands
- 23
- 10.0%
- 71
- 65%
- 5.09
- 4%
Portugal
- 7
- 3.0%
- 122
- 11%
- 2.29
- 2%
Belgium
- 9
- 3.9%
- 17
- 106%
- 1.70
- 1%
Iceland
- 2
- 0.9%
- 4
- 76%
- 0.12
- 0%
Total
- 230
- 140.54
Total NATO
- 562
- 200.66
Region % of NATO
- 40.9%
- 70.0%
Perhaps surprisingly, Canada leads in the number of new ships planned for the same period. The Canadian Surface Combatant, expected to be awarded by year’s end, leads Canada’s new ship projects. However most of the new hulls for Canada are smaller or less heavily equipped Coast Guard ships. This reflects Canada’s vast seaboard and heightened concerns over Arctic security, especially in the wake of recent Russian statements and activity in polar waters.
Most of the navies in NATO West are regional or even global fleets, and are investing to maintain the capability for missions that go beyond immediate security of territorial and EEZ waters. Therefore, new naval programs in most countries are weighted toward highly complex and large platforms, from submarines to large aviation capable amphibious ships and aircraft carriers, as well as destroyers and frigates of 4000-8000 tons. Systems equipping these ships are weighted toward fleet and national air and missile defense, anti-submarine warfare, and offensive force projection.
Despite robust naval building programs in these countries, the NATO West region is still not building enough ships to replace, on aggregate, the number of ships expected to be retired over the same 20 year period. The “Replacement Rate” metric in the chart above uses an average ship life of 40 years, which means half of the current fleets (Navy, Coast Guard and other sea service platforms) are expected to be retired between now and 2037. In most cases, countries are not spending enough to replace these hulls on a one for one basis.
This trend is especially noteworthy in France and Italy, whose navies and coast guards feature a large number of smaller displacement patrol ships and high speed craft. Most of these platforms are operating at higher rates than ever in response to growing migrant and maritime security mission demands in the Mediterranean. Both countries face the prospect of replacing these ships in larger numbers and sooner than planned, which will put pressure on budgets for “big ticket” naval building programs.
Granted, fleet replacement rate is a rough measure, and blurs the distinction between how smaller and larger ships are operated and maintained. But it does reflect the persistent trend of new naval ships costing more than those they replace (adjusted for inflation). This is especially true of advanced submarines and larger surface combatants.
From a market perspective, the NATO West region will continue to be marked by rigorous competition among national shipbuilders and systems houses, which have enjoyed the position of preferred suppliers to their countries’ sea services. At the same time, the “crown jewels” of most shipbuilding and naval systems providers in NATO West continue to be challenged by offshore offerors—whether from the U.S., smaller European companies like Saab and Kongsberg, or lower cost new entrants into the market such as those from Turkey.
As NATO West naval spending continues to concentrate on fewer platforms with more capable (and expensive) systems, and the fleets in the region become smaller over the next two decades, more and more shipbuilding programs become “must wins” for builders and systems providers alike. I trust AMI’s market intelligence insights, advisory services capture support, and our long 30 year+ experience working with market leaders in the region will continue to be in demand to provide advantage in those competitions.