The focus has been shifting to live, virtual and constructive training as the market remains flat, finds Frost & Sullivan
MOUNTAIN VIEW, Calif. – July 20, 2015 – While live training still accounts for nearly 50 percent of the U.S. Department of Defense (DoD) training budget, demand for live training is steadily decreasing. The emphasis on live, virtual and constructive (LVC) training, as well as, a flat budget will continue to reduce the cost apportioned for live training. DoD training and simulation providers will need to create robust LVC capabilities, though the networks, frameworks, hardware and software required for this will be expensive to develop. Once sunk costs are absorbed and systems are in place, overall annual training costs will fall to a new baseline and an optimal training mix for combat readiness will be achieved.
New analysis from Frost & Sullivan, DoD Training and Simulation Market (http://www.frost.com/nee1), expects U.S. market revenues to drop from $13.11 billion in 2014 to $13.00 billion in 2019 at a negative compound annual growth rate of 0.2 percent.
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On average, training and simulation procurement funding will decrease 0.4 percent per year between 2014 and 2019. While the declining defense budget will contribute to this trend, the main factor fueling the downswing will be the completion of initial training system deliveries for programs such as the P-8, KC-46 and littoral combat ship.
“Additionally, research, development, test and evaluation funding will remain flat during the forecast period, with a spike in 2019 caused mainly by the investment in the Air Force’s T-X trainer,” said Frost & Sullivan Aerospace & Defense Senior Industry Analyst Michael Blades. “Operations and maintenance funding for training and simulation is forecast to shrink by 0.1 percent per year until 2019.”
Budget cuts and unpredictable future funding levels are inhibiting the U.S. DoD services’ ability to invest in and plan for training programs. Services have been able to absorb the budget cuts at the expense of combat readiness. However, the uncertainty regarding sequestration returning is making strategic planning difficult.
Contractors are being forced to operate on shorter deadlines, expect smaller profit margins, and work with reduced investment in R&D. This could stifle innovation for U.S. DoD training requirements and compel companies to concentrate on more commercial applications for growth opportunities.
“The U.S. military services are dealing with a series of lowest price technically acceptable (LPTA) contracts; however, the DoD and program managers are struggling to define what is technically acceptable,” noted Blades. “Thus, the military and its industry partners must develop a reliable process to clearly outline and understand technical requirements.”
DoD Training and Simulation Market is part of the Defense (https://ww3.frost.com/research/industry/aerospace-defense) Growth Partnership Service program. Frost & Sullivan’s related studies include: Global Military Avionics Market Assessment 2014-2023, US Department of Homeland Security Budget, Analysis of the Global Business Aircraft Market and Security Competitive Profiles. All studies included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.