As the focus shifts to airborne surveillance and reconnaissance (SR) systems, procurements estimated at $1.1 billion in the European market are forecast to surpass the $1.61 billion mark by 2008.

In Europe, the dynamics of coalition warfare, accompanied by the need for improved interoperability, has been a key driver for market expansion. For many prospective NATO entrants, including those in Eastern Europe, the upgrade of their airborne platforms to meet crucial interoperability requirements is a central prerequisite to membership.

"Programme offsets are being provided as incentives to procure necessary equipment. These incentives increase programme ownership within the country and add required economic benefits to indigenous defence industries," notes Merl Fuchs, Aerospace and Defence Analyst with Frost & Sullivan.

Greater operational rationalisation and improved process efficiencies have ensued from the current trend toward consolidation in the European defence industry. The outcome has been less expensive products, competitively positioned for sale to an eager world market.

Another encouraging consequence of industry consolidation has been the dissemination of technology across national boundaries. Joint military research and development (R&D) efforts are likely to weaken traditional technology protectionism, while accelerating system development across Europe.

Increased procurement notwithstanding, Europe's dependence on US airborne surveillance and reconnaissance platforms was starkly evidenced in Kosovo and Afghanistan.

The realisation that enhanced SR assets are required for autonomous verification and to provide much needed muscle to foreign policies is likely to boost the uptake of SR systems across Europe.

"Indigenous production of SR systems provides for independently verifying information and reduces political and diplomatic entanglements that are possible from shared information," adds Mr Fuchs.

"Operational successes of platforms such as AWACS, JSTARS, Predator and Global Hawk increase the desire for acquisition of systems that could decrease the reliance on allied forces and reduce technological gaps."

Reflective of a global pattern, particular interest is being evinced in the capabilities of unmanned aerial vehicles (UAVs). Having demonstrated their versatility in the conflict zones of Kosovo, Afghanistan, Iraq and Yemen, unmanned systems are emerging as an attractive, cost-effective option to manned systems.

In Europe, the Eurohawk UAV, a version of Global Hawk, is already being developed as a possible replacement for the Atlantique and other manned SIGINT platforms.

In 2002, the European region, Canada and non-NATO countries jointly accounted for nearly 24.7 per cent of the global airborne SR systems market, trailing in second place behind the United States. Within Europe, the UK, France, Italy and Germany accounted for almost 80 per cent of outlays on SR systems in 2002, with France leading SR expenditures with an estimated $274.3 million.

A major challenge emerging in the European SR market is that of shrinking government budgets and competing national priorities. At present, significant government allocations for salaries and social programmes have created related funding shortfalls in the defence arena.

High development and systems costs are further exacerbating the monetary crunch. However, the exigencies of national security and the need for equipment modernisation are anticipated to lend a degree of stability to SR budgets.

The prevailing trends in the market are the production of more integrated and capable systems and the increasing number of joint ventures with US companies. And as industry consolidation continues, leading SR companies across commercial, military and para-military markets are reassessing their positioning strategies in different market segments.

Mr Fuchs explains: "Military services could adapt assets that provide interoperability and comprehensive coverage for battlespace end-users.

"Commercial products could be adapted to military usage and strategic partnerships with aerospace companies in the military surveillance and reconnaissance area could be expanded in the commercial aircraft side of the business where such situations exist."

As the war winds down in Iraq, the continued relevance of the defence industry has been reinforced. As Mr Fuchs says: "The defence industry remains competitive, robust and capable of meeting war-fighting needs in the 21st century.

"The further development and employment of UAVs and the continuing need to improve the intelligence-gathering capacity of warfighters will ensure that the airborne SR systems market will continue to be viable well into the 21st century."

Publication Date: April 2003 Code: A371 Price: EUR 4,615

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