The Military/Aerospace Market for Cable Assemblies:
China Contributes to Expenditures for Advanced Systems

The military/aerospace market for cable assemblies has continued to be strong over the last five years. This market segment represented approximately 11% of the worldwide market for all cable assemblies in 2010, at a value of $12.7 billion. It has had stable growth of 4% to 8%, other than 2009. In 2010, China had the most growth, at 21%, and Japan had the least growth, 8%. On average, over the last five years, governments worldwide have consistently spent 2.7% of the global gross domestic product on military expenditures.

To better understand 2011 military expenditures for cable assemblies, the following is the view from a regional perspective.

United States
Although still engaged in Afghanistan and Iraq, Defense Secretary Gates is looking to cut spending by $78 billion over the next five years. He is also looking to shuffle $100 billion in spending from administration and overhead into operations. This is not likely to affect the repair and replacement expenditures, which are needed to sustain operations. Some new programs, however, will be delayed or cancelled. For the Marines, the F-35B Joint Strike fighter will be delayed for two years, and could still be cancelled. The Marine Expeditionary Fighting (ship-to-shore) vehicle has been cancelled. The Army’s SLAMRAAM surface-to-air missile and over-the-horizon launch platform have also been cancelled. Even with all of these planned savings, the defense budget will likely remain in the $700 billion per year range over the next couple of years.

Although the U.S. Defense budget may be flat or down slightly year-over-year, the U.S. market for export of arms is still strong. The U.S. is the largest exporter of arms in the world. According to the Arms Control Association, 2009 exports totaled $57.5 billion. Sale of advanced military hardware to areas such as the Middle East and Taiwan will help maintain the cable assembly market for mil/aero products in 2011 and 2012.

NASA expenditures have been cut significantly in recent years. These cuts will grow more pronounced as the shuttle program completes its last flight this year. The replacement program for the shuttles is still in flux. Although commercial programs are getting ready to take over some of the satellite launches, this industry is still in its infancy.

Europe
With the recession and sovereign debt crisis in Europe, most countries will cut their military budgets. The U.K., Germany, France, and Italy, representing some of the key NATO members from an expenditure standpoint, will cut billions in military expenditures. They are also looking at sharing more assets between countries. The U.K. and France will share aircraft carriers, conduct joint exercises, and cooperate on nuclear programs. France, Germany, Belgium, and the Netherlands will share 200 transport planes under a single command. Despite France being the third-largest exporter of arms in the world, the end result will likely be a decrease in mil/aero cable assembly sales in this region.

Japan
Japan will likely increase its military expenditures over the next few years. Where previously their military dogma had been aimed at stopping aggression from the Soviets, they have now officially realigned their military strategy to counter the increasing influence of China in the region. China and Japan have long had disputes over the ownership of several islands in the surrounding seas. They are also concerned with the recent escalation of aggression from North Korea.

China
China’s economic success and social reforms over the last 10 years have allowed them to increasingly focus their military outwardly rather than internally. This means more expenditures for planes and ships to project their power. They are now testing the prototype of a stealth fighter. They also plan to launch their first aircraft carrier in 2011, and their anti-ship missile program is said to be progressing quickly. China’s space program has also remained active, with a goal to reach the moon with a manned mission this decade.

Much of China’s military spending for connectors and cable assemblies remains invisible to the outside world, as the products are produced in government-run factories, and the components are not purchased on the open market. The visibility that we do have, however, points to a rapidly growing market that may open up to commercial competition in the near future.

Asia Pacific
The three most notable countries in the Asia-Pacific region for mil/aero cable assemblies are India, Taiwan, and South Korea. All exist in an environment where they must maintain military preparedness. India, in particular, has the economic success to afford robust military spending. Both Taiwan and South Korea get more of their systems from the United States, but they also produce their own. South Korea, however, has the largest ship manufacturing capacity in the world. They are undoubtedly producing most of their own naval vessels.

Rest of World
For the most part, the countries included in this region tend to purchase rather than manufacture these products. Russia, which had been a large manufacturer of military products in the past, is presently counting more on imports, due to the heavy losses in the recession. As oil prices and exports pick back up, Russia may revitalize efforts to modernize its armed forces.

Bishop & Associates expects the worldwide market for military/aerospace cable assemblies to grow by approximately 2% in 2011, to $12.9 billion. The five-year CAGR will be in the 5% range. The largest year-over-year growth will be in China. The least growth will be seen in Europe. Cable assemblies represent approximately 0.9% of overall military spending.