Defence giants are expected to retain their dominance of the global weapons market over the next decade, according to a new report by BCG and Vertical Research Partners.The report found that established players who produce complex weapons will still account for more than 80 per cent of the market in 2033, even as markets for cheaper mass-produced systems like drones grow at a faster pace.Diana Dimitrova, leader of BCG’s UK aerospace and defence practice, said: “Both defence tech companies and established contractors will grow, but the majority of spending will remain with traditional players delivering major platforms and complex systems.”
Complex systems still dominate spending
Researchers assessed how many complex military capability programmes could realistically be replaced by “affordable mass” alternatives by 2033. Expensive systems comprised about $65 billion of spending in the US, the EU and the UK last year, compared with about $5 billion for affordable mass systems and just $55 million for single-use systems.“Affordable mass” refers to large numbers of relatively inexpensive, expendable weapons such as one-way attack drones, loitering munitions and autonomous systems that can overwhelm traditional defences at a fraction of the cost of traditional platforms. The growing use of these systems in the wars in Ukraine and the Middle East has prompted militaries to rethink procurement, increasing investment in autonomous systems alongside conventional weapons.While the market for larger systems is forecast to grow to an annual spend of $79 billion by 2033, that for smaller defence systems will still only reach $17.5 billion as the newer categories are growing from smaller bases.
Europe’s rearmament drive
In Europe, where governments have embarked on a rearmament drive in the face of Russian aggression, BCG separately forecasts that the market for defence equipment will more than double from about €150 billion in 2024 to €380 billion by 2035. Defence technology companies are expected to capture between €50 billion and €80 billion of that market.The forecast assumes Europe achieves its target of spending 3.5 per cent of GDP on defence.Start-ups such as Helsing, Quantum Systems and Anduril Industries have attracted billions in investment, but established primes remain protected by their long-term government relationships and the high barriers to entry in complex weapons production.Some industry leaders have warned that the advance of more nimble tech-focused companies focused on autonomous systems will disrupt the established hierarchy. However, military budgets are still skewed towards large platforms such as jets and tanks. Byron Callan, analyst at Capital Alpha Partners, said that although new systems such as drones were a “new and significant factor shaping defence, we don’t see them fully displacing manned platforms, particularly in ground warfare.“The BCG analysis found that profits from more complex systems were more sustainable given the need for maintenance and spare parts over their operational lifetime. Complex weapons typically derive about half of their lifetime profit from maintenance, spare parts and upgrades.However, Dimitrova warned that prime contractors still needed to adapt and consider “where to compete and where to place their capital.” Whether they should , “continue to invest in a stable and profitable business of developing exquisite programmes, or do they think about getting greater exposure to higher-growth segments — can they simply buy the most successful start-ups?”The findings come ahead of Farnborough Airshow, where defence start-ups will compete with established “primes” to show off their latest offerings. Security risks have pushed defence to the top of the agenda at the biennial show, with organisers saying defence companies would represent about half of the 1,600 exhibitors.
