Philippines - Asian tensions fuel arms boom

Defense contractors are upbeat about business in the Asia-Pacific amid the geopolitical tensions rising in the region and robust armed forces spending, with military establishments expected to boost their procurement activity for the foreseeable future.

Teguh Graiti of aircraft manufacturer PT Dirgantara Indonesia said the company expects demand to rise for both military and commercial aircraft acres in Asia.

“We did a study and the potential market among ASEAN (Association of Southeast Asian Nations) countries is high -- both in military and commercial contracts. We already have strong markets in several ASEAN countries like Malaysia, Brunei and Thailand,” Mr. Graiti told BusinessWorld in an interview at the ADAS 2014 defense trade show at the World Trade Center.

Mr. Graiti said that in the next 10 to 15 years, the company expects to sell around 600 light aircraft and 600 medium-lift aircraft in Asia alone.

Insitu Pacific, an affiliate of Insitu, Inc., a US company focused on the unmanned aerial vehicle (UAV) segment, also sees an expanding market.

According to Insitu Pacific Managing Director Andrew Duggan, the market is continuing to grow as various weapons systems develop to become more technology-intensive.

“Across the board in Asia, in these kinds of services -- in our situation, UAVs -- the market is growing… I think what we’re seeing is a maturing of technology to a point where it’s becoming viable to have platforms that can carry a huge amount of sensors that cover a lot of ground and collect all the data,” Mr. Duggan said in an interview.

In September, the Philippine Army made use of UAVs in their operations against the Moro National Liberation Front during the Zamboanga crisis.

The drones were thought to be used for collecting real-time imagery from enemy positions around Zamboanga.

Rolando M. Romero, a managing director with STX France SA, one of the largest shipbuilders in the world, has also noted that in the Philippines alone, the market for naval equipment is looking good.

“In the Philippines alone, there is the modernization program of the AFP (Armed Forces of the Philippines). Under the modernization program of the current president, we have almost P83 billion to P85 billion in funds,” Mr. Romero told BusinessWorld in Filipino.

Philippine-based tactical equipment company Stone of David noted that a rush to modernize is driving orders from the AFP.

“It’s growing because nowadays, the plans and programs of the armed forces are the modernization of their equipment,” the company’s Military Business Division project manager, Joy Lyn Hernandez, said.

The Philippine government, under the revised Modernization Program of the AFP, has allocated P85.3 billion between 2013 and 2017 to procure naval vessels and aircraft, among other weapons systems.

Mikael Olsson, executive vice-president of Saab Asia Pacific Co. Ltd., the regional unit of the Swedish aircraft maker, said the growth of the military equipment market was a given and that the big question was the extent of its expansion.

“Growth is definitely there. It’s a question of how much and what areas.

There is a growing demand for maritime surveillance aircraft and early warning aircraft to keep track of all the traffic in the sea. There is a growing market definitely,” Mr. Olsson said.

For Mr. Graiti, economic growth is the main factor behind their booming in their business in the region.

“The driver of the growth is economic growth. If you identify the growth among ASEAN countries, it is quite high compared to that of other regions,” he said.

According to the World Bank, the East Asia-Pacific has served as the world’s main growth engine since the global financial crisis hit in 2007.

Likewise, Mr. Graiti cited that tensions in the certain parts of the region have increased the need for some countries to upgrade their military assets substantially.

“The issue in the Spratlys -- there are portions that are claimed by the Philippines, Malaysia and China. That will increase the demand because they want to upgrade the capability of their military,” he said.

Kim Young Il, a senior manager with Korea Aerospace Industries Ltd., said the present situation with China is behind much of the drive to upgrade in Asia.

“Southeast Asia’s militaries are basically increasing their capabilities because China is growing stronger and stronger. So the market will increase. I’m not sure what the actual figures or numbers will be but the military market will definitely increase. The trend will continue for two decades,” Mr. Kim noted.

Scott Christner, director for regional sales at Comtech Systems, Inc., a US communications technology firm, said the situation with China highlighted the need for smaller countries to boost their ability to communicate over long distances.

“The recent Chinese actions in the area have increased the requirement for long-range communication systems, especially for over the sea and to islands (and have caused) regional militaries to realize the need expand their outward defenses,” said Mr. Christner.

China claims 90% of the South China Sea, which is potentially rich in oil and gas, but other Asian countries including the Philippines, Malaysia, Brunei, Vietnam and Taiwan also claim parts of these waters.

Mr. Duggan also noted that maturing technology is also driving the military and arms markets in the regions.

“I think it’s a combination of things including the maturity of the technology. The technology is maturing more and more all the time and shrinking more and more all the time he noted,” he said.

Alden M. Monzon

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