Secretary General of the Defence and Aerospace Industry Manufacturers Association (SaSaD)
The Defence and Aerospace Industry Manufacturers Association (SaSaD) collects sector metrics through the surveys it shares with its members every year, and analyses and reports on these metrics. The data and analyses in these reports are taken as reference by all stakeholders in the sector, and are also used as a basis for decision-making.
As SaSaD, we have just completed the Sector Performance Metrics for 2019 and published it at the end of April upon the approval of the Presidency of Defence Industries (SSB).
The data we have collected indicates that our sector performed very successfully in 2019, based on the positive developments in almost all metrics. We present here a brief review of the performance of the sector.
In 2019, the sector’s turnover (Total Sales Amount) was $10,884,081,347, representing an increase of 24.23 percent on the 2018 figure. The Compound Annual Growth Rate (CAGR) for the last five years has been 16 percent, indicating significant development and growth. The increasing demand due to the operations carried out by our security forces, as well as the highly satisfactory exports figures and related Overseas Sales Revenues played a significant role in this growth.
The largest share of the sector’s turnover belongs to land systems, which generated total sales of around $3.5 billion. Following this segment comes the military aviation ($2.4 billion); civil aviation ($1.84 billion); and the weapons, ammunition and rocket/missile ($971 million) segments.
Overseas Sales Revenues
SaSaD reports take into consideration the foreign currency revenues earned from the engineering, training, maintenance/repair, etc. activities carried out by the sector abroad, as well as the export revenues of the sector. Foreign currency revenues and export figures are grouped together under the term “Overseas Sales Revenues”.
The exports announced by SaSaD include the defence and aerospace products that are sent abroad with a type number (GTİP number) from customs, and the Overseas Sales Revenues includes the same amount. In addition, the revenues generated by foreign currency-earning services are also added before the figures are reported.
In 2019, Overseas Sales Revenues amounted to $3,068,519,809, representing an increase of 40.21 percent on the 2018 figure. While $2,741 billion of this came from export revenues, $327 billion was from foreign currency earning services.
The exports of the sector, on the other hand, reached $2,740,988,087, marking an increase of 34.6 percent on the previous year.
The increase in Overseas Sales Revenues, aside from the increases related to offset-related markets such as the United States and Europe, is of particular importance. The fact that market potential has been established other than in the offset markets has is a clear sign of the success of sector players in marketing and business development. Over the last five years, the CAGR of Overseas Sales Revenues has been 10 percent, which is a significant indicator of the role played by the sector players in the global markets.
It is seen that there has been an increase in imports that parallels the increase in turnover. The imports by the sector in 2019 amounted to $3,088,465,821, marking an increase of 26.11 percent on the previous year.
The fact that our exports meet imports fully, and that the share of exports in total turnover is around 30 percent can be considered proof that the added value created by the studies in the sector is at a significant level.
Of the total, 47 percent of imports were made from Europe, 45 percent from the United States and 8 percent from other countries. It is thus considered that the sector should give priority to diversifying the sources of supply and identifying resources that are not subject to such control regimes as ITAR.
The fact that the highest share of imports are made by the military and civil aviation sectors ($648 million and $564 million, respectively), and that this ratio amounts to around 400 million dollars for land systems, indicates that our aviation sector is highly dependent on foreign resources.
Product and Technology Development Expenditures
The players in our sector carry out very limited basic research studies, as efforts are focused primarily on product and technology development. For this reason, we use the term Product and Technology Development Expenditures instead of R&D Expenditures.
Like in the above-mentioned metrics, positive developments have been observed also in the product and technology development studies conducted in our sector. The product and technology development expenditures amounted to $1,672,052,468 last year, marking an increase of 15.44 percent over the 2018 figure. While $1,423,067,193 of this amount was spent on Product Development, $248,985,275 was spent on Technology Development. Of the total Product and Technology Development expenditures, 19.8 percent ($331,291,055) was met by equity, and $1,340,761,413 was funded through project financing routes. The latter shows the extent of the state support provided to the sector, and is a clear indication of the importance attached by the government to increasing local capabilities. A look at the overall figures shows that equity expenditures and the sources funded through project finance increased by 14.7 and 15.6 percent, respectively, on the previous year.
Value of Orders Received over the Course of the Year
The new orders received by the sector over the course of the year decreased by 12.56 percent, representing a decrease in value to $10,671,519,679. Despite this decrease in new orders, there are still a significant number of projects being carried out by the sector.
While 60 percent of new orders came from the domestic market, 19 percent came from the United States, 6 percent from Europe and 15 percent from other countries
Of the overseas orders, 71 percent were received from companies abroad and 29 percent from end customers.
Meanwhile, 67 percent of the orders received from the domestic market came from end customers and 33 percent from companies.
Employment in the sector increased by 9.71 percent on 2018, totalling 73,771 in 2019.
Of these, 25 percent are engineers, 48 percent are technicians/operators, 2 percent are managers, 10 percent are administrative/financial management/procurement staff (university graduates) and 16 percent are support/administrative/unskilled staff.
Of all the employees, 43 percent work in production and 21 percent in product and technology development.
While 65 percent of the engineers hold undergraduate degrees, 31 percent hold a graduate degree and 4 percent hold a doctoral degree.
Of the university graduate staff working in the administrative/financial management/procurement departments, 78 percent hold a bachelor’s degree, 21 percent hold a postgraduate degree and 1 percent hold a doctoral degree.
After summarising the performance indicators of our sector for 2019, we carried out a separate survey to measure the future prospects of the players in the sector.
According to the results of the survey:
breakdown of the responses given to our question “Do you think your business
will develop and grow in the next 24 months?” were as follows:
- The share of those who expressed their confidence that growth would be a priority issue for them was 75 percent; the share of those who expected improvement similar to the level achieved in the previous 12 months was 15 percent; and the share of those who expected contraction was 10 percent.
- While 39 percent expressed that they projected a growth rate of over 15 percent, 18 percent projected a growth rate of 10–15 percent, 20 percent projected a growth rate of 5–10 percent, and 23 percent projected a growth rate between 0 and 5 percent.
- The breakdown on the responses given to the question “What strategies will you follow to achieve this growth?” were as follows: 65 percent said adding new products to the product range; 50 percent said making innovations in their service range; 55 percent said carrying out marketing activities in new geographical regions; and 83 percent said enhancing their presence in the existing markets.
- Regarding their future plans, 42 percent of the companies stated that they would develop formal relations with other companies; 35 percent stated that they would develop informal relations with other companies; 49 percent stated that they would make new investments; while 7 percent stated that they were planning to carry out mergers or acquisitions.
- To our question about the share of equity that they will allocate to product and technology development efforts from their turnover, the responses were as follows: 30 percent said more than 10 percent; 20 percent said 6–10 percent; 20 percent said 4–5 percent; and 30 percent said 1–3 percent.
- In the risk assessment regarding the suppliers in the supply chain, 33 percent of the industrialists stated that disruptions in the supply chain had a critical impact on their ability to fulfil their obligations; 52 percent said that the impact of such disruptions is critical for fulfilling some of the strategic partners’ obligations, and that other problems could be overcome; and 15 percent stated that disruptions caused by suppliers are not important, and that they can always develop a new supplier pool to replace problematic suppliers.
The data collected for this study through the surveys we conducted in the pre-COVID-19 period show that the sector was progressing well and that the sector was looking to the future with high hopes. Considering the effects of the pandemic on the global economy, and especially on some particular sectors, and taking into account the post-epidemic development projections, it is clear that defence and aerospace companies will face many significant consequences associated with this pandemic.
Most countries will set new approaches detailing how to prioritise their budget allocations. When making such prioritisations, defence and aerospace may be at the bottom of the list of the sectors to be supported, and this may affect our export potential negatively. In this sense, the approach of balancing losses with the export of medical devices and equipment will be considered carefully by sector players. Other areas that should be followed carefully may include cyber defence, communications, automation/industry 4 and remote working.
Considering the importance of our sector for homeland defence and the criticality of the supplies it provides to our security forces, we believe that it will be among the priority sectors. We will attach considerable importance to supporting qualified industrialists, especially SMEs, that are suffering financially during this crisis by ensuring there are no delays in the project payment schedules, and providing for the uninterrupted continuation of the new project development process.
You Can Read Eurosatory 2020 Special Digital Issue of MSI TDR Here: https://www.savunmahaber.com/en/wp-content/uploads/2020/06/msi_tdr_83_2020_eurosatory_special_digital_issue.pdf