Saudi Arabia and UAE buck decline in global defence spend

23 June 2015

Global aerospace and defence revenue decline by $8.2bn in 2014

  • $23.7bn uplift in commercial subsector revenue
  • Global revenue growth rates to weaken for defence and commercial subsectors in 2015

Saudi Arabia and the UAE are increasing defence spending amid declining global sales.

The two GCC states, along with several countries facing protracted or potential military crisis in their borders or at home, are expected to continue purchases of next-generation military equipment, according to a study recently conducted by consultancy firm Deloitte.

The other countries that are expected to retain their upward spending trend on defence are India, South Korea, Japan, China and Russia.

MEED earlier reported that Saudi Arabia is forecast to increase defence-specific spending to about $60bn a year by 2020 from its present $49bn to give it the fifth-largest defence budget in the world. The kingdom’s defence spending is understood to have been growing by an average of 19 per cent annually since 2001.

The study, which analysed the 2014 financial performance of 100 global and US aerospace and defence companies, found that defence revenue sales declined by $8.2bn in 2014. This decline diluted the strong performance in 2014 of the commercial aerospace subsector, where revenues grew by $23.7bn, or a 6.1 per cent uplift from 2013.

The impressive performance of the commercial subsector in 2014 is driven primarily by increased travel demand primarily in the Middle East, India and China, as well as the replacement of ageing aircraft with newer and more fuel-efficient models.

Air passenger traffic in Saudi Arabia alone increased by 10 per cent in 2014, while the number of flights from its international and domestic airports increased by 4 per cent. State-backed carrier Saudi Arabian Airlines (Saudia) has placed an order for 50 commercial aircrafts, valued at close to $8bn, during the recent Paris Air Show. Qatar Airways for its part ordered 14 Boeing aircrafts estimated to be worth $4.8bn.

The global outlook for 2015 is less encouraging for both the commercial and defence subsectors, where revenue growth rates are expected to slow to 3 per cent and 1.5 per cent, respectively.

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