Asia’s aerospace and defence (A&D) market size in 2014 was $372bn, with an 8.1% compound annual growth rate (CAGR) between 2010 and 2014, the fastest growing regional market. The A&D industry comprises manufacturers from civil and military aerospace and defence procurements. The defence procurements segment comprises revenues earned from defence electronics and military aerospace, while the civil aerospace segment includes revenues earned from civilian planes (but excludes military aircraft and related items). The five key industry segments are large commercial aircraft (LCA), regional aircraft, business jets, helicopters and defence.

Industry growth drivers include economic growth, increasing regional air traffic, growing low-cost carriers in developing countries, ‘green and clean’ environment-friendly concerns to reduce carbon emissions, as well as demand for fuel-efficient aircraft, which boosts the replacement aircraft segment.

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In the LCA segment, Asia’s economic growth continues to drive airline traffic. It is expected to grow 4.7% on average every year from 2009 to 2028, the highest gains globally. Over the next 20 years, French aircraft manufacturer Airbus foresees a demand for about 25,850 passenger and freighter aircraft, worth approximately $3200bn, and US aircraft manufacturer Boeing forecasts demand for 28,980 aircraft at $3500bn. This growing demand, 33% of which is from Asia, is driven by developing economies such as India and China, which are projected to enjoy a surge in air traffic in the near future.

The regional aircraft segment (commercial aircraft with fewer than 100 seats) is dominated by two manufacturers, Canada’s Bombardier and Brazil’s Embraer. The demand for regional jets continues to grow as airlines use them to fill a niche by providing opportunities for airlines to fly long routes with optimised seating capacities, while reducing costs without compromising too much on passenger comfort. In 2009, Asia captured 16% of the total global market, and this market share is forecasted to increase to 22% in 2029.

The business jet segment is dependent on economic growth, which affects companies’ profitability and credit availability. Asia continues to have significant business jet fleet growth with increasing demand from developing economies, such as India and China. The Chinese business jet fleet is projected to grow at a CAGR of 20% amounting to 700 aircraft in 2019. The Indian business jet fleet is expected to grow at a CAGR of 13% over the next few years and will account for an estimated 440 aircraft in 2019.

In the helicopter segment, three manufacturers dominate – Eurocopter, Bell Helicopter and AgustaWestland – with Asia capturing 13% of the global market share. Existing high inventories of used production models continue to hinder fresh order intake, resulting in limited growth.

In the defence segment, world military expenditure, driven by military conflicts and security concerns, totalled almost $1700bn in 2015, which marks the first increase since 2011. The spending includes salaries, costs for operations, purchases of arms and equipment, as well as R&D. Asian military spending growth is much higher than the global rate. Influenced mainly by China, military spending in Asia and Oceania has grown 5.4% in 2015, while growth was just 1% globally, according to the Stockholm International Peace Research Institute.

China, which is driving global defence budgets higher, increased spending by 7.4% in 2015 to $215bn, four times as much as regional rival India. Indonesia, Vietnam and the Philippines also saw large increases, partly driven by tensions with Beijing over the South China Sea. Top Asian military expenditures in descending order are China, India, Japan, South Korea, Australia, Taiwan, Pakistan, Singapore, Indonesia, Thailand, Malaysia, Philippines, Bangladesh and Myanmar. With terrorist threats from ISIS and splinter groups in Asia potentially growing, this together with the ongoing South China Sea tensions should see Asia continue its military spending.

On the bright side, it is no surprise, then, that Asian aerospace and defence industries will continue to grow in the near term. The concern is that Asia military tensions may escalate to armed conflicts, terrorist attacks will intensify and that slower economic growth or even prolonged recessions will dampen aerospace sector growth. Let’s remain hopeful that these bleak 'Dr Doom' scenarios will not happen.

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services. Email: lawrence@asiabizstrategy.com