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Military Synthetic Training and Simulation

Markets in Europe

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Table of Contents

Chapter

1

Introduction to Military Synthetic Training and Simulation Markets in Europe

Introduction

1-1

Introduction to the Market

 

1-1

Market Analysis Methodology

1-2

Introduction

1-2

Identification of the Area of Analysis

 

1-2

Secondary Research

1-3

Primary Research

1-3

Market Analysis

1-3

Market Forecasts

1-4

Recommendations

1-4

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Chapter

2

Executive Summary

Market Overview

2-1

Market Trends

2-1

Joint Programmes in Europe The Game Industry Has a Role to Play in Military Synthetic Training What Image Generation?

 

2-1

2-2

2-3

Technology Trends

 

2-3

Distributed Mission Trainers Embedded Technologies PC-based Simulators

2-4

2-4

2-4

Summary of Main Findings

2-5

Market Growth Opportunities and Total Forecasts

 

2-5

Market Dynamics

2-6

About the Competitive Environment

 

2-6

Country Analysis

2-7

Chapter

3

Industry Challenges—Market Drivers and Restraints

 

Introduction

3-1

Introduction to the Industry Challenges—Market Drivers and Restraints

 

3-1

Industry Challenges

3-1

Introduction

3-1

Dominance of Joint Programmes in Europe Maintenance of Capability How to Meet Specific Military Needs and Defence Budget Restrictions? Designing Simulators with High Adaptability Difficulty for Companies to Define Basic Scenarios Due to New Conflicts

 

3-2

3-3

3-3

3-4

3-4

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Market Drivers

3-5

Introduction

3-5

Need for Collective Training in Europe Strong Technological Performance Availability Contracts Offer More Extensive Programs Benefits of Cost and Time Efficiency by Simulated Training

 

3-5

3-6

3-7

3-7

Market Restraints

3-8

Introduction

3-8

High Technical Competitiveness High Outlays Faced by Specialised Companies Complex and Long Implementation Time for Joint Programmes Shrinking European Defence Budgets Potential Constriction of the Market Due to Increased European Integration Reluctance from Militaries to Adopt Sophisticated Simulators Simulators Seen Only as a Complimentary Tool Limitation of Market Value due to Intensive Use of COTS Products

 

3-9

3-9

3-9

3-10

3-10

3-11

3-11

3-11

Chapter

4

Segment Analysis and Forecasts

 

Total Forecasts

4-1

Forecasts by Military Segments

 

4-2

Air

4-4

Revenue Forecasts

4-4

Land

4-6

Revenue Forecasts

4-6

Maritime

4-8

Revenue Forecasts

4-8

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v

Chapter

5

Market Share Analysis

Market Shares by Country

 

5-1

Introduction

5-1

Investment of Key European Countries in Synthetic Training

 

5-2

Joint Training Programmes

 

5-2

Market Shares by Company

5-4

Market Share Analysis

5-4

Chapter

6

Competitive Landscape

 

Introduction

6-1

Competitive Environment

 

6-1

Competitive Structure

6-1

Market Participants

6-3

Adacel

6-3

Agusta Westland

6-3

Barco

6-4

BAE Systems

6-4

BVR Systems

6-5

CAE

6-5

Christie

6-6

Coel

6-6

Concurrent

6-6

Cubic

6-7

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EADS

6-7

Evans & Sutherland

 

6-8

ETC-PZL Aerospace Industries

6-8

Indra

6-8

KMW

6-9

Kongsberg

6-9

L-3 Link

6-10

Lockheed Martin

6-10

Qinetiq

6-10

Quantum3D

6-11

Oerlikon Contraves AG

 

6-11

Pennant Training Systems Ltd.

6-11

Rheinmetall

6-12

Rockwell Collins

6-12

RUAG

6-13

Saab

6-14

Sogitec Industries

6-14

Thales

6-14

Simulators

6-15

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vii

Chapter

7

Key Country Analysis

Introduction

7-1

Regional Analysis

7-1

Countries

7-1

Austria

7-1

Introduction Competitive Environment Air Land Maritime

 

7-1

7-3

7-3

7-3

7-3

Belgium

7-4

Introduction Competitive Environment Air Land Maritime

 

7-4

7-4

7-5

7-6

7-6

Czech Republic

7-6

Introduction Competitive Environment Air Land

 

7-6

7-6

7-6

7-7

Denmark

7-7

Introduction Competitive Environment Air Land Maritime

 

7-7

7-8

7-8

7-8

7-8

Finland

7-8

Introduction Competitive Environment Air

 

7-8

7-8

7-9

France

7-9

Introduction

7-9

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Competitive Environment Air Land Maritime

 

7-9

7-10

7-10

7-11

Germany

7-11

Introduction Competitive Environment Air Land Maritime

 

7-11

7-11

7-12

7-14

7-15

Greece

7-16

Competitive Environment Air Land Maritime

 

7-16

7-16

7-16

7-16

Italy

7-16

Competitive Environment Air Land Maritime

 

7-16

7-17

7-17

7-17

The Netherlands

7-17

Introduction Competitive Environment Maritime

 

7-17

7-18

7-18

Norway

7-18

Air

7-18

Land

7-19

Poland

7-19

Competitive Environment Air Maritime

 

7-19

7-19

7-20

Romania

7-20

Introduction Competitive Environment Air

 

7-20

7-20

7-21

Spain

7-21

Introduction

7-21

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Air

7-21

Switzerland

7-21

Introduction Competitive Environment Air Land

 

7-21

7-22

7-22

7-22

The United Kingdom

7-22

Introduction Competitive Environment Air Land Maritime

7-22

7-23

7-24

7-26

7-28

Chapter

8

Strategic Recommendations

 

Recommendation on the European Market

 

8-1

Strong Awareness of Joint Training

8-1

Recommendation on Company Strategy

8-2

Diversification

8-2

Necessity to Win a Segment of Contracts as Prime or Subcontractor

 

8-2

Positioning of Companies in the Market

 

8-2

System Design

8-3

Standardisation of System Design

 

8-3

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List of Figures

Chapter

3

Industry Challenges—Market Drivers and Restraints

3-1

Military Synthetic Training and Simulation Market:

 

Impact of Top Challenges (Europe), 2007-2015

 

3-2

3-2

Military Synthetic Training and Simulation Market:

 

Market Drivers Ranked in Order of Impact (Europe), 2007-2015

 

3-5

3-3

Military Synthetic Training and Simulation Market:

 

Market Restraints Ranked in Order of Impact (Europe), 2007-2015

 

3-8

Chapter

4

 

Segment Analysis and Forecasts

4-1

Military Synthetic Training and Simulation Market:

 

Total Revenue Forecasts (Europe), 2006-2015

 

4-1

4-2

Military Synthetic Training and Simulation Market:

 

Total Revenue Forecasts by Segment (Europe), 2006-2015

 

4-3

4-3

Military Synthetic Training and Simulation Market:

 

Air Segment Revenue Forecasts (Europe), 2006-2015

 

4-4

4-4

Military Synthetic Training and Simulation Market:

 

Land Segment Revenue Forecasts (Europe), 2006-2015

 

4-6

4-5

Military Synthetic Training and Simulation Market:

 

Maritime Segment Revenue Forecasts (Europe), 2006-2015

 

4-8

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Chapter

6

Competitive Landscape

6-1

Military Synthetic Training and Simulation Market:

Competitive Structure (Europe), 2006

 

6-2

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List of Charts

Chapter

2

Executive Summary

2.1 Military Synthetic Training and Simulation Market:

Market Engineering Measurements (Europe), 2006

 

2-5

Chapter

4

Segment Analysis and Forecasts

 

4.1 Military Synthetic Training and Simulation Market:

 

Total Revenue Forecasts (Europe), 2006-2015

 

4-2

4.2 Military Synthetic Training and Simulation Market:

 

Total Revenue Forecasts by Segment (Europe), 2006-2015

 

4-3

4.3 Military Synthetic Training and Simulation Market:

 

Air Segment Revenue Forecasts (Europe), 2006-2015

 

4-5

4.4 Military Synthetic Training and Simulation Market:

 

Land Segment Revenue Forecasts (Europe), 2006-2015

 

4-7

4.5 Military Synthetic Training and Simulation Market:

 

Maritime Segment Revenue Forecasts (Europe), 2006-2015

 

4-9

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Chapter

5

Market Share Analysis

5.1 Military Synthetic Training and Simulation Market:

Key Country Investment (Europe), 2006

 

5-2

5.2 Military Synthetic Training and Simulation Market:

 

NH90 Joint Air Programme (Europe), 2006

 

5-3

5.3 Military Synthetic Training and Simulation Market:

 

Joint Air Programme (Europe), 2006

 

5-3

5.4 Military Synthetic Training and Simulation Market:

 

Eguermin Maritime Joint Programme (Europe), 2006

 

5-4

5.5 Military Synthetic Training and Simulation Market:

 

Company Market Shares by Revenue (Europe), 2006

 

5-4

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xiv

1

Introduction to Military Synthetic Training and Simulation Markets in Europe

Introduction

Introduction to the Market

Ever since the last decade, European militaries have always been second to the United States in the development of training systems and programmes and the trend is likely to remain so. Nevertheless, new challenges have emerged in Europe in these last few years: it is undeniable that European countries need to cooperate in joint training programmes for training effi- ciency and cost reductions in net-centric warfare (NCW) environments. This analysis on the European training and simulation market is intended to provide strategic positioning and recommendations for those competing in the market. Frost & Sullivan aims to address the competitive structure of the market; identify market participants in terms of their core competencies, including their market shares; provide a regional analysis and forecast covering the period 2006 to 2015; deliver strategic business recommendations and present the market dynamics which are likely to dominate during this time frame. The structure of this research is as follows:

Segment 1 provides a brief introduction to the European training and simulation market

Segment 2 provides the summary of the main findings

Segment 3 details the market drivers, restraints and industry challenges

Segment 4 analyses all three Segments of the market

Segment 5 provides the market share analysis

Segment 6 details the market forecasts

Segment 7 is a study of the competitive landscape in Europe

Segment 8 is a regional analysis, country by country

1-1

Market

Analysis

Methodology

Introduction

Frost & Sullivan is a leading international growth consultancy involved in market and competitive intelligence. The Aerospace & Defence unit focuses on eight different core areas of expertise and training and simulation is one core. The objective of the market analysis of training and simulation in Europe is to provide a state-of-the-art in 2006, but most impor- tantly, it is intended to provide forecasts and trends as a decision making tool for a better positioning on the highly competitive market. Analysis has identified key market challenges, drivers and restraints and recommendations in light of such challenges.

The analysis covers the timeframe of 2006-2015 with 2006 as a base year.

The methodology of market intelligence utilised in the case of this specific study is rigorous.

It is characterised by six main stages which are detailed.

Identification of the Area of Analysis

The identification of the subject of analysis is mainly defined according to the needs of the market participants and significant evolutions in the defence sector. A focus is then made on the main market dynamics of the identified area. As the market for military training and

simulation is highly competitive and evolves fairly rapidly, Frost & Sullivan has identified the need to analyse this market to provide a significant tool for business improvement to the market participants. There are three factors that define this analysis region, time frame and technologies. Europe has been identified due to its current trend for collective training and, as such, for the significant market demands and opportunities. The base year is 2006 and the analysis presents a forecast for a decade in order to provide a significant understanding of the particular market. As simulators are implemented for long-term usage and contracts take

a long time to be awarded, the coverage of a decade is important and provides a proactive

stance for simulator providers as well as the defence industry. In terms of technologies, the main simulators examined in the analysis are those which offer the most efficient military training and the ones which are likely to be the most demanded in the years to come.

1-2

Secondary Research

As training and simulation includes a broad array of activity, the identification stage allows to define the research that is to be conducted. The research methodology employed is charac- terised by a combination of 'bottom-up' and 'top-down' approaches to platforms and simulator systems. The 'top-down' approach complements this method by adjusting the final forecast according to specific information or intentions that are gathered from other sources. Frost & Sullivan analysts have a methodology to apply in order to obtain the most useful data in a limited time frame. Too large an amount of information can saturate knowledge and devaluate the analysis. Therefore, specific research sources, such as diverse specialised electronic and print resources, have been recommended. The data is collected by the exhaus- tive assessment of those available secondary resources and provide a deep understanding of the market to Frost & Sullivan analysts.

Primary Research

The knowledge base is then enhanced in value by extensive discussions with industry partici- pants, from equipment suppliers to end users and those involved in scientific or academic research and specialised organisations. These discussions result from an interview strategy which is designed to collect relevant data from correspondents while preserving high confi- dentiality. The data is intended solely for Frost & Sullivan research, as a third consulting party. After collection, the extensive content is analysed and inferred. This process of primary research is continuously reinforced by ongoing contacts and builds on the extensive consulting experience of Frost & Sullivan.

Market Analysis

The dual process of theoretical and practical assessment enables a deep analysis of the Euro- pean military training and simulation market in its current state and provides an assessment of how it will develop over the next decade. It highlights the market trends, the drivers and restraints for the market and the challenges the industry will have to face.

1-3

Market Forecasts

This data allows analyst to draw a significant forecast. Forecasts are made for the training and simulation market based on the costs of units, length of programmes and service provi- sion such as maintenance and Mid-Life Upgrades (MLU) which, because they are a relevant source of revenues, must be considered in the estimations. The results are reviewed for quality control: analysis is verified for accuracy. Feedback from clients and market partici- pants serve to enhance the analysis made. Moreover, all analyses benefit from internal market intelligence within Frost & Sullivan as analysts confront their viewpoint according to their area of focus. The whole process of market intelligence and market analysis is therefore an iterative one as it constantly nurtures the collected data with updates as the analyst continues to track the market dynamics.

These stages of analysis enable the analyst to draw strategic recommendations to facilitate decision making for the market participants in their businesses, thus representing the best value of the analysis.

Recommendations

After extensive data collection and analysis of the market, Frost & Sullivan analysts are able to draw in-depth conclusions and therefore deliver bespoke recommendations to the market participants. This phase of analysis is one of the most valuable as it supports decision making with new strategic orientations for companies. The analysis of the military training and simu- lation will market will provide strategic recommendations to market participants.

1-4

2

Executive Summary

Market

Overview

Market Trends

Joint

Programmes

in

Europe

The whole defence environment has undergone changes in the last few years and which are complex to identify. Warfare has shifted from conventional combat to asymmetric combat.With this transition, the threats have become different and hence training activities need to follow these new trends to increase and maximise the efficiency and readiness of forces. Combat responses need to be really different and European countries are increasingly demanding innovation in training.

In net-centric warfare (NCW) or in some network enabled capability (NEC) commands, it is a key necessity to have modelled simulators in order to train personnel and generate a high flow of complex and different data. Therefore, it can be inferred that simulation is an indis- pensable tool for modern military training.

European countries show an increasing interest towards joint training programmes in order to reach the best military efficiency and to share practices between them. Cost efficiency is also a reason as some of the countries are sharing the costs of training. The budgetary restric- tion related to defence spending is also a concern. Countries do need to cooperate in all areas of military training: air, land and sea.

While the United Kingdom, France and Germany are leading the trend towards cooperation, Belgium is showing increased interest, with the country conducting a joint air training exer- cise with France.

Switzerland is also very dynamic and has a demand for future joint training modalities.

Northern countries such as Finland, Sweden, Norway and the Netherlands are also taking

initiatives to join European training programmes. Eastern European countries such as

Bulgaria and Romania have been looking at buying western aircraft for over ten years in

anticipation of joining NATO programmes, but have accorded priority to re-equipping and

reforming their armies and navies.

2-1

The standards of architecture will have to be open and reflect the principles of High Level Architecture (HLA) in order to have the greatest accessibility to common training databases. As observed in the United States, interoperability is driven between the two segments Land and Air, but the main challenge is the variety of architectures.

The

Game

Industry

Has

a

Role

to

Play

in

Military

Synthetic

Training

Serious games started during the period 1989-1990. Serious games have always been consid- ered as an optional training device and might play a role in future synthetic training programmes. The militaries have realised the importance of using games as a medium for more efficient training. They are perceived as a low-cost solution for training. It is defined that the content engages the trainee and not specifically the technology itself. Games can offer a very efficient immersion in interactive and three dimensional environments while being inexpensive off the shelf. The cost of the right kind of right game is approximately about $100 and fulfils many of the features that virtual reality fails to fulfil. Among some games, Alchemy II offers training for the new generation of unmanned aerial vehicles. Never- theless, the main problem encountered with serious games is the cost of integrating and transforming them into a form of military training medium. The game industry does not have the specific military cult ure. To draw a simplified comparison between games and simulation in general, games require rules, interaction and a short-term goal whereas simulation must represent an environment as good as possible. Games are designed to entertain and have difficulties understanding what the specific military requirements are and their triviality does not take into account human factors in combat warfare. They might teach wrong tactics according to a feasibility study published in 2005. Moreover, a consumer video game presents a very small, contained straight-ahead view of the virtual environment on a computer or television screen. A military simulation environment, however, contains more than just visual mapping, as it also has to correspond to a pilot's full sensor suite, including infrared, radar and electro-optical cues. As a consequence, they must comprise a prior defini- tion which would facilitate their integration in military programmes and this is not likely to be a current trend in the game industry. Howeve r, in the opinion of the industry, games are open, flexible and easy to modify. While some games have proved to be successful for the use of military training, they did not manage to be sustainable because of the reasons cited. A project called REVVA was implemented in 2003-2004 and lasted for 18 months at the cost of some 2 million Euros and included France, Denmark, Ital y, the Netherlands and Sweden. Project REVVA 2 is now being implemented. The objective is to produce a set of documents which will be proposed as a standard for a verification, validation and accreditation method- ology of data, models and simulations submitted to an appropriate international standardisation body. The time frame is January 2006 to December 2008 and includes coun- tries such as France, Canada, Denmark, the Netherlands, Sweden, and some industries in the United Kingdom. The total project cost is estimated to be 1.9 million Euros.

2-2

What

Image

Generation?

The topic of image generation is of prime importance in the simulation industry.

It is important to question what fidelity is indispensable in military training. A recurrent discussion on the effect of enhanced simulator realism on cost-effective training underlines that, on the one hand, trainees only need the minimum of realism on cost-effective training. Those who advocate this approach believe that too much realism can saturate concentration and reproduce too much of details which would confuse visibility. Only some basic objects need to be reproduced without the necessity to gather all unnecessary objects for training. On the other hand, some believe that the effect of augmented realism in simulation is a major factor, particularly for young trainees who have been brought up in the generation of video gaming and who expect a good visual resolution. In any case, with the evolution of more features within existing brands of visual imagery, new improvements may be possible at lower costs. Most importantly, there is often much confusion in the use of the terms 'resolu- tion' and 'fidelity'. It has become common to misuse those two concepts in the sphere of discussion on simulated training in the defence sector. An emphasis has to be made on the difference between resolution and fidelity. Resolution is what the screen displays and what reality looks like and fidelity is the amount of details provided.

Careful attention must be paid to low fidelity hidden by a multi-resolution and good resolu- tion which can be a misleading source of technical information for the trainee.

Technology Trends

To get a better understanding of the market of military training and simulation in Europe, Frost & Sullivan has chosen to examine the following training types and provide market potential estimates for each main type. The military training and simulation market comprises the following key computer-based simulators:

With regards to air training, there are flight simulators (embedded or ground based), air combat simulators, crew trainers, helicopter part task trainers and helicopter simulators. As for land training, the types are mission simulators, part task trainers, system trainers, weapon trainers, battlefield simulators, driving simulators, gunnery & artillery simulators, mine simulators, MOUT (Military Operations on Urbanized Terrain), small arms trainers and weapon effects simulators. Training devices for maritime training include command team trainers, mine hunting trainers, naval tactics trainers, submarine training systems and weapons trainers.

2-3

The main types of simulators are defined as follows:

Distributed

Mission

Trainers

At present, and over the next decade, hundreds of millions of dollars are being invested in the development of the distributed mission trainer (DMT). It is a maturing technology that has been driven by the much larger commercial telecommunications Internet market. It is in the process of continuous improvement as governments in Europe are increasingly opting for joint programmes. The DMT allows forces having separate simulators to train together in the same virtual environment from a remote location. As a feature to be considered, interopera- bility of systems is crucial as each trainee benefits from a remote training from different locations in different simulation systems. Nonetheless, they will be networked using shared and standardised data. In the development of a DM T, It is imperative to design the simulator as upgradeable as possible in order to integrate it in some joint programmes if required. The United States is ahead of European nations in terms of the development of distributed simu- lation. However, Europe is catching up despite the technological complications required for an efficient installation and use of DMT.

European militaries aim at developing similar training programmes for platforms and systems in all the three segments of air, land and sea and aim at integrating them at a later point. The ultimate objective is to allow all these segments to train cooperatively on the same missions in one real-time synthetic battle space in net-centric environments.

Embedded

Technologies

An embedded system is a simulation device which is directly installed on the trainee's equip- ment to be performed on mission. Both the training data and the general data are presented on the combat vehicle operational displays and controlled in a manner similar to current vehicle operations. The advantage with this technology is that it provides an autonomous training device that allows the soldier to train as he fights. This on-board technology would allow mission rehearsals and sustainable training to occur whether at a home station or while deployed on a combat theatre. One of the cutting edge embedded technologies is in the area of motion sensing and tracking. In simulated training, one of the most complicated issues is to track all the objects so that there is a correct spatial relationship in the environment.

PC-based

Simulators

Parallel advanced advances in micro processing technologies and graphic developments are slowly making commercial-off-the-shelf (COTS) personal computers increasingly competitive with the high-end host and image generator computers. Personal computers are gradually replacing many of the legacy systems used to run training systems as they have become inevi- table and inexpensive.

2-4

Summary

of

Main

Findings

Market Growth Opportunities and Total Forecasts

Chart 2.1 shows the market engineering measurements for the military synthetic training and simulation market in Europe in 2006.

Chart

2.1

Military Synthetic Training and Simulation Market: Market Engineering Measurements (Europe), 2006

Market Engineering Drives Market

Strategy and Planning

Challenge Identification Market Market Engineering Research System Market Engineer Market Implementation
Challenge
Identification
Market
Market
Engineering
Research
System
Market
Engineer
Market
Implementation
Strategy
Market
Planning

Measurement Name

Measurement

Trend

Market age

Development stage

---

Revenues (2006)

$1.1 billion

Up

Potential revenues (2015)

$1.8 billion

Up

Base year market growth rate (2006)

0.40%

Up

Forecast period market growth rate (CAGR)

3.70%

Down

Saturation (current/potential users)

20.00%

Stable

Price sensitivity

Medium

Stable

Customer demographics (product site number and types)

2,350 sites

Stable

Number of products

80

Up

Average product development time

3 years

Stable

Competitors (active market competitors in base year)

150

Stable

Companies exiting the market (2006)

3

Up

Degree of competition

6

Up

Degree of technical change

High

Up

Market concentration (percent of base year market controlled by top three competitors)

40.0%

N/A

Note: All figures are rounded. Source: Frost & Sullivan

2-5

Annual revenues do fluctuate because of the particular features of the market, such as length of procurement phase, length of training programmes and updates on systems.

In fiscal year 2006, the European military training and simulation market accounted for some $1.18 billion in revenues.

In fiscal year 2015, the market will have a Compound Annual Growth Rate (CAGR) of 4.8 per cent corresponding to some $1.820 billion in revenues. This high growth rate means that the market is likely to expand considerably and market opportunities are likely to occur for business participants.

Market Dynamics

Frost & Sullivan has identified market drivers, restraints and industry challenges which are of primary concern as these factors highly influence the market trend and serve as key indica- tors for market participants. The challenges seem to have changed recently due to the restriction of defence budgets and new strategies adopted by governments. Although some factors drive the market, restraints to market growth are persistent and are more numerous due to the new trends in doctrines.

About the Competitive Environment

The study on the European military training and simulation market considers four basic

types of market participants: prime contractors, subcontractors, independent contractors and

a consortium of firms. Primary contractors are those who assemble contracting teams for

major programmes that focus on training and simulation functions, such as the Eurofighter or the Tiger helicopter, or on other major programmes that focus on training and simulation, such as Combined Arms Tactical Trainer (CATT) and Combat Training Centres (CTC). The former programme type is usually awarded to a single primary contractor whereas the latter type is often awarded entirely to a team of primary contractors.

Subcontractors, often smaller companies with a particular specialisation, are those that meet requirements which primary contractors cannot perform themselves or would find strategi- cally profitable to purchase. Subcontractors provide Commercial-On-The-Shelf (COTS) or Military-Off-The-Shelf (MOTS) solutions.

Independent contractors are those who obtain smaller contracts from European militaries. The range of companies in this category covers all types of market participants.

A consortium is a grouping of contractors who share a particular contract with their respec-

tive shares awarded in a common project.

2-6

The market is highly competitive. In the last two years, new entrants from the civil sector have penetrated the market providing high technological advances. Frost & Sullivan has identified more than 100 competitors in the field. The approximate number of competitors in the European market is estimated to be about 150 as of 2006. A large number of these firms includes subcontractors and manufacturers of video games who occasionally win contracts.

Thales is the dominating market participant with a market share of 36 per cent in 2006. The second largest participant is CAE with an approximate share of 11 per cent. These two companies combined account for a market concentration of 47 per cent. As for civil partici- pants, those who can generate the most significant revenues are the visual display providers or software integrators.

The competitive structure is quite complex. The identifying factors are procurement size and length (joint programmes), number of competitors, types of technologies, size of contracts and military restraints. All these factors analysed together result in the conclusion that market participants need to find a segment where they can win contracts. Civil participants need to integrate into the military culture to be able to enter the market.

Country Analysis

According to Frost & Sullivan's estimations, the United Kingdom and France will continue to dominate the market in Europe and control slightly more than half of the European market between them. However, all the countries in Europe show an overall increase in demand for joint training programmes. In addition to the cost efficiency that can be realised, the reasons motivating such a trend are better military efficiency and sharing of practices between different countries. With defence budget restrictions being a major issue, countries are inter- ested to share the cost of training as they can save money on current expenditure.

2-7

3

Industry Challenges—Market Drivers and Restraints

Introduction

Introduction to the Industry Challenges—Market Drivers and Restraints

This section of the analysis presents the industry challenges, market drivers and restraints for the market of military synthetic training and simulation in Europe over the time frame 2006-2015. This section is intended to allow market participants to address these factors in order to facilitate business strategy and reactivity.

Industry

Challenges

Introduction

Figure 3-1 shows the market challenges for the market of military synthetic training and simulation in Europe during the period 2007-2015.

3-1

Figure

3-1

Military Synthetic Training and Simulation Market: Impact of Top Challenges (Europe),

2007-2015

Challenge

1-3 Years

4-6 Years

7-9 Years

Dominance of Joint Programmes in Europe

High

High

High

Maintenance of Capability

Medium

High

High

How to Meet Specific Military Needs & Defence Budget Restrictions?

High

Medium

Low

Designing Simulators with High Adaptability

Medium

High

High

Difficulty for Companies to Define Basic Scenarios Due to New Conflicts

Medium

Medium

Medium

Dominance

of

Joint

Programmes

in

Europe

Source: Frost & Sullivan

In Europe, the trend is towards joint simulated training programs. Such a programme is considered to be good but complex and very much based on knowledge and assumption as opposed to a pragmatic standpoint. The complexity of multinational joint programs arises frpm the point from which the information is approached and exploited as the number of different data is very high. However, joint simulated trainings are more efficient in terms of coalitions and more cost effective for governments. Hence, the challenge for the military simulation industry is to be able to consider the factors and requirements from all the partner countries. The simulators manufacturers must then consider a wide range of different data and must be prepared for a long period of agreement before they can sign the contract and commence the manufacturing process. The companies must fully understand all the difficul- ties of joint doctrine which can be a long and tedious task. On the other hand, joint programs facilitate a stable income as they are likely to last over several years encompassing multi-tier countries and companies. This long-term partnership enables smaller market participants and countries to have a regular and measurable income that is stabilised by the joint programme. The company must also be able to match its business models to the business model require- ments of the joint procurement authorities.

3-2

Maintenance

of

Capability

European militaries are subject to restricted acquisition budgets and therefore are examining other methods to reduce costs on simulated training devices. They tend to require a whole package, including services such as maintenance or repairs, from the supplier. This would also reduce costs in terms of personal management, maintenance and time on the customer side. As a consequence, in addition to their well designed training systems, companies would have to include service provision and a strong client-oriented policy to sell their products and service skills. In fact, as more and more companies are increasingly aware of this prospect, there is a need for companies to diversify their core competencies. As such, they can no longer concentrate on their core expertise such as designing training systems engineering, but must also diversify to providing maintenance services and therefore they can lose concentra- tion on their core business. If these types of companies wish to concentrate on their core business such as technology engineering, they can proceed to acquire other companies specialised in logistic support. Predictably, they would have to compete in the market in terms of service provisioning and anticipate their customer needs and requirements for a better quality of service provision.

How

Budget

to

Meet

Specific

Restrictions?

Military

Needs

and

Defence

About 20 years ago, it was indispensable to purchase a simulator with the system. However, at present, simulated systems are bought only when there is a definite need. In the last few years, Armed Forces have not resorted to systematic purchase of simulated training systems. They do not purchase in advance and have the simulators ready when necessary, but instead procure simulators at the specific moment when there is a need of training. Moreover, they tend to detail any criteria for which they need a simulated system. These can be factors such as: what purpose, how many, how long, what types of trainees, in what manner and in what context. Companies must therefore deliver a customised training system and must compre- hend the real need so as to deliver these systems in a short time and respond to an immediate need from the militaries.

3-3

Designing

Simulators

with

High

Adaptability

As the training and simulation market is based on IT technologies, technological innovation becomes a major market driver. The capability of the systems to be easily at lower cost upgraded is the key to satisfy the customer requirements and sustain their credibility. The higher the upgrade capability of a system, the more the product will stay in service and remain sustainable. Companies offering sustainable training systems would hence retain their customers and would have a higher probability to win potential contracts in the market. There is a considerable trend towards joint training programmes, as in European countries tend to enhance the doctrine of such programmes. Simulators geared towards specific plat- forms also need to connect to allow a section of the forces to train with other components. For instance, the US Distributed Mission Operations (DMO) programme is intended to even- tually link simulators over the continent, although at present only a few simulators in the US are linked. This requires a database of terrain (in this case, the Common Environment Common DataBase), which can be applied to numerous scenarios.

Interoperability plays a major role as systems are increasingly involved in joint programmes and increased collaboration between forces. Therefore they necessitate a good exposure to networking together with a strong standardisation of data capability and a high degree of interoperability. Systems must also be modified in real time.

Difficulty

to

for

Companies

New

Conflicts

to

Define

Basic

Scenarios

Due

A challenge that the simulator manufacturers may face is the complexity of designing new basic scenarios. Companies specialised in virtual environments, such as the serious game companies may face difficulties in creating military scenarios capable of addressing battle or homeland security threats. Thus, situational awareness really becomes a key consideration.

European countries tend to evolve in net centric environments as a response to the nature of conflicts which have changed considerably in the past few years. Their new outlay is not simple to understand as stakes and threats do not involve classical bilateral conflict fields but are rather asymmetrical conflicts, remotely operated. Therefore, it is not an easy task to design virtual highly complex scenarios that are credible and as realistic as possible to train the forces for those new kinds of conflicts.

3-4

Market

Drivers

Introduction

This section shows the main factors which are likely to drive the market over the period

2006-2015.

Figure 3-2 shows the market drivers ranked in order of impact for the market of military synthetic training and simulation in Europe during the period 2007-2015.

Figure

3-2

Military Synthetic Training and Simulation Market: Market Drivers Ranked in Order of Impact (Europe), 2007-2015

Rank

Driver

1-3 Years

4-6 Years

7-9 Years

1

Need for Collective Training in Europe

High

High

High

2

Strong Technological Performance

High

Medium

Low

3

Availability Contracts Offer More Extensive Programs

Medium

High

High

4

Benefits of Cost and Time Efficiency by Simulated Training

Medium

Medium

High

Need

for

Collective

Training

in

Europe

Source: Frost & Sullivan

Traditional military training approaches have become outmoded therefore European coun- tries are now finding the need to train jointly with one another. Therefore, they seek to procure a whole series of networked simulation devices. The combination of reduced cost of training systems compounded by the development of networking capability has opened up an entirely new range of applications for synthetic training. The switch to joint training means that current systems will have to be either upgraded, networked or replaced with distributed trainers.

3-5

Strong

Technological

Performance

The need for more realistic and higher fidelity military simulation has enabled simulated training to extend to a wide range of military applications and technologies. This includes the use of PC-based image generators (PC-IGs), which have enabled the simpler usage of a new generation of simulation programs.

A number of leading simulation companies and large defence prime contractors have recently introduced new programs into the market, which are likely to define the industry standards for the next decade. These have included PC-based offerings from Flightsafety International, CAE, Sogitec (a subsidiary of Dassault), Saab and Indra. PC-based systems were initially viewed with skepticism by market participants regarding their viability as a low-cost, low-end solution.

Sogitec's Apogee 6 system, which is used as a training aid for the Rafale, includes real-time self shadowing of terrain, 3D shadows from moving models and self shadowing of cloud layers. It is thus relatively advanced for a military simulator; however, all of these innova- tions are based on Commercial Off-The-Shelf (COTS) applications already available on the PC-based platform. A further advantage is that these systems can be monitored from standard PCs or workstations or can be projected on to liquid crystal on silicon screens, such as those manufactured for this purpose by Barco.

COTS technologies can also be exploited in a number of other areas, including helmet-mounted displays and binocular vision aids. PC-based programmes are particularly useful in desktop environments to teach skills which can be learnt with reduced access to airframes. At the Royal Air Force (RAF)'s Defence College of Aeronautical Engineering (DCAE), cadets are trained using desktop Windows XP-based solutions. Windows-based desktop solutions are likely to be easier for use by trainees, who will probably be familiar with PC-type applications because of their widespread use in domestic and office environ- ments. As a result, these will be more user friendly than specifically designed learning aids. The new version of Advanced Cockpit Trainer (ACT) has also been progressively remodelled from DOS platforms through the various Windows packages to keep it contemporary, thus demonstrating the ease with which programmes based on COTS technologies can be upgraded with improvement in technology.

However, these programmes have proved popular for a number of reasons, particularly the fact that basing simulation programmes on PC applications can make use of COTS products as opposed to proprietary systems, thus reducing costs. A further advantage of producing simulation products based on COTS systems is that these then have easier upgrade paths and are more able to keep up with frequent technological advances in the simulation industry.

Due to advances in technological networking, remote and distributed synthetic training has evolved and has seen more applications to enable trainees to learn from remote sites and in a reduced cost and logistical arrangement.

3-6

Availability

Contracts

Offer

More

Extensive

Programs

Training approaches of the US military have a high influence on European simulation programmes and some US practices are likely to be adopted amongst other NATO partners. One particularly important programme which is likely to influence European partners is the US Army's Flight School XXI programme. This programme involves the purchase of some 57 simulators for a variety of helicopter training requirements. One particular aspect of the programme that is likely to be of interest is that the simulators are purchased on an availa- bility basis, whereby the contractors (primarily CSC, but also L-3 and Rockwell Collins) continue to own the simulators and are responsible for improvements and maintenance related to them. This means that the contractors share the risk for the programme with the government in question, meaning that the contractor is responsible for ensuring that simula- tors are operational and that improvements to the technology occur when required. This assists in terms of considering training programmes as improvements, wherein changes to tactics and circumstances can be added without the total replacement of the entire system. This has proved valuable to the US programme in adding improvements in response to the lessons learned in Iraq and Afghanistan as the conflict progressed. The availability contract also reduces the cost, allowing more simulators to be procured at one time. The contract also provides a definite incentive for CSC to perform well. If the company achieves the targets for availability, the contract will be extended. This is a departure from traditional Availability Contracting models, which merely penalise the contractor if they fail to hit targets, and tends to be more successful in persuading contractors to provide solutions to problems that they foresee in the future or suggest suitable improvements.

Benefits

of

Cost

and

Time

Efficiency

by

Simulated

Training

European militaries, in spite of the added costs of procurement for simulated training equip- ment, have found that the operations and maintenance costs for flying in a simulator are minor compared to the same nature of costs incurred by actual flying aircraft for all training purposes. The same can be said for the use of live ammunition for training with tanks. Rehearsals in simulators do not necessitate the immobilisation of actual systems for training. Actual fighting systems can therefore be deployable for the purpose of fighting operations, increasing the availability of fighting systems. The simulated systems are designed to be used for the purpose of training and hence are at a minor risk than the actual systems. Time effi- ciency is also an important factor as more rehearsals can be performed on the simulators rather than on actual systems. For instance, the US Air Force has estimated that the cost of an hour of use of a simulated training device is worth the cost of 6 minutes in an aircraft. Time saving applies to all military applications.

3-7

In terms of personnel safety, simulation helps avoid injuries and accidents that can occur during actual training. These arguments have always been driving the growth of the simu- lated training market and are likely to remain so in the foreseeable future.

Market

Restraints

Introduction

This section discusses the various issues which might restrict the size of the market over the period 2006-2015.

Figure 3-3 shows the market restraints ranked in order of impact for the market of military synthetic training and simulation in Europe during the period 2007-2015.

Figure

3-3

Military Synthetic Training and Simulation Market: Market Restraints Ranked in Order of Impact (Europe), 2007-2015

Rank

Restraint

1-3 Years

4-6 Years

7-9 Years

1

High Technical Competitiveness

High

Medium

Medium

2

High Outlays Faced by Specialised Companies

High

Medium

Medium

3

Complex and Long Implementation Time for Joint Programmes

High

Medium

Low

4

Shrinking European Defence Budgets

Medium

High

High

5

Potential Constriction of the Market Due to Increased European Integration

Medium

Medium

High

6

Reluctance from Militaries to Adopt Sophisticated Simulators

Medium

Medium

Medium

7

Simulators Seen Only as a Complimentary Tool

Medium

Medium

Medium

8

Limitation of Market Value Due to Intensive Use of COTS Products

Medium

Medium

Low

Source: Frost & Sullivan

3-8

High

Technical

Competitiveness

The military training and simulation market is more complex than ever. The advances in technologies have allowed a large number of companies that are specialised in commercial communications and display technologies to ruggedise their products in order to penetrate the military market. Frost & Sullivan has identified more than 150 competitors in the market (and its submarkets) that has a competitive structure made of both military and civil compa- nies. However, the European market is likely to remain constricted to a degree due to its very high number of competitors. This high level of competition may constrict the market and result in some participants exiting the market.

High

Outlays

Faced

by

Specialised

Companies

Defence companies specialised in manufacturing simulators may face financial difficulties in their initial stages and in the short term, as they incur losses in their research and develop- ment. CAE is a fitting example for a company of this kind. Despite having numerous significant gains in terms of military simulation contracts, the company has experienced financial difficulties. In 2004 and 2005, for example, the company went through a lean patch and was forced to make some 450 redundancies. CAE's simulation revenue stream actually increased by some 13 per cent, as more militaries opted to use simulators. This resulted in a production backlog of systems worth $1.4 billion. However, the cost of running over 100 flight simulators is very significant over the short term as a result of the technical diffi- culties of producing and fielding such systems. While long-term support, maintenance and upgrade may offer good opportunities for profit, the short term can lead to substantial losses and may well require considerable stakeholder patience before a contract becomes profitable enough to outweigh the initial expense.

Complex

Programmes

and

Long

Implementation

Time

for

Joint

In joint programme processes, the stakeholders must take a long time to define, implement and test their requirements before placing an order for joint training simulators. The variety of needs—of procurement laws, of acquisition policies, cultural differences and all the tech- nical practices in each country—makes the process more complex and longer to implement. Hence, the supplying companies might have to follow the whole process for several years. This upkeep process might last five years before companies can win contracts and launch simulator provisions.

3-9

Shrinking

European

Defence

Budgets

The current European political opinion is of investing in the defence sector. Defence budgets are no longer a priority in Europe. This trend can affect the purchase of new platforms and therefore lead to a decreasing demand for new simulators for those systems. As training and simulation are part of the overall budget, a general decline will impact on the resources allo- cated to these specific sectors.

Governments might be reluctant to opt for an upfront funding for training and simulation as they are no longer able to handle many of the systems and service requirements. There is obviously a need for management in a cost-effective manner and companies from the private sector are increasingly asked to fill the gap. Companies have to adjust Private Financed Initi- atives (PFI) which are likely to be a more and more used project style. They are more likely to address whole life costs in a different way and will have to bear the provisioning for financial and products services.

Potential

Constriction

of

the

Market

Due

to

Increased

European

Integration

The increasing drive for European interoperability and defence cooperation may constrict the market, as a number of nations rely on European initiatives to utilise joint funds to provide simulation capabilities. Such funding allows various nations to have access to simulators and training tools that would be more difficult to afford under other circumstances or which simply might not occur otherwise. The European Jet Pilot Training programme (AEJPT or Eurotraining), for example, was launched in 1997 with the intention of providing training for the pilots of various participating nations. Greece, Austria, Finland, France, Italy Germany, Portugal, Spain, Sweden, Belgium and Switzerland all participate in this programme, albeit within tight financial constraints. The start-up date for this project was projected as being 2010. NATO programmes also allow for some training for European pilots. However, these attempts at unified programmes can restrict the market to some extent. Due to the inherent difficulties of catering to so many vested interests, the programme has suffered numerous delays, resulting in a failure to procure the requisite simulation equip- ment. Various disappointments relating to the programme have resulted in both the Dutch and the Hellenic Air Force either withdrawing or threatening to withdraw their participation. While the AEJPT itself offers a considerable market for simulators, programmes of this nature restrict the necessity and funding for simulators within the various participating nations and lower the requirement for units. In this instance, it has also led to some nations failing to procure simulators.

Reluctance

Simulators

from

Militaries

to

Adopt

Sophisticated

Military trainers might not see a technically indispensable use of sophisticated simulators. Some sophisticated simulators may be perceived as crucial and highly efficient for training as their technology opens the scope to a very realistic training. However, trainers may think that some technological features are too advanced and that they pragmatically might not need such a high level of technology, which is sometimes too sophisticated, complex, and not directly connected to their military needs. Certain militaries will consider at a certain point whether they need to be technology driven or just be more pragmatic. Nevertheless, the tech- nology does not need to be too advanced for them to train properly on a daily basis as long as they have the proper fidelity in their training process.

Simulators

Seen

Only

as

a

Complimentary

Tool

Although the training decision-makers see an indisputable advantage in resorting to simula- tors in terms of time and cost efficiency, they are reluctant to accept the constant use of simulators to efficiently train their forces. Indeed, as for the air application for instance, the time in the air is seen as primordial and irreplaceable. The basic skills for a pilot are to be developed at the earlier stages of the training. It is crucial that the trainee spends a minimum number of hours flying and acquires the basic skills before he can resort to simulators. He would use simulators for his training once he masters the actual air requirements. Therefore, air simulators come at the second stage of a pilot training programme and as a secondary resource for efficient training. They are not systematically used for air training, but rather used quite sparingly by the trainers. Simulated training should be used at a later phase during the training process than live training. This will ensure that the trainees shall use simulators once they have a certain experience in live training. Simulators might be considered as over capable in comparison to the concrete and immediate needs.

Limitation

COTS

of

Products

Market

Value

due

to

Intensive

Use

of

The introduction of COTS technologies will prove to be a market driver as the decreased cost of purchasing simulation systems will allow the greater uptake of simulation technology by countries and armed forces, which previously would have been unable to afford technologies of this type. However, these technologies will also restrict the size of the market, as they are inexpensive compared to traditional simulation technologies, and may lead to a decline in the total market size as a result. The extensive use of COTS may limit the value of the market.

4

Segment Analysis and Forecasts

Total

Forecasts

Figure 4-1 and Chart 4.1 show the total revenue forecasts for the military synthetic training and simulation market in Europe during the period 2006-2015.

Figure

4-1

Military Synthetic Training and Simulation Market: Total Revenue Forecasts (Europe),

2006-2015

 

Revenues

Year

($ Million)

2006

1,100

2007

1,350

2008

1,475

2009

1,345

2010

1,400

2011

1,310

2012

1,410

2013

1,465

2014

1,590

2015

1,800

Note: All figures are rounded. Source: Frost & Sullivan

4-1

Revenues ($ Million)

Chart

4.1

Military Synthetic Training and Simulation Market: Total Revenue Forecasts (Europe),

2006-2015

2000

1500

1000

500

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Year

Note: All figures are rounded. Source: Frost & Sullivan

Forecasts by Military Segments

Figure 4-2 and Chart 4.2 show the total revenue forecasts and displays all three segments (air, land and maritime) for the military synthetic training and simulation market in Europe during the period 2006-2015.

4-2

Figure

4-2

Military Synthetic Training and Simulation Market: Total Revenue Forecasts by Segment (Europe), 2006-2015

 

Air

Land

Maritime

Revenues

Revenues

Revenues

Year

($ Million)

($ Million)

($ Million)

2006

500

400

200

2007

600

500

250

2008

650

550

275

2009

590

530

225

2010

650

500

250

2011

550

500

260

2012

590

560

260

2013

620

570

275

2014

690

600

300

2015

800

650

350

Chart

4.2

Note: All figures are rounded. Source: Frost & Sullivan

Military Synthetic Training and Simulation Market: Total Revenue Forecasts by Segment (Europe), 2006-2015

Total Revenue Forecasts by Segment (Europe), 2006-2015 Note: All figures are rounded. Source: Frost & Sullivan

Note: All figures are rounded. Source: Frost & Sullivan

4-3

Air

Revenue Forecasts

Figure 4-3 and Chart 4.3 present the revenue forecasts in the air segment for the military synthetic training and simulation market in Europe during the period 2006-2015.

Figure

4-3

Military

Synthetic

Training

and

Simulation

Market:

Air

Segment

Revenue

Forecasts

(Europe), 2006-2015

 
 

Revenues

Year

($ Million)

2006

500

2007

600

2008

650

2009

590

2010

650

2011

550

2012

590

2013

620

2014

690

2015

800

Note: All figures are rounded. Source: Frost & Sullivan

4-4

Chart

4.3

Military

Synthetic

Training

and

Simulation

Market:

Air

Segment

Revenue

Forecasts

(Europe), 2006-2015

800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011
800
700
600
500
400
300
200
100
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Revenues ($ Million)

Year

Note: All figures are rounded. Source: Frost & Sullivan

The air segment has traditionally been the driving force for training and simulation as risks

are bigger while training on actual aircraft. As a consequence, simulators are in much

demand from this military segment. This segment is likely to remain a major part of the

market. The market is in great part sustained by simulator upgrades and modifications. One

of the main trends has always been a demand for high-fidelity systems. Requirements and

technological advances for simulation systems are increasing. Whilst capability improves,

costs remain the same

Image generation performance is a major requirement for military aircraft.

The major air project at the moment relates to the equipment for the Eurofighter/and is

worth about $1.5 billion.

At present, the helicopter simulation market in Europe is very dynamic with a growing need

for new training equipment on the NH-90 between four core nations which are Italy,

Germany, France and The Netherlands. As helicopters are highly reconfigurable, their

procurement per user is likely to be scarce and, therefore, there is opportunity for further

procurement in the years to come.

The total cost of air simulation systems amounted to $500 million in 2006. More stable reve- nues are expected during the period 2007 to 2009. In 2010, some mid-life upgrade activities are anticipated to offer an increase in revenues for the participants.With the termination of some programmes and the resultant opportunities for the provision of new equipment and replacement/removal of older systems, the market is likely to witness revenues of $800 million by 2015. This would represent an increase of at least $100 million in a 9-10 year time frame, because this estimation does not include revenues that could be derived from potential programmes. Considering the current and future need for air simulators, revenue growth can only show a stable trend. A slight revenues pike is likely in 2008 due to the mid-life upgrade of the NH90 helicopter trainers in some countries.

4-5

France, the United Kingdom, Germany and Italy are the countries that procure the highest number of air simulators. The companies which have the biggest revenue share for air simu- lation in Europe are CAE, Thales and Eurofighter GmbH.

Land

Revenue Forecasts

Figure 4-4 and Chart 4.4 present the revenue forecasts in the land segment for the military synthetic training and simulation market in Europe during the period 2006-2015.

Figure

4-4

Military

Synthetic

Training

and

Simulation

Market:

Land

Segment

Revenue

Forecasts

(Europe), 2006-2015

 
 

Revenues

Year

($ Million)

2006

400

2007

500

2008

550

2009

530

2010

500

2011

500

2012

560

2013

570

2014

600

2015

650

Note: All figures are rounded. Source: Frost & Sullivan

4-6

Chart

4.4

Military

Synthetic

Training

and

Simulation

Market:

Land

Segment

Revenue

Forecasts

(Europe), 2006-2015

700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012
700
600
500
400
300
200
100
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Revenues ($ Million)

Year

Note: All figures are rounded. Source: Frost & Sullivan

The market for land systems should see a period of growth due to the need for joint training with the air segment.

Some programmes presently available in some European nations can be observed, for instance, on the Leopard tank in Norway. Leopard tank simulators are produced at a very reasonable cost. Cost savings are therefore important.

Tank driving costs are estimated to cost around $150 per mile in live training whereas simu- lated driving cost is only $5 per mile.

MOUT training offered by Ruag should see interesting opportunities throughout Europe.

The small arms market is occupying a significant market share and is dominated by Thales TTS and FATS at present. In the United Kingdom, the order book for the Combined Arms Tactical Trainer (CATT) is estimated to be at $250 million. Most importantly, in the UK, long-running contract for the Armoured Vehicle Training System set to be implemented by the Landmark consortium (comprising CAE, Agusta Westland and Interserve) from 2005 to 2035 is valued at $1.84 billion. The length of this programme (of over 30 years) makes the project cost very high. However, this revenue does not set the land segment to be stronger than the air segment.

The land segment had revenues of around $400 million in 2006. A slight revenue increase is likely to occur in 2012 due to mid-life upgrades. With no specific service provision or upgrades in the pipeline, the rest of the years are expected to generate stable income from maintenance activities mainly.

4-7

The year 2006 is of particular importance as many programmes that commenced in 2003 have their mid-life upgrades scheduled in this year. Some programmes have also been contracted for in 2006. Revenues will remain stable in 2007 and will see a spike in 2008 and 2010 due to the planned procurement of some land training programmes.

Maritime

Revenue Forecasts

Figure 4-5 and Chart 4.5 present the revenue forecasts in the maritime segment for the mili- tary synthetic training and simulation market in Europe during the period 2006-2015.

Figure

4-5

Military Synthetic Training and Simulation Market: Maritime Segment Revenue Forecasts (Europe), 2006-2015

 

Revenues

Year

($ Million)

2006

200

2007

250

2008

275

2009

225

2010

250

2011

260

2012

260

2013

275

2014

300

2015

350

Note: All figures are rounded. Source: Frost & Sullivan

4-8

Chart

4.5

Military Synthetic Training and Simulation Market: Maritime Segment Revenue Forecasts (Europe), 2006-2015

350 300 250 200 150 100 ˝ 50 0 2006 2007 2008 2009 2010 2011
350
300
250
200
150
100
˝
50
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Revenues ($ Million)

Year

Note: All figures are rounded. Source: Frost & Sullivan

The dominant trend for maritime simulation in Europe is the need for embedded rather than ground-based systems. These systems would also have to be linked together and to other air and land systems for combined training purposes. Over the past few years, there has been a considerable delay in the delivery of these systems to the UK Royal Navy by the company BVR Systems.

In France, the maritime market has been sustaining itself with the College Maritime bridge simulators supplied by Kongsberg and Barco in 1997. However, there might be an opportu- nity for new systems after 10 years of use. In Germany, the programme implemented to train jointly with foreign forces might extend to include some additional requirements in the years to come. This programme has been implemented by Thales TTS. The dominant maritime training location in Europe is in the UK, and to cite a few there are the Combat System Skills Trainer site (CSST) or Maritime Composite Training site (MCTS). The United Kingdom conducts more than seven maritime training programmes. The most important maritime training centres are Faslane, Portsmouth and Devonport. The maritime training market might observe some needs for interoperability with satellites, aside from embedded trainers, to be procured for the training centres.

As for forecasts for the maritime segment, the years 2007 and 2008 will see a slight increase due to the upgrade cost of a programme, from a joint venture between CAE and AMS, in the United Kingdom. Although no outstanding orders/upgrades/contracts are expected during the period 2010-2015, this segment is likely to grow and have revenues of $350 million by 2015.

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5

Market Share Analysis

Market

Shares

by

Country

Introduction

Countries in Europe show an increasing demand for collective training programmes. Their purpose is to reach the best military efficiency in net-centric commands and to share practices between various trends, while simultaneously ensuring cost efficiency through sharing costs of training. Countries do need to cooperate and are initiating phases of discussions between each other. With their leading presence in several joint training programmes, Germany, the United Kingdom and France are taking the most initiatives towards joint training modalities. Countries such as Belgium and Italy are closely following these trends. Belgium conducts air training exercises jointly with France.

Switzerland is also dynamic and will have a demand for future joint training possibilities. Northern countries such as Finland, Sweden, Norway and the Netherlands are also taking initiatives to join European training programmes. Eastern European countries such as Bulgaria and Romania have been looking at buying western aircraft for over ten years in anticipation of joining NATO programmes, but have accorded priority to re-equipping and reforming their armies and navies.

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Investment of Key European Countries in Synthetic Training

Chart 5.1 shows the investment in synthetic training for the key European countries in the military synthetic training and simulation market in Europe for 2006.

Chart

5.1

Military Synthetic Training and Simulation Market: Key Country Investment (Europe), 2006

Other Uinted Kingdom 15% 30% Italy 8% Belgium 6% Germany France 16%
Other
Uinted Kingdom
15%
30%
Italy
8%
Belgium
6%
Germany
France
16%

25%

Note: Others includes Scandinavian Countries, The Netherlands, Greece, The Czech Republic, Poland, Romania, Spain and Switzerland

Note: All figures are rounded. Source: Frost & Sullivan

The chart intends to represent the key countries market share, showing the leading countries in terms of training in Europe.

Joint Training Programmes

Chart 5.2, Chart 5.3 and Chart 5.4 show country shares for 3 joint training programmes in the military synthetic training and simulation market in Europe in 2006.

Chart 5.2 show the NH90 training programme with France, Germany, Italy and the Nether- lands as the four core nations.

5-2

Chart

5.2

Military Synthetic Training and Simulation Market: NH90 Joint Air Programme (Europe),

2006

Italy

25% The Netherlands
25%
The Netherlands

25%

France

25% Germany
25%
Germany

25%

Note: All figures are rounded. Source: Frost & Sullivan

Chart 5.3 show the air training initiated by France and Germany.

Chart

5.3

Military Synthetic Training and Simulation Market: Joint Air Programme (Europe), 2006

Germany

50%

Market: Joint Air Programme (Europe), 2006 Germany 50% France 50% Note: All figures are rounded. Source:
Market: Joint Air Programme (Europe), 2006 Germany 50% France 50% Note: All figures are rounded. Source:

France

50%

Note: All figures are rounded. Source: Frost & Sullivan

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Chart 5.4 show the maritime training between Belgium and Norway called EGUERMIN which consists of mine sweeping training.

Chart

5.4

Military Synthetic Training and Simulation Market: Eguermin Maritime Joint Programme (Europe), 2006

Belgium

50%

Eguermin Maritime Joint Programme (Europe), 2006 Belgium 50% Norway 50% Market Shares Note: All figures are
Eguermin Maritime Joint Programme (Europe), 2006 Belgium 50% Norway 50% Market Shares Note: All figures are

Norway

50%

Market

Shares

Note: All figures are rounded. Source: Frost & Sullivan

by

Company

Market Share Analysis

Chart 5.5 shows the company market share by revenues for the military synthetic training and simulation market in Europe for 2006.

Chart

5.5

Military Synthetic Training and Simulation Market: Company Market Shares by Revenue (Europe), 2006

Rockwell Collins Lockheed Martin CAE 5% 7% 11% Rheinmetall RDE 6% Agusta Westland 5% Thales
Rockwell Collins
Lockheed Martin
CAE
5%
7%
11%
Rheinmetall RDE
6%
Agusta Westland
5%
Thales
16%
Others (Defence)
13%
KMW
6%
Saab
EADS
Others (Civil)
BAE
5%
9%
6%
11%

Note: All figures are rounded. Source: Frost & Sullivan

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Thales and CAE accounted for one-fifth of the market revenues. Being a company catering to the civil sector, Barco had significant market share due to its important position as a provider of display devices for numerous programmes in Europe. The other defence companies together hold about 14 per cent of the market. BAE Systems had quite a good market share (11 per cent) as well due to its delivery of training systems to the United Kingdom, the leader in Europe for military training and simulation applications. Agusta Westland had a consider- able 7.0 per cent share due to the widespread training available on helicopters.

5-5

6

Competitive Landscape

Introduction

Competitive Environment

This section analyses the competitive environment for military training and simulation, listing some of the companies that offer remarkable training and simulation products and service provision to the European military forces. Frost & Sullivan has identified more than 100 competitors in this market. The list is not exhaustive and may not include all of the competitors, especially smaller entrants. Nonetheless, this analysis is likely to draw a comprehensible vision of the whole military training and simulation competitive landscape for a better awareness of market opportunities and industrial competitiveness.

Competitive Structure

Figure 6-1 shows the competitive structure for the military synthetic training and simulation market in Europe during the period 2006.

6-1

Figure

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Military Synthetic Training and Simulation Market: Competitive Structure (Europe), 2006

Number of Companies in the Market 150

Types of Competitors

Military companies Defence manufacturers C4ISR manufacturers Civil companies Visual display companies Software companies Video game manufacturers

Distribution Structure

Prime contracts

Subcontracts

Consortium

Tiers of Competition

Tier 1:

Two main defence companies Medium size defence companies Tier 2:

Medium size defence companies Large visual displays companies Medium size visual display companies Medium size software companies Large video game manufacturers Medium video game manufacturers Small video game manufacturers (can be new entrants).

Notable Acquisitions, Mergers

BVR systems acquired blue ridge simulation in march 2006. Rockwell Collins acquired Evans & Sutherland in may 2006. cost of acquisition: 71.5$M.

Procurement Entities

Ministries of defence European simulation procurement agencies

Key End-user Groups

Air defence training centres Land defence training centres Naval defence training centres.

Competitive Factors

Best bespoken capability Training efficiency Low life cycle cost Operational costs Interoperability capabilities Best upgradeability Maintenance costs Maintenance provision capabilities

Source: Frost & Sullivan

6-2

Market

Participants

Adacel

Adacel Inc. is a subsidiary of Adacel Technologies. Adacel provides simulation software in about 30 countries and is recognised as a leader in this segment. The company's main exper-

tise is in simulation activities relating to Air Traffic Control (ATC). Adacel has won significant contracts in the United States in direct competition with other companies and has gained contracts in Europe from the Norwegian and Italian armies over the last few years. The company also offers its products to the UK military. The company had experienced human resource problems but this will not influence its presence in the market for the years

to come as it is gradually gaining the trust of its new European customers. Frost & Sullivan

forecasts a significant growth for the company due to the focus made on software that enables interoperability features. Indeed, the companyis well positioned to improve its market share and is likely to lead the way for networked software in Europe in the coming years.

Agusta Westland

A subsidiary firm of Finmeccanica, Agusta Westland is one of the main helicopter manufac-

turers in Europe. With an annual turnover of 2.490 million, this company based in Italy and the United Kingdom is undergoing strategic partnering arrangement with the MoD. With

a strong presence in the United Kingdom, Agusta Westland provides several simulator

systems to the country's defence sector. The company is also much involved in joint training programmes, the most notable of which is ROTORSIM with CAE. ROTORSIM is expected

to generate revenues of $96 million over 15 years on two reconfigurable simulators at the A-109 training facility, a AW-139 FMS and a full range of maintenance, trainers supported by electronic classrooms and computer-based training (CBT). Besides this joint programme, the company will also be partly monitoring the Military Flying Training System (MFTS) eval- uated at $17.5 billion and for which a Training System Partner (TSP) will be selected from three competing consortia. This private programme is of very high importance as the company can predict an opportunity for the development of simulators on its products such as the A109, the A119 and AW139. Nevertheless, the main challenge on this equipment would be to integrate simulation interoperability at the very early stage of development in order to make the systems flexible for potential joint simulation programmes.

Agusta Westland also offers its Air Manoeuvre Collective Training System (AMCTS) to the Royal Air Force. CAE entered the ATIL consortium along with Boeing, which provides training on the Apache to the British Army.

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The company will also be providing the Lynx Collective Training System to the UK Armed Forces.

Barco

As a world leading manufacturer of high-performance visual display systems for both the civil and military markets, Barco offers a wide range of simulation applications for the mili- tary sector. The acquisition of a major contract from BAE systems for the supply of minidome simulators has rewarded the company for its trust on its highly qualified engineers. The short deadline for delivery to the RAF and the high requirements have been met with success based on the XRACU technique. The large variety of its devices allows Barco to have a strong market presence. Some of these devices include modular rugged flat displays, rugged large displays and thin lightweight displays to cite a few. These are ruggedised or ruggedis- able at several levels and are adaptable for airborne, ground based and shipboard applications. The indisputable reputation of Barco regarding the provision of the best visual display devices for military training has led the company to the leadership position world- wide in the last few years. It is estimated that the company will remain a dominant provider in the niche market due to its considerable R&D size.

BAE Systems

BAE Systems is the largest defence company in Europe employing 90,000 people worldwide. The company has a greater focus on R&D with a significant budget dedicated for this purpose. The market for simulation is largely addressed by the company's tools, which fully meet the military training requirements, as well as its COTS products for database genera- tion. BAE Systems has gained expertise from its knowledge of imagery processing techniques gained over more than 20 years. Frost & Sullivan forecasts a significant growth for the company which finds its potential in its approach to PFI programmes, partnerships with simulation companies and its important provision to the UK MOD. One of the major contracts awarded to the company by the MOD is the 10-year Seabridge assignment in the maritime segment.

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BVR Systems

Founded in 1998, BVR Systems is an Israeli company which provides air, land and sea training systems. The company's competitive advantage lies in embedded systems (based on COTS architecture), live training, distributed simulation network systems and synthetic environments.

In March 2006, BVR Systems has performed a strategic business operation: BVR Systems acquired Blue Ridge Simulation (USA) for its proven high performance in radar of Blue Ridge Simulation. Acquiring Blue Ridge Simulation also allows BVR Systems to have a geograph- ical position in the United States. Through this strategic operation, the company stands to derive both technological and geographical advances/benefits.

The key product lines of the company are:

Embedded Virtual Avionics (EVA),

In-Flight Electronic Warfare Simulation (IFEWS),

Autonomous Air Combat Manoeuvring Instrumentation (AACMI).

CAE

CAE is a world-leading provider of simulation and modelling technologies for civil aviation and military customers. With annual revenues of more than C$1 billion, the company oper- ates in 19 countries around the world. CAE has sold nearly 700 simulators and training devices to airlines, aircraft manufacturers, training centres and defence forces for air and ground applications in more than 40 countries. With over 100 full-flight simulators in more than 20 aviation training centres serving approximately 3,500 airlines, aircraft operators and manufacturers across the globe, CAE is an outstanding company in the military training and simulation industry. CAE licences its simulation software to various market segments and has a professional services division assisting customers with wide-ranging simulation-based needs. CAE have established a common database (CDB) of world terrain that is likely to be widely used by European defence companies. This provides the company with a wider market access on the back of numerous other simulation projects.

From the beginning, flight simulation has been at the heart of the company's research. With the gradual migration from commercial to military simulation seven years ago, CAE Systems developed simulation systems at a portfolio ratio of 30 per cent military and 70 per cent civilian applications. However, the company has currently managed to extend its military expertise in up to 50 per cent of its business through its full flight simulator cockpits. CAE believes it is beneficial for its Research & Development wing to concentrate on the military area as a key business driver.

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Christie

Christie is an US-based manufacturer of customised visual solutions designed and installed to meet the most exacting visual requirements of organisations within the energy, military training and simulation, manufacturing and design, aerospace, and government end-user sectors.

Coel

Coel GmbH has its expertise in laser-based weapon training. Based in Germany, the company has become a subsidiary of Ruag in January 2006. In participating in MOUT training in Switzerland with Ruag, the company is proving its expertise in laser-based devices. This should allow Ruag to further expand to Finland, Switzerland and potentially to Germany and Belgium with its collective land training simulation product line.

Concurrent

Concurrent has been providing digital bespoke systems and real-time computer systems for both civil and defence companies for over 402 years.

The principal defence product is known as iHawk from the Hawk family.

The company has won a significant contract to supply the new power Hawk 940 for the next generation of in-flight simulation to EADS for data acquisition purposes. This application will be linked to the next-generation WaSiF and was chosen by EADS for its reliability, exper- tise in critical environments and real-time training capabilities. The company has achieved success in the past with this particular provisioning. This contract is set to provide the company with a significant increase in market share in the years to come. With real-time technology being its specialisation, Concurrent, as a subcontractor, can be expected to win contracts in the development of common databases for joint training programmes in Europe.

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Cubic

Cubic's Simulation Systems Division (SSD) makes computer-controlled simulators that allow military personnel to gain weapons and maintenance experience in a realistic, but safe, envi- ronment. SSD's major products include the Close Combat Tactical Trainer, which trains tank crews; the Engagement Skills Trainer 2000, a small arms trainer; Javelin trainers, which teach personnel in using the Javelin missile and the F-16 and F/A-18 Maintenance Trainers, which provide aircraft maintenance training.

Cubic Defense Applications has been awarded a $52 million contract by UAV Tactical Systems as a subcontractor to the prime contractor Thales UK WATCHKEEPER. The company will supply advanced data link technology to the prime contractor Thales in this initiative of the UK MoD. Cubic has issued a further subcontract to its UK design and manu- facturing partner, Ultra Electronics, to assist in supplying the data links for this critical UK defence programme.

Cubic, along with Ultra Electronics, also recently completed delivery of a nearly identical narrowband data link subsystem for the UK's Airborne Standoff Radar System or ASTOR.

Cubic's data link is part of a major new battlefield surveillance platform scheduled to enter service in 2006. As the two systems—Joint STARS and ASTOR—offer some degree of inter- operability, mission-critical intelligence and reconnaissance information can be shared in real time, allowing for the conduct of joint operations.

EADS

EADS GDI Simulation has been successful with its simulation products and service provision and participates in ambitious programmes relating to simulation at the Centres of Combat in France and abroad. The company's product line also includes anti-tank missile equipment, tank LECLERC simulators and other types of simulators. As an innovating company, EADS GDI Simulation has been the first in developing simulators for helicopters in the 1950s.

The company has sold more than 6,000 simulators as on date in more than 40 countries. EADS GDI Simulation has established a centre called NetCOS, which trains in a 3D environ- ment to operate in net-centric warfare scenarios. The highlight of this system is that it allows trainees to interact in synthetic fields in all segments of air, land and sea. Certified with ISO 9001 and AQAP 110, the company is a partner of the French procurement entity, the Delega- tion Generale pour l'Armement (DGA) and other groups such as Euromissile, GIAT Industries, Thales TTS and Cubic Defense Systems.

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Evans & Sutherland

A major event in the world of military training and simulation has been the acquisition of the simulation business of Evans & Sutherland by Rockwell Collins in May 2006 for a consider- ation of $71.5 million. Being a major participant in the visual systems arena, Evans & Sutherland has been providing unique visual simulation image generators, displays and databases for the military simulation industry. Similar to other companies, this product portfolio includes a terrain database and the other requisite technologies and content suitable to simulate a specific mission. The company's technology is mainly PC based. It has a partic- ularly substantial presence in the United States in developing Close Combat Trainers for the US Army.

In Europe, Evans & Sutherland has been involved with the upgrades for the Aviation Command and Tactics Trainer (ACTT) in the United Kingdom. The company's main technol- ogies include the Environment Processor with Military Extensions (EPX) and the Harmony Image Generator that is deployed across Europe. The latter technology generally relies on COTS PC hardware to reduce the price of services to clients and to meet the full range of military needs. Rockwell Collins found business merit in acquiring Evans & Sutherland given the high quality of its visual devices and the financial problems encountered by the company.

ETC-PZL Aerospace Industries

ETC-PZL Aerospace Industries has more than 20 years of experience in the simulation busi- ness. The company specialises in designing and manufacturing various types of simulators and training devices.It also provides maintenance and upgrade services for simulators. These systems cover the air and land segments. The company has won a contract from Gripen to develop a training solution for the Polish Air Force. ETC-PZL Aerospace Industries will be providing a full mission flight simulator, two squadron level mission flight simulators, a procedural simulator and a computer-based training system.

Indra

Indra, the Spanish training and simulation manufacturer is a member of the Network Centric Operations Industry Consortium (NCOIC) as announced in 2005. Indra has been under contracts to build avionics, training and simulation systems and automatic maintenance systems for the new European Tigre combat helicopter, an operation which is worth 111m. Being the only non-American firm to provide naval training systems to the United States, in Europe, the company has a significant presence in Spain and in France and heads the Eurofighter-2000 simulation program.

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KMW

The Training & Simulation (TS) division of KMW makes training equipment and simulators for a variety of land applications ranging from areas like driving, maintenance and gunnery to other combat skills. One of the biggest projects for the company is the air-defence gunnery and combat simulator, the ASF/PLT-V. It is used to train commanders and gunners of the Gepard and Cheetah Self-Propelled Anti-Aircraft Guns (SPAAGs). The simulator recreates the vehicle's battle stations in a "highly realistic manner." Up to seven simulator cabins can be networked together. The latest product is the driver training simulator. It involves the inte- gration of a three-dimensional mobile, real truck driver's cab as well as a classroom with six computer-based training stations in a truck semi-trailer measuring more than 13 meters in length. The core of the system is a graphical user interface that allows driver training instruc- tors to quickly and easily create complex driver training exercises with critical traffic situations. This semi-trailer can be used for mobile and flexible training at various driver training schools and public institutions in Europe. PFI programmes as well as Germany's involvement in increasing military training activities will allow the group to sustain or even increase its market share in the years to come.

Kongsberg

Kongsberg has supplied more than 600 training and simulation systems around the world. The three main products currently are the action speed tactical trainer called Proteus, a mobile combat trainer and RBS-70 Training system. Proteus provides high fidelity naval tactical training for operations such as anti-submarine warfare, anti-air warfare, anti-surface warfare, electronic warfare and mine countermeasures. The mobile combat trainer is a training solution for personnel mann