Sandra Irwin/National Defense
14 April 2015
NATIONAL HARBOR, Md. — Countries in the Middle East, Southeast Asia and Europe are, or soon will be, in the market for surface combatants and diesel-electric submarines. But as more countries invest in their own shipbuilding industries to create jobs, American shipbuilders will likely not get to enjoy a piece of that pie, according to industry analysts.
U.S. military contractors in recent years have shown growing interest in export opportunities. These tend to be higher-margin sales that companies see as a hedge against declining U.S. military spending. A boom in demand for combat ships around the world, however, is likely to remain off limits to U.S. shipyards.
The best chance for U.S. shipyards to break into foreign markets is by partnering with local firms, industry experts said. Even though most countries that buy military vessels have domestic yards that can manufacture hulls, they often lack the advanced design expertise that resides in U.S. naval shipbuilders.
“Emerging markets are expected to spend big on naval platforms over the next 10 years because of a combination of growing defense spending and existing capability gaps,” said Daniel Yoon, market analyst at Avascent. “And Western Europe is currently undergoing significant fleet re-capitalization programs.”
An anticipated surge in demand for surface vessels will fuel sales of smaller surface combatants and patrol vessels, Yoon told National Defense. The shipbuilders that support the world’s largest navy will not be profiting from the growing global appetite for brown and green-water combat vessels, he said. “These platforms are traditionally not in the realm of American exports.” U.S. shipbuilders specialize in highly advanced, multi-mission warships that would be too complex and too expensive for most navies.
Only rarely will American shipbuilders have legitimate opportunities in emerging markets,” he said. For example, VT Halter Marine may have a chance to supply ships to Egypt. Saudi Arabia is said to be considering the purchase of a destroyer-sized combatant or even Lockheed-Martin’s Littoral Combat Ship sometime in the next 10 years, said Yoon. “But, in our opinion, such sales are exceptions rather than the rule. American shipbuilders generally do not have many foreign customers.”
One possible U.S. contender is Huntington Ingalls Industries, the largest U.S. shipyard. It designed a patrol frigate for the international market, based on the Coast Guard national security cutter design.
HII officials told reporters at the Sea-Air-Space annual naval expo that the company continues to evaluate the international market for this ship.
According to industry sources, interested countries include Brazil and Saudi Arabia. While Saudi Arabia lacks a domestic capability to construct ships, Brazil would want to build them domestically but might seek HII as a design partner.
In Western Europe, stepped up demand for surface vessels over the next 10 years will be driven by aircraft carrier re-capitalization programs in France and the United Kingdom. The U.K. is choosing to finance a replacement for its aging Invincible-class carriers despite the country’s fiscal austerity.
“Both France and the U.K., and to some extent Italy and Spain, have firmly entrenched shipbuilding bases with many jobs at stake. As a result, much of the new surface fleet construction is happening domestically,” Yoon said. Again, there would be no opportunities here for American shipyards. Likewise, other big ticket, high-profile shipbuilding projects in Asia, like Japan’s Akizuki-class destroyers and Australia’s Hobart-class destroyers, are also primarily being committed to local manufacturers.
As more countries shore up their own domestic shipbuilding industries, there will be opportunities for American defense contractors that make weapons and combat systems. A boom in ship construction would create a market to equip those ships with advanced electronics and armaments, Yoon said. Top U.S. contractor Lockheed Martin, for instance, is partnering with Spanish, Japanese, South Korean and Australian shipyards in order to boost its chances to provide these nations’ ships with the Aegis combat system.
In the submarine market, much of the growth in international demand appears to be for diesel-electric submarines, Yoon said. Unless U.S. manufacturers begin producing diesel-electric submarines again, there will not be many international opportunities in this market for the foreseeable future. Western Europe's anticipated submarine re-capitalization programs will be limited to domestic manufacturers.
And U.S. submarine systems manufacturers will find few opportunities to export advanced weapons systems or combat control systems for these projects, he said. “We can chalk it up to stringent export controls and greater competition.” The only successful submarine system export in recent memory from the United States was Raytheon's common broadband advanced sonar system heavyweight torpedo for the Royal Australian Navy's Collins-class submarines.
The good news for U.S. industry is that the Navy is the biggest customer in the world, Yoon said, so there is really no incentive for these companies to restructure their businesses in order to be more competitive abroad.
Avascent anticipates the demand for maritime platforms and systems to increase considerably over the next 10 years, according to a new white paper the company published this month. “We expect the market for submarines and related systems to be especially strong in the coming decade, growing at a 10.5 percent annual rate through 2024.”
After spending $24 billion over the past five years on submarines, international customers will likely allocate an additional $44 billion in the next five years, and $118.5 billion during the next 10, according to Avascent. Western Europe, despite tight fiscal constraints, is expected to drive demand in the market, doubling its annual spending on submarines between 2015 and 2024.
Southeast Asia will likely be the next biggest submarine market. Spending on undersea vessels could grow by 13.7 percent per year over the 2015-2024 period. Indonesia’s procurement of Chang Bogo-class submarines and Australia’s eventual Collins-class replacements will be the most prominent programs, the white paper said. The members of the Gulf Cooperation Council are expected to increase spending on submarines in the coming decades, although GCC investment in submarines is “very much notional, given the limited capacity of countries in the region to absorb and operate such platforms.”
The international surface vessels market struggled over the past five years, as the traditional big spenders in Western Europe, Northeast Asia and South Asia slashed budgets for surface combatants and support vessels between 2010 and 2014. Avascent anticipates the market to rebound strongly over the next 10 years, growing by 7.4 percent annually. The GCC could triple annual budgets for surface vessels and associated equipment between 2015 and 2019, fulfilling regional ambitions for naval expansion.
Spending on surface vessels in South Korea and in Southeast Asia as whole will increase markedly, Avascent projected, mostly as a result of persistent piracy threats to commercial sea lanes as well as assertive Chinese maritime territorial claims.
Over the next decade, the navies and coast guards of Indonesia, Malaysia, Singapore, Thailand, and Vietnam will each induct large numbers of small surface combatants such as frigates and corvettes, and patrol vessels. Avascent expects Southeast Asia to overtake Northeast Asia in surface vessel spending by 2019.