United States Defense Market - Growth, Trends, COVID-19 Impact, and Forecasts (2021 - 2030)
The United States defense spending will grow from USD 714 billion in 2020 to about USD 900 billion by 2030. The United States Defense Market is poised to grow at a CAGR of over 2% during the forecast period 2021 - 2030.
The COVID-19 pandemic impacted the economy of the country seriously. It is estimated that the economy is contracting by approximately 3.5%, due to the closing of various businesses like restaurants and airlines among others. This economic downturn has led to a decrease in the overall military expenditure of the country in 2020 compared to previously planned military spending.
In the United States, military spending has been considered to be the second-largest allocation in the federal budget, after social security. The country's spending on its defense is greater than that of the cumulative defense spending of countries, like China, Saudi Arabia, Russia, the United Kingdom, India, France, Japan, Germany, and South Korea. For the year 2019, the US defense spending was USD 732 billion.
The current on-going political tensions of the country with China and Russia and planned procurements of advanced military equipment to replace the aging equipment currently in service is expected to accelerate the growth of the market.
Additionally, the fight against terrorism, externally and internally, is also expected to support the growth of the defense market in the United States.
The growing investments in the development of advanced technologies like additive manufacturing technology for applications like body armor, directed energy weapons and artificial technologies among others, to support the armed forces, which is expected to provide future growth opportunities in the future.
Key Market Trends
Air Force Segment is Expected to Register the Highest Growth Rate During the Forecast Period
The air force segment is expected to experience major growth in the US defense market during the forecast period, owing to various procurement plans for replacing aging combat aircraft, as well as procurement plans for new unmanned aerial vehicles. In FY 2021, the US Air Force requested USD 47.72 billion for the research and development of new technology. The increase in the amount may lead to funding for the next-generation fighter jets of the US Air Force. For 2021, the United States plans to invest about USD 56.9 billion on modernizing its air domain through 79 F-35 Joint Strike Fighters, 15 KC-46 Tanker Replacements, 24 F/A-18 E/F Super Hornets, 52 AH-64E Attack Helicopters, 5 VH-92 Presidential Helicopters, P-8A Aircraft, 7 CH-53K King Stallion, and 12 F-15EX. According to the report of the Center for Strategic and Budgetary Assessments (CSBA) by 2018 (which was approved by the US Congress), stated that the US Air Force required 386 operational aircraft. According to the study, there were shortfalls in the tanker, bomber, fighter, strike/reconnaissance drones, and command-and-control/intelligence, surveillance, and reconnaissance inventories. The study further revealed that the Air Force required 14 bomber squadrons, 62 fighter squadrons, 54 tanker squadrons, 27 strikes/reconnaissance drone squadrons, and 62 C2/ISR squadrons by 2030.
The US Air Force increased the use of unmanned aerial systems over the years, as enhancements in advanced navigation and communication technologies and the increase in military communications satellite bandwidth have made remote operations of unmanned aerial systems (UASs) more practical. Unmanned systems provide a sophisticated stand-off capability that supports intelligence, command and control, targeting, and weapons delivery, and improve situational awareness of the armed forces. The request budget of FY2021 included an increase of 31.84% investment into procurement of new UAVs in 2021 compared to 2019. In addition to this, the US Department of Defense increased the research and development funding for UAVs, as they are inexpensive to produce, and the integration of new technology into their miniaturization has accelerated the development of many UAS types. Thus, upcoming procurements and R&D developments will propel the growth of the segment at a high CAGR during the forecast period.
The US Defense Market is Expected to Experience a Steady Growth in the Next Few Years
In 2019, the US military spending grew by 5.3%, thus, reaching USD 732 billion from USD 649 billion in 2018. The United States has the highest military spending in the world, and it accounted for 38% of the total global defense spending in 2019. For 2021, the US defense budget was USD 704.6 billion to improve military readiness and invest in the modernization of armed forces. The DoD (Department of Defense) made investments in hypersonic missile technology and autonomy in military and military electronics, such as sensors, integrated circuits, electronic warfare (EW), and power electronics, among others. The US armed forces currently have a fleet of more than 13,200 military aircraft, 40,000 armed vehicles, and 450 naval vessels in service. In order to enhance its military technologies, the country is investing heavily in the research and development of artificial intelligence (AI). The armed forces are integrating AI for ISR applications, command and control applications, enhancement of autonomy, and improvement of the lethality of weapon stations, among others. Various ongoing developments are expected to lead to the growth in the US defense market in the near future.
There are several players in the market that support the defense market of the United States. However, Lockheed Martin Corporation, The Boeing Company, Raytheon Technologies Corporation, General Dynamics Corporation, and Northrop Grumman Corporation, are some of the prominent players in the US defense market, which are expected to hold a significant share. Various initiatives and product innovations are done by companies to strengthen their presence in the market. In this regard, as of November 2020, FLIR Systems, Inc. received multiple contracts worth over USD 100 million under the Army’s Man Transportable Robotic System Increment II (MTRS Inc II) program to deliver more than 750 of the company’s Centaur unmanned ground vehicles (UGVs) to the United States Air Force, Marine Corps, Army and Navy to support disarming of improvised explosive devices, unexploded ordnance, and similar hazardous tasks. The provision of long-term contracts for the development of new military equipment and technologies is anticipated to propel the revenues of various companies in the United States. For instance, in October 2020, Palantir Technologies Inc. was awarded a USD 91.2 million two-year contract from the US Army Research Laboratory for research and development of artificial intelligence and machine learning capabilities. Such partnerships are expected to help the companies increase their share in the market.
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