Military Simulation Market to Remain Flat

Despite sharp military spending cuts in the United States and most NATO countries, the market for training equipment and services will stay relatively flat, according to analysts. But contractors in this sector, especially in the United States, face a bumpy road ahead as the Pentagon puts programs on hold and waits for Washington to settle budget disputes.

Industry analyst Alix Leboulanger of Frost & Sullivan Aerospace & Defense has estimated the military training and simulation market worldwide will stay at about $6 billion a year for the foreseeable future. Annual contracts in this sector are expected to fall slightly from $6.74 billion in 2013 to $6.36 billion by 2022. The United States accounts for about 68 percent of the total.

In the U.S. market specifically, the snag is the lack of a long-term budget plan, which has trickle-down effects on training programs. Under current law, the Pentagon would be hit with across-the-board budget cuts next year, but its personnel accounts are protected. As a result, equipment and training programs are likely to get disproportionately squeezed. Unless a program is considered “mission critical,” managers during uncertain times put off signing contracts for training services and simulators until they have confidence that the project will receive long-term funding.

Economic challenges aside, programs cannot be delayed indefinitely, Leboulanger said. “You have to keep forces trained. You have to spend on training, upgrade simulators and training facilities.”

Military training contractors in the United States got a cold dose of reality in June when the Army announced it was nixing a multibillion-dollar program called TEACH, for “train, educate and coach.” The agency that oversees the project, the Army’s Program Executive Office for Simulation, Training & Instrumentation, or PEO-STRI, informed contractors the decision was strictly financial. The Army has taken similar measures across all of its weapon and equipment portfolios.

The training and simulation industry markets its products and services as money-savers. Military officials have said virtual training in simulators costs a fraction of what it costs to deploy real equipment for practice use. Companies hope this price differential will motivate military agencies to buy more simulator-based training equipment and tech-support services.

“The military chiefs are going to be hard pressed to accept cuts to their training accounts. They’ve got to maintain the readiness of the force,” said Thomas L. Baptiste, a retired Air Force lieutenant general and president of the National Center for Simulation, an advocacy group based in Central Florida. The region is a hotbed of tech companies, including many Pentagon contractors that build simulators and provide training services to the military.

Even though big-ticket programs are being delayed, particularly in the Army, the military budget crunch creates incentives to invest in virtual training, Baptiste told National Defense.

“The military services are going to have to find a way to relook at the balance between live and simulated training.”

Following across-the-board budget cuts in 2013, the Army suspended its combat training rotations for combat brigades, which cost about $30 million per event. Simulations should become an acceptable, lower cost alternative to live training, Baptiste said. “I think that bodes well for the survival of the simulation industry.”

The industry, however, is bracing for pain. “I’ll be the first one to tell you that we’re not going to be immune to cutbacks,” said Baptiste. “We’re going to see contraction in the number of companies, small companies acquired by large ones, some small companies will disappear as there will be fewer opportunities for service contracts.”

The termination of the TEACH program is a setback for the industry, but there will be other projects, said Baptiste. The military always will need training and education services, he added. In this case, the Army decided to no longer use TEACH as a separate contract vehicle, but the needs for training are still out there, he said. “The opportunities still exist, but the program will be managed by other organizations. Contractors are going to have to find out who is going to manage that requirement.”

A looming target for contractors is a PEO-STRI program called Warfighter Field Operations Customer Support, or FOCUS, an umbrella contracting vehicle for the procurement of training devices, maintenance of training ranges and support services. Raytheon has been the incumbent since 2007 when it received a 10-year $11.2 billion contract that expires Oct. 31, 2017. The Army intends to start a new competition in 2016.

Raytheon Technical Services has the contract for live training support, Computer Sciences Corp. provides virtual training and simulators, and General Dynamics Corp. oversees constructive training (computer models and game-like simulations).

Raytheon anticipates a tough competitive field for the next round of Warfighter FOCUS. The company believes it has a leg up on other challengers, said Bob Williams, vice president of Raytheon’s Global Training Solutions business.

Vendors have been told to expect the new contract to be smaller and shorter in duration. “We don’t think it will have the scope and the scale of the current contract,” Williams said in an interview. The value could range from $3 billion to $6 billion over five or six years.

The Army’s decision to pare back Warfighter FOCUS is symptomatic of a government-wide push to split up contracts and re-compete more often. Williams and other executives argue that multi-award, multi-source deals sometimes deliver the opposite of their intended effect.
Williams said Raytheon over the years has consolidated FOCUS vendors and requirements and saved the government millions of dollars.

Many companies also see increasing opportunities in the emerging field of medical simulations. Virtual reality systems are now used to help train combat medics and even to deliver care to combat veterans, said Waymon Armstrong, president and CEO of Engineering and Computer Simulations. The company last year won a contract from PEO-STRI and the Veterans Health Administration to build a 3D virtual medical center.

“With over eight million veterans enrolled in healthcare, the VHA continues to explore innovative ways to help veterans,” said Armstrong. The Department of Veterans Affairs operates 152 hospitals nationwide. The 153rd will be a virtual hospital where ailing and wounded vets can create avatars and seek medical support. “They can be part of support groups for diabetes or PTSD,” Armstrong said in an interview. “There is a litany of issues that people are looking at.” 

The virtual facility is still in beta testing.

Topics: Simulation Modeling Wargaming and Training, ComputerBased Training