The Group operates in four long-term, global markets – civil and defence aerospace, marine and energy. These markets present, in aggregate, an opportunity of some two trillion US dollars over the next 20 years and have common characteristics. All these markets have very high entry barriers and:
The size of these markets is generally related to world Gross Domestic Product (GDP) growth, or, in the case of the defence markets, global security and the scale of defence budgets.
The Group publishes a 20 year global market outlook, which covers passenger and cargo jets, corporate and regional aircraft. Over the next 20 years, 114,000 engines, worth over US$600 billion, are predicted to be required, powering 51,000 commercial aircraft and business jets.
The forecast predicts faster growth rates for longhaul markets and those markets to/from and within Asia. These markets continue to benefit from more liberal air service agreements, which boost demand.
Factors affecting the demand for aircraft and engines include: GDP growth, aircraft productivity, operating costs, environmental issues and the number of retirements of old aircraft. Whilst the market can be temporarily disrupted by external events, such as war or acts of terrorism, it has, in the past, always returned to its long-term growth trend.
In addition to the demand for engines, the Group forecasts a market opportunity worth US$500 billion for the provision of product related aftermarket services.
The Group forecasts that demand for military engines will be worth US$180 billion over the next 20 years. The largest single market is expected to be the US, followed by Europe and the Far East. Within the Far East demand will be dominated by Japan, South Korea and India. Trends are driven by the scale of defence budgets and geopolitical developments around the world.
As in the Group's other business sectors, programme lives are long and there is a significant opportunity to support equipment with aftermarket services. Customers' budget constraints and their need to increase the value of their assets have accelerated the move in this direction. The Group estimates the value of services revenues over the next 20 years to be US$250 billion.
The Group forecasts demand for marine propulsion systems of US$180 billion over the next 20 years. Demand will be greatest in the commercial sector, where the merchant market represents 45 per cent of the total and the offshore market, 34 per cent.
Commercial shipping plays a crucial role in the world economy. The need to transport raw material, finished goods, people, and oil and gas requires a large fleet which has to be renewed progressively. The expansion of trade and technical advances mean more ship construction for growth and for replacement as older designs become obsolete.
Finding and extracting oil and gas offshore requires a large number of floating drilling and production units which, in turn, are supported by a variety of service craft. Merchant and offshore markets are rarely at the same stage of the business cycle, which helps to reduce overall volatility.
In naval markets, the Group expects surface vessels to represent 15 per cent of the total demand and submarines, six per cent.
Naval markets are driven by different considerations, with customers looking to get more for their budgets, leading to increasing demand for integrated systems and through-life servicing arrangements.
As in the Group's other markets, marine aftermarket services are expected to generate significant demand, forecast at US$100 billion over the next 20 years.
The US Department of Energy has forecast that, over the next 20 years, the worldwide demand for oil will grow by 40 per cent, for gas by more than 50 per cent and for power generation by nearly 60 per cent.
To satisfy this demand, there will be a growing requirement for aero-derived gas turbines. The Group's 20 year forecast values the total aero-derivative gas turbine sales in the oil and gas and power generation sectors at US$70 billion. Over this period, demand for associated aftermarket services is expected to be around US$50 billion.
While the oil and gas market is large and growing, demand for aero derivatives in the power generation segment is four times that of oil and gas, driven largely by mid merit and peaking applications.