Global Defense Outlook [2024] Market

Key defense industry trends are covered in the Study:

Continuation of Russia-Ukraine Conflict

As of November 2023, the conflict has spanned 640 days. The Russia-Ukraine conflict caused significant economic losses: Russia faced a $350 billion output decrease, as of March 2023, while Ukraine suffered a $500 billion loss and a 30% GDP reduction as of March 2023.  In the aerospace and defense markets, the ongoing conflict has created substantial disruptions, particularly in the space industry. While the International Space Station (ISS) program appears safeguarded despite initial threats from Russia, other space programs across the globe face considerable uncertainties and setbacks. The complex ripple effects from disruptions across the segments, have significantly impacted the supply chain and the defense industry growth. Commercial aviation faced airspace embargoes, with the EU, UK, and US prohibiting Russian aircraft, leading to route diversions for 36 countries. These complexities underline the extensive repercussions of the conflict, intertwining economic downturns and sectoral disruptions. The conflict has led to several other notable consequences. Firstly, there is a global and regional escalation in jet fuel prices, coupled with a reduction in freight capacity in the European region. Additionally, transportation and logistics operations have been significantly disrupted, impacting multiple value chains and the availability of key resources, including titanium, nickel, neon, and palladium. Lastly, the space industry is experiencing severe disruptions, particularly with the cessation of Soyuz cooperation with Western space organizations, resulting in the cancellation of numerous Russian launches.

Increase in Defense Spending

Against the backdrop of current geopolitical conflicts involving Russia, Ukraine, Israel, and Palestine, coupled with escalating tensions from key players such as China and North Korea, there is a notable surge in global insecurity concerns. This has led to an upswing in defense spending by nations worldwide, with an annual growth rate of 3.7% in 2022, approaching an unprecedented peak of US $2240 billion.

Remarkably, despite the substantial economic challenges faced globally in 2020 due to the pandemic and inflation, defense spending defied expectations by continuing to rise. This underscores the significant emphasis placed on defense, even during periods of economic downturn.
The top five spenders in 2022-23 were the United States (39.1%), China (13.0%), Russia (3.8%), India (3.6%), and Saudi Arabia (3.3%), collectively contributing to 63% of global military expenditure. This trend highlights the strategic priority nations are assigning to bolstering their defense capabilities in the current geopolitical landscape.

Key 2024 defense industry trends covered in the Study:

Increasing Investment in Autonomous Weapons

In the defense market, weapons are evolving towards autonomy through technological advancements and artificial intelligence. Notable instances include the inaugural deployment of autonomous weapons in the Ukrainian battlefield, where AI-equipped drones can independently identify and engage targets without human intervention. Additionally, Anduril Industries' autonomous system, the Roadrunner, stands out as a reusable aircraft capable of vertical takeoff, carrying diverse payloads, and intercepting and neutralizing airborne threats. This system has successfully secured a contract with a U.S. customer.

In the ongoing conflict with Ukraine, Russia has repeatedly employed the KUB-BLA Drone, an autonomous munition created by Kalashnikov and Zala Aero Group. This drone utilizes AI Visual Identification (AIVI) technology to instantly recognize and classify targets, ensuring precise strikes in real time. The Israeli military has employed the Harpy in multiple instances. Harpy is an autonomous loitering munition manufactured by Israel Aerospace Industries, designed to detect, and destroy radar emitters with minimal human intervention. During the Libyan Conflict (2011-present), the Kargu-2, an autonomous drone manufactured in Turkey, was reportedly utilized to target soldiers aligned with General Khalifa Haftar. In January 2020, Qasem Soleimani, the commander of the Iranian Quds Force, was targeted and killed, by the US military using the Autonomous MQ-9 Reaper Platform.

MoD’s Focusing on Migration to Hydrogen Fuel

The evolving landscape of the defense industry outlook, particularly within NATO, underscores a fundamental shift towards bolstering energy resilience and reducing reliance on conventional fossil fuels. Historically, energy security focused on diversifying oil and gas sources. NATO's strategic pivot now centers on renewable energy sources, particularly hydrogen, as a pivotal element to enhance energy efficiency and mobility in military operations across aviation, maritime, and terrestrial logistics. This transition not only aligns with sustainability goals but also fortifies the resilience of armed forces, by ensuring access to reliable alternative energy sources.

Hydrogen, considered a linchpin for energy security and national resilience, has prompted leading nations like Germany, Japan, and the United States to pioneer hydrogen technology integration within their defense structures. Germany's Bundeswehr, for instance, actively explores hydrogen-powered vehicles, highlighting benefits such as reduced environmental impact and heightened energy independence. Japan's Defense Ministry strategically embraces hydrogen fuel cell technology, leveraging its clean energy attributes across various applications, including mobile power generation and unmanned vehicles. The United States, through its military branches, is also incrementally showing interest in hydrogen fuel, primarily experimenting with alkaline hydrogen fuel cells to power tactical vehicles. However, despite the promising potential of Power to Hydrogen (P2H) technology, various obstacles impede its widespread adoption, hindering the development of the P2H market. Challenges such as infrastructure limitations, cost considerations, and technological advancements remain focal points requiring concerted efforts from governments, industries, and research institutions to surmount.

Increasing Investment in Autonomous Weapons Artificial Intelligence-enabled pilot for manned-unmanned teaming

Advancements in AI Capabilities enable increasing integration of AI across systems and platforms such as -

• Computer vision, LiDAR, thermal imaging sensors, and neural network capabilities enabling AI pilot systems. Shield AI’s Hivemind AI pilot to be deployed across aircraft platforms, such as F-16, F-22, F-18, F-35s, XQ-58A Valkyrie, and the Air Force's Skyborg program
• Shield AI’s data link to enable manned-unmanned teaming for autonomous flying of several aircraft and swarms of drones
• Advanced AI capabilities for piloting aircraft in the US is the prime focus of the US Air Force. As a result, the US Air Force will be procuring AI-driven unmanned combat aircraft in the next five years. The budget requested for this development is USD 5.8 billion for 1,000 Number of Aircraft. The estimated cost of each aircraft is expected to be in the range of USD 3 million to USD 25 million

AI Pilot adoption/development timelines