Future of the Romanian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022

Table of Contents

1. Introduction 9

1.1. What is this Report About? 9

1.2. Definitions 9

1.3. Summary Methodology 12

1.4. About Strategic Defense Intelligence 13

2. Executive Summary 14

3. Market Attractiveness and Emerging Opportunities 15

3.1. Current Market Conditions 16

3.1.1. Primary threat perception 16

3.1.2. Military doctrine and strategy 18

3.1.3. Military fleet size 21

3.1.4. Procurement programs 24

3.1.4.1. Ongoing procurement programs 24

3.1.4.2. Future procurement programs 25

3.1.5. Social, political and economic environment and support for defense projects 26

3.1.6. Political and strategic alliances 27

3.2. Defense Market Size Historical and Forecast 28

3.2.1. Romanian defense expenditure to register a forecast-period CAGR of

16.89% 28

3.2.2. Modernization to meet NATO standards and participation in peacekeeping missions 30

3.3. Analysis of Defense Budget Allocation 31

3.3.1. Defense expenditure as a percentage of GDP to increase over the forecast period 31

3.3.2. Capital expenditure allocation expected to increase over the forecast period 33

3.3.3. Capital expenditure expected to grow at a CAGR of

38.41% over the forecast period 35

3.3.4. Per capita defense expenditure forecast to rise over the forecast period 37

3.4. Homeland Security Market Size and Forecast 38

3.4.1. Homeland security budget projected to grow steadily over the forecast period 38

3.4.2. Border control measures and cybercrime to drive homeland security budget 40

3.4.3. The nation is at low risk of terrorism 41

3.4.4. Romania faces low-level threat from foreign terrorist organizations 42

3.4.5. Romania has a terrorism index score of zero 44

3.5. Benchmarking with Key Global Markets 45

3.5.1. Romania’s defense budget to post a forecast-period CAGR of

16.89% 45

3.5.2. Romanian defense expenditure to remain low compared to other leading spenders 47

3.5.3. Romania allocates a lower percentage of GDP to defense than other NATO members 48

3.6. Market Opportunities: Key Trends and Growth Stimulators 49

3.6.1. Fighters and multirole aircraft: 49

3.6.2. Multirole Aircraft MRO 50

3.6.3. Military IT software: 51

4. Defense Procurement Market Dynamics 53

4.1. Import Market Dynamics 54

4.1.1. Defense imports registered a decline during 2012-2016 54

4.1.2. Romanian defense sourced the majority of its arms from the US 55

4.1.3. Aircraft and sensors accounted for the majority of arms imports during 2012-2016 56

4.2. Export Market Dynamics 57

4.2.1. Defense exports anticipated to grow over the forecast period 57

4.2.2. Romania supplies all of its defense equipment to the Netherlands 58

4.2.3. Naval Vessels are the most exported defense goods 58

5. Industry Dynamics 59

5.1. Five Forces Analysis 59

5.1.1. Bargaining power of suppliers: low to medium 60

5.1.2. Bargaining power of buyers: high 60

5.1.3. Barriers to entry: medium 60

5.1.4. Intensity of rivalry: medium to high 60

5.1.5. Threat of substitutes: medium to high 60

6. Market Entry Strategy 61

6.1. Market Regulation 61

6.1.1. Offset policy mandates that suppliers must invest 80% of the contract’s value into Romania’s economy 61

6.1.2. Romania allows 100% FDI in defense industry 62

6.2. Market Entry Route 63

6.2.1. Budgeting process 63

6.2.2. Procurement policy and process 65

6.2.3. Foreign OEMs enter the market through the acquisition of domestic defense companies 66

6.2.4. EDA promotes defense procurements within the EU 67

6.3. Key Challenges 68

6.3.1. Corruption and inadequate legal infrastructure 68

7. Competitive Landscape and Strategic Insights 69

7.1. Competitive Landscape Overview 69

7.2. Key Domestic Companies 69

7.2.1. CN Romarm SA: overview 69

7.2.2. CN Romarm SA: products 69

7.2.3. CN Romarm SA: recent announcements and strategic initiatives 71

7.2.4. CN Romarm SA: alliances 71

7.2.5. CN Romarm SA.: recent contract wins 71

7.2.6. S.C. Uzina Mecanica Cugir SA: overview 72

7.2.7. S.C. UZINA MECANICA CUGIR SA: products 72

7.2.8. S.C. Uzina Mecanica Cugir SA: recent announcements and strategic initiatives 73

7.2.9. Aerostar SA: overview 74

7.2.10. Aerostar SA: products 74

7.2.11. Aerostar SA: recent announcements and strategic initiatives 75

7.2.12. Aerostar SA: alliances 75

7.2.13. Aerostar SA: recent contract wins 75

7.2.14. IAR SA Brasov: overview 76

7.2.15. IAR SA Brasov: products and services 76

7.2.16. IAR SA Brasov: recent announcements and strategic initiatives 76

7.2.17. IAR SA Brasov: recent contract wins 77

7.2.18. Turbomecanica SA: overview 78

7.2.19. Turbomecanica SA: products 78

7.2.20. Turbomecanica SA: recent announcements and strategic initiatives 79

7.2.21. Electromagnetica SA: overview 80

7.2.22. Electromagnetica SA: products 80

7.2.23. Electromagnetica SA: recent contracts and strategic initiatives 80

7.2.24. Avioane Craiova SA: overview 81

7.2.25. Avioane Craiova SA (SAIC): products 81

7.2.26. Avioane Craiova SA: recent contracts and strategic initiatives 81

7.2.27. Avioane Craiova SA: alliances 82

7.2.28. Avioane Craiova SA: recent contract wins 82

7.2.29. Elprof SA: overview 83

7.2.30. Elprof SA: products 83

7.2.31. Elprof SA: recent announcements and strategic initiatives 83

7.2.32. Elprof SA: recent contract wins 84

7.3. Domestic Private Companies 85

7.3.1. IOR SA: overview 85

7.3.2. IOR SA: products and services 85

7.3.3. IOR SA: recent announcements and strategic initiatives 86

7.3.4. Simultec SRL: overview 87

7.3.5. Simultec SRL: products 87

7.3.6. Simultec SRL: recent contracts and strategic initiatives 88

7.3.7. Simultec SRL: recent contract wins 88

7.3.8. Intelcan Technosystems, Inc.: overview 89

7.3.9. Intelcan Technosystems, Inc.: products 89

7.3.10. Intelcan Technosystems, Inc.: recent announcements and strategic initiatives 90

7.3.11. Intelcan Technosystems Inc.: recent contracts 90

7.3.12. Airbus Helicopters Romania: overview 91

7.3.13. Airbus Helicopters Romania: products and services 91

7.3.14. Airbus Helicopters Romania: recent announcements and strategic initiatives 92

7.3.15. Airbus Helicopters Romania: recent contract wins 92

8. Business Environment and Country Risk 93

8.1. Economic Performance 93

8.1.1. GDP per capita 93

8.1.2. GDP at current prices 94

8.1.3. Exports of goods and services 95

8.1.4. Imports of Goods and Services 96

8.1.5. Gross national disposable income 97

8.1.6. Local currency unit per US$ 98

8.1.7. Market capitalization of listed companies 99

8.1.8. Market Capitalization of Listed Companies 100

8.1.9. Government Cash Surplus and Deficit 101

8.1.10. Goods exports 102

8.1.11. Goods imports 103

8.1.12. Service imports 104

8.1.13. Service exports 105

8.1.14. Net FDI 106

8.1.15. Net FDI 107

8.1.16. Mining, manufacturing, utilities output 108

9. Appendix 109

9.1. About SDI 109

9.2. Disclaimer 109

List of Tables

Table 1: Romanian Army Strength 21

Table 2: Romanian Navy Strength 22

Table 3: Romania Air Force Strength 23

Table 4: Romania – Ongoing Procurement Programs 24

Table 5: Romania – Future Procurement Programs 25

Table 6: Romania – Defense Expenditure (RON Billion and US$ Billion), 2013-2022 28

Table 7: Romania – GDP Growth vs Defense Expenditure as Percentage of GDP Growth (%), 2013-2022 31

Table 8: Romania − Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 33

Table 9: Romania − Defense Capital Expenditure (RON Billion and US$ Billion), 2013-2022 35

Table 10: Romania − Per Capita Defense Expenditure (US$), 2013-2022 37

Table 11: Romania − Homeland Security Expenditure (RON Billion & US$ Billion), 2013-2022 38

Table 12: Terrorism Index, 2017 42

Table 13: Benchmarking against Key Markets – 2013-2017 vs 2018-2022 45

Table 14: Romania – Offset Regulations , 2017 62

Table 15: Romania − Budget Formation Timetable 63

Table 16: Market Entry Strategies by Key Foreign Companies 66

Table 17: CN Romarm SA – Product Focus 69

Table 18: CN Romarm SA – Alliances 71

Table 19: CN Romarm SA. – recent contract wins 71

Table 20: S.C. UZINA MECANICA CUGIR SA – Product Focus 72

Table 21: Aerostar SA – product focus 74

Table 22: Aerostar SA – Alliances 75

Table 23: Aerostar- recent contract wins 75

Table 24: IAR SA Brasov – product focus 76

Table 25: IAR SA Brasov- recent contract wins 77

Table 26: Turbomecanica SA – Product Focus 78

Table 27: Electromagnetica SA – Product Focus 80

Table 28: Avioane Craiova SA – Product Focus 81

Table 29: Avioane Craiova SA – Alliances 82

Table 30: Avioane Craiova SA – recent contract wins 82

Table 31: Elprof SA – product focus 83

Table 32: Avioane Craiova SA – recent contract wins 84

Table 33: IOR SA – Product Focus 85

Table 34: Simultec SRL – Product Focus 87

Table 35: Simultec SRL- recent contract wins 88

Table 36: Intelcan Technosystems, Inc. – Product Focus 89

Table 37: Intelcan Technosystems, Inc. – Alliances 90

Table 38: Airbus Helicopters Romania – Product Focus 91

Table 39: Airbus Helicopters Romania- Recent Contracts 92

List of Figures

Figure 1: Romania – Defense Expenditure (RON Billion), 2013-2022 29

Figure 2: Romania – Defense Expenditure (US$ Billion), 2013-2022 29

Figure 3: Romania – GDP Growth vs Defense Expenditure as Percentage of GDP (%), 2013-2022 32

Figure 4: Romania − Defense Budget by Capital and Revenue Expenditure (%), 2013-2022 34

Figure 5: Romania − Capital Budget Allocation (RON Billion), 2013-2022 36

Figure 6: Romania − Capital Budget Allocation (US$ Billion), 2013-2022 36

Figure 7: Romania − Per Capita Defense Expenditure (US$), 2013-2022 37

Figure 8: Romania − Homeland Security Expenditure (RON billion), 2013-2022 39

Figure 9: Romania − Homeland Security Expenditure (US$ billion), 2013-2022 39

Figure 10: Terrorism Heat Map, 2017 41

Figure 11: Terrorism Index, 2017 44

Figure 12: Benchmarking with World’s Largest and Top Regional Defense Spenders (US$ Billion), 2017 and 2022 46

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 47

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 48

Figure 15: Romania – Fighter and Multirole Aircraft Market Size (US$ Million), 2017-2022 49

Figure 16: Romania – Multirole Aircraft MRO Market Size (US$ Million), 2017-2027 50

Figure 17: Romania – Military IT Software Market Size (US$ Million), 2017-2027 52

Figure 18: Romania − Defense Import Trend (US$ Million), 2012-2016 54

Figure 19: Romanian Defense Imports by Country (%), 2012-2016 55

Figure 20: Romanian Defense Imports by Category (%), 2012-2016 56

Figure 21: Romania − Defense Exports (US$ Million), 2012-2016 57

Figure 22: Industry Dynamics – Porter’s Five Forces Analysis 59

Figure 23: Romania − GDP Per Capita (US$), 2015-2025 93

Figure 24: Romania − GDP at Current Prices (US$ Billion), 2015-2025 94

Figure 25: Romania − Export of Goods and Services (LCU billion), 2005-2014 95

Figure 26: Romania − Import of Goods and Services (LCU billion), 2005-2014 96

Figure 27: Romania − Gross National Disposable Income (US$ billion), 2005-2014 97

Figure 28: Romania – LCU per US$, 2015-2024 98

Figure 29: Romania − Market Capitalization of Listed Companies (US$ Billion), 2005-2012 99

Figure 30: Romania − Market Capitalization of Listed Companies (Percentage of GDP), 2005-2012 100

Figure 31: Romania − Government Cash Surplus and Deficit (Percentage of GDP), 2005-2012 101

Figure 32: Romania − Goods Exports (Percentage of GDP), 2005-2014 102

Figure 33: Romania − Goods Imports (Percentage of GDP), 2005-2014 103

Figure 34: Romania − Service Imports (Percentage of GDP), 2005-2014 104

Figure 35: Romania − Service Exports as % of GDP, 2005-2014 105

Figure 36: Romania − Net Foreign Direct Investment (US$ Billion), 2005-2014 106

Figure 37: Romania − Net FDI (Percentage of GDP), 2005-2014 107

Figure 38: Romania − Mining, Manufacturing, Utilities Output (US$ Billion), 2005-2014 108