The Group operates in four long-term global markets – civil and defence aerospace, marine and energy. These markets create a total opportunity worth some two trillion US dollars over the next 20 years and:
- have very high barriers to entry;
- offer the opportunity for organic growth;
- feature extraordinarily long programme lives, usually measured in decades;
- can only be addressed through significant investments in technology, infrastructure and capability; and
- create a significant opportunity for extended customer relationships, with revenues from aftermarket services similar in size to original equipment revenues.
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. We predict that over the next 20 years 131,000 engines, worth over US$700 billion, will be required for more than 60,000 commercial aircraft and business jets. The forecast predicts faster growth rates for long-haul markets and those markets to, from and within Asia. These markets will continue to benefit from more liberal air service agreements, which boost demand. Factors affecting demand include GDP growth, aircraft productivity, operating costs, environmental issues and the number of aircraft retirements. While the market can be temporarily disrupted by external events, such as war, acts of terrorism, or economic downturns, 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$550 billion for the provision of product-related aftermarket services.
The Group forecasts that demand for new military engines and through-life support will be worth US$450 billion over the next 20 years. The largest single market is expected to be the US, followed by Europe and the Far East. Within Asia, 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 they derive from their assets have accelerated the move in this direction.
The Group forecasts demand for marine power and propulsion systems of US$200 billion over the next 20 years. Demand will be greatest in the commercial sector, where the merchant market represents 40 per cent of the total and the offshore market, a further 40 per cent. Commercial shipping plays a crucial role in the world economy. The need to transport raw materials, finished goods, people, and oil and gas requires a large fleet which has to be renewed progressively. The expansion of trade and technological advances means 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 five 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$120 billion over the next 20 years.
The International Energy Agency 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 derivative 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$50 billion.
While the oil and gas market is large and growing, demand for aero derivative gas turbines in the power generation segment is four times that of oil and gas.
Note: A long-term conversion rate has been used where necessary in order to present all figures in US$.