By Avascent Analytics team
In the second release of Avascent Analytics Global Narratives, Avascent’s Director of Japan Operations Toshi Nabeta and Market Analyst Aaron Lin provide an in-depth look on the trends driving Japan’s defense budget growth under Prime Minister Shinzo Abe, and what this means for the defense industry in the near term. Click here to check out the full podcast.
A quick look at the biggest stories of the week
United States • South Korea • Finland • Japan • India • Space
The US Army has pre-approved the FMS production of roughly 11,570 HMMWVs by AM General. The $2.2 billion requirement comes as AM General looks to expand its sales beyond its traditional market after losing the JLTV competition to Oshkosh two years ago. The agreement enables AM General’s new sales strategy that has focused on the delivery of HMMWV chassis with follow on support to indigenous industry in developing and outfitting additional requirements and systems. The agreement seeks to take advantage of a market environment where Avascent Analytics projects a rising logistics vehicle market, but one increasingly fragmented by indigenous production programs.
On August 27, South Korean officials announced that they are considering building nuclear-powered submarines. At present, this is still in the initial planning stage, so it is unclear how many submarines would be built or what they would cost. The strategic rationale for the development of domestic nuclear submarines is the growing need to counter North Korean subs, which can launch ballistic missiles. Ideally, South Korean nuclear submarines would provide a counter to this capability. However, South Korea’s current agreement with the United States concerning uranium enrichment expressly prohibits the use of enriched uranium in military contexts. It remains to be seen how that prohibition will affect South Korean efforts to develop a nuclear submarine capability and better counter North Korean submarine-launched ballistic missiles.
After some confusion following President Trump’s announcement that Finland selected Boeing’s F/A-18s to replace their current fleet of aging Hornets on August 29, Finnish President Sauli Niinisto clarified that the fighter aircraft program was still underway and no final decision has been made. Under the HX fighter program, Finland is looking to procure a total of 64 aircraft worth up to $11 billion. Current contenders for the program include Boeing’s F/A-18, Dassault’s Rafale, BAE’s Eurofighter Typhoon, Lockheed Martin’s F-35, and Saab’s Gripen. Finland sent out a Request for Information in April this year to those five firms, though a final decision is not expected until 2021.
On August 31, the Japanese Ministry of Defense released its budget request for 2018. The MoD requested an all-time high of ¥5.02 trillion (¥5.25 trillion when including SACO, spending on Japan Air Force One/Two, and US forces realignment), a 2.5% increase over the 2017 defense budget. This is a significant increase compared to the last three years where the defense budget grew by 0.8% year on year (in terms of local currency). However, due to the weakening yen, this is not a record high in terms of US dollars. This year’s request amounts to $48 billion, while the budget in 2011-2012 was over $58 billion when the yen was significantly stronger. Measuring the Japanese defense budget in US dollars paints a much more erratic picture of growth and decline due to exchange rate fluctuations. A weaker yen means Japan will have to spend more on importing foreign defense equipment. Avascent Analytics projects that the country will spend nearly 60% of its combined defense procurement budget from 2016 to 2021 on importing defense equipment from abroad. Avascent Analytics takes an in-depth look at Japan’s defense budget in our latest podcast.
On September 1, Dr. Sudhir Mishra, a senior official in India’s Defence Research and Development Organization (DRDO), stated that India would need to spend at least $150 billion in the next decade acquiring new military equipment. Avascent Analytics currently estimates that this figure will be closer to $144.4 billion. The Indian Air Force’s acquisition of a single-engine fighter aircraft is expected to be the largest acquisition over the next ten years. A Request for Information is anticipated to be issued in September to Lockheed Martin and Saab to manufacture the fighter aircraft in collaboration with an Indian defense firm. Lockheed Martin is offering the F-16 Block 70, while Saab has put forth the Gripen E. Despite the 2016 acquisition of 36 Rafale fighters, the Indian Air Force still has a requirement for an additional 100 aircraft to replace aging MiGs, in a deal that could be worth as much as $13.5 billion.
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