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A Year To Remember or One To Forget? By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.




Along with writing this, my traditional end of term report, it is also the time of the year that I not only wish all of you a ‘Very Happy Christmas’ and ‘Prosperous New Year’ but thank all readers of ‘Commentary’ for the support and the many responses that you have provided back to me over the past year. I cannot answer all of them of course but I do try. They are very much appreciated even if they come from certain politicians on my various lists who dislike my personal views on Brexit! There we go and as always, my apologies by the way for the occasional typo, spelling and grammatical errors that are regularly to be found within ‘Commentary’ – I am afraid that what you see is what you get and I do type rather fast!

2018 has been a quite remarkable year whether you happen to live in the USA, UK or European Union. Here in the UK we appear to have finished the year with no more clarity on how we will go about leaving the EU than we started. In the USA 2018 finishes with doubts about whether the Budget will get through Congress and, having met him a long time ago, I have to say that news overnight that Secretary of State for Defence, James Mattis is to leave his post in February comes as a big and worrying disappointment.

Riots in France have thankfully subsided to a degree for now but the pressure on President Macron remains. Germany where the economy looks to be about to drift into recession the year was marked by the announcement that Angela Merkel would not be seeing another term. As to the manner in which the EU has handled Brexit negotiations, probably less said the better.

Aside the politics, 2018 marked the 25th anniversary of my writing ‘Commentary’. Although much changed from the original, as we end the year the number of recipients who receive this now exceeds 7,400. Looking back on some of the original ‘Letter from London’ sequence written during 1993/4 for my then colleagues at Prudential Bache in New York, the one thing that strikes me now is how elements of history often have a habit of repeating themselves. Aside that, 2018 also marked the 100th anniversary of the Armistice signing and was also the year that the nation celebrated and commemorated the 100th anniversary of the founding of the Royal Air Force. What a year of inspiration that has turned out to be and allow me to thank all those involved in making RAF 100 such a brilliant success.

Never in the field of peacetime has so little been owed to so few politicians!

Unpredictable, alarming, fulfilling are just a few words I would use to describe 2018. A year of argument, debate and very little in the way of political agreement. A year that on the UK and European Union scene was dominated by Brexit. A year that started with many loose ends and ended with even more. A year where our political leaders and those that oppose them in the House of Commons lost a great deal of credibility. A year of political rancour in which party politics across the board not only lacked visible discipline but worse, strong leadership.

But it wasn’t all bad and it would be remiss of me to fail to talk about some of the companies that I know and work with in the field of defence and aerospace.

In fact, despite everything and because governments are at last increasing spending on defence, defence and aerospace stocks generally had a good year in terms of revenue and profit performance albeit that this has not always translated in improved share price performance.

BAE Systems produced a decent set of full year 2017 and first half year 2018 results, confirmed important orders from Qatar for Typhoon and Hawk jets, announced its part in the lead of the 6th generation ‘Tempest’ stealth fighter project development, signed contracts with the Australian Government to build a variant of Type 26 (Hunter class) in country and with Lockheed Martin, the company was selected by Canada to develop and build a separate variant of the Type 26 for the Canada Surface Combatant programme.

Other defence companies such as QinetiQ and Meggitt also enjoyed very busy years in terms of orders and revenue and profit announcements. QinetiQ completed its acquisition of E.I.S in Germany and acquired 85% of military training systems provider Inzpire. Amongst a raft of aerospace related order announcements made during the year together with raised group revenue forecasts, Meggitt signed an important US$15 million maintenance deal with Turkish MRO provider Turkish Technic. The company has also made good progress developing its massive new site in Coventry. Rolls-Royce has worked hard to work its way through technical issues that have impacted Trent 1000 while Babcock International has struggled at the hands of untrue adverse press comment and on the back of this, the appearance of a mysterious short seller.

Despite delays to orders caused by the need to await the Modernising Defence Programmes review from the MOD, company’s such as Lockheed Martin UK had very busy year working on Crowsnest for the Royal Navy. Worth noting too that Lockheed Martin also delivered the Chinook Mk 6 synthetic training facility for Joint Helicopter Command based at RAF Odiham during the year and continues work at its Ampthill, Bedford facility building Turrets for the large fleet of Ajax specialist vehicles on order with General Dynamics from the MOD and has made good progress on Warrior upgrade. Raytheon UK has enjoyed another very busy year as has Thales UK, the latter having opened a superb Maritime Autonomy Centre at Turnchapel Wharf, Plymouth and Boeing opened its new Sheffield components facility and with Farnborough providing a better than expected flow of new orders for commercial airplanes Boeing and Airbus ended the year on a high. Airbus also completed its purchase of 50% of the Bombardier C Series jet changing its name to the A220.

Elsewhere CAE, a pilot training organisation whose Burgess Hill facilities I have frequently visited, goes from strength to strength as it plays an ever bigger role in finding solutions to the global shortage of pilots. During the year the Canadian parent company also acquired Bombardier’s pilot jet training organisation. Northrop Grumman brought in Nick Chaffey to be CEO of UK and Europe while Marshall Aerospace won several big orders during the year including just yesterday, a 14 year contract to support the Royal Netherlands Air Force fleet of Lockheed Martin C-130H aircraft and a £100 million contract from the Netherlands Armed Forces to deliver 1,400 next generation vehicle containers and support equipment.

Leonardo UK had a very busy year too on the back of increased maritime procurement activity in the UK and the important role that the company plays in radar and other ISTAR equipment.

Finally, in so far as it affects me, sad that despite a big fight that we lost the battle with Melrose to ensure GKN’s long term independence and are now left with even more serious concern that the buyers own share price has subsequently fallen like a stone! Not good.

So what about 2019 – will it be a year for us to fear or a year to embrace? Both I suspect in equal measure. Brexit will either come or go. We will leave the European Union with or without a deal or, if all else fails, we could find ourselves holding another referendum – provided of course that we can agree what the best questions to put to the electorate are! I dislike referendums at the best of times and I am bound to fear that if a second was to be held the accusation would be that it is only because those who voted remain failed to accept the original vote.

Might we possibly seek an extension of Article 50? Frankly, I doubt it. Might we even end up staying in the European Union for the foreseeable future? I doubt that either. Will we end up staying in the Customs Union? I for one would love to think so but on balance, I doubt that we will. Will Mrs. May get her House of Common Brexit deal vote through? Possibly but given present attitudes of MP’s, probably not unless they come to their senses and realise that other issues can be sorted later and that this Bill gives the people the bulk of what they voted for. One thing is for certain though – we will either be richer or poorer by the end of 2019 than we started it!

We may of course end up with a General Election being called during 2019 but if we are honest with ourselves, neither politician nor voter really wants that. As far as I can see and despite the Labour leadership saying that it does, none of the main political parties really want a General Election at this stage. Indeed, given that none of the political party’s can really be deemed fit for purpose, I am bound to fear that whoever might win such a hypothetical situation would probably only do so by default.

So, in short I hope that I am not called upon to vote in 2019. For Labour to have any hope of a genuine win rather than one by default they would in my view need to change their leader along with coming off the fence on EU membership. For the Conservatives to have any chance of staying in power they would need to be rid of those that have so seriously damaged the party in the country and who now sit on the back benches. As to the Liberal Democrats, they need not only a new and younger leader but also one that can bring 21st century thinking and a political strategy that matches the hopes and aspirations of the electorate.

And what about the UK economy? Against a background of weaker global growth and fears of lack of Brexit clarity hitting the economy the Monetary Policy Committee of the Bank of England chose yesterday to announce yet another cut in its Q4 2018 growth forecast down from 0.3% to 0.2%. Growth, such that it is will probably hold at a similar level in 2019 with or without a Brexit deal but maybe not so in 2020. How ironic it is that the boost for the NHS is forecast by the Bank to raise GDP growth by 0.3% over the next few years!

Set against a background of high employment and relatively low inflation, current growth forecasts look out of tune with reality but for all that, they are probably about right. Do I believe that the UK economy will fall off a cliff if we leave the EU without a deal? Not in 2019 but may well be so in 2020 I fear. Interest rates for 2019? Stable. Pound Sterling against Euro and Dollar? Stable to up with a Brexit deal agreed, lower without. Inflation?

And while 2019 will clearly be dominated by Brexit domestic politics will also be to the fore. The NHS which has at least received a massive funding increase is now about to enter the period of the year when its resources are most often stretched to breaking point. Media will be out there to encourage the point looking always for the negative and ignoring the positive. High time someone said the NHS is brilliant so let me say that loud and clear now.

In the meantime, let us not forget why NHS resources are so stretched – first is the combination of huge population increase caused by immigration and an EU policy that demands free movement across all member states and secondly, raising of expectation of what the NHS can do without recognising its unaffordability. Third is probably inefficiency.

Another issue that I fear will dominate within domestic politics next year is that of Universal Credit. This has all the makings to the present government of what the Poll Tax did to the Thatcher Government thirty years ago. I do worry about how the discontent of Universal Credit might yet boil over.

As if the UK’s problems were not big enough President Trump through a large spanner in the works of international trade by imposing tariffs on China. While there is something of a truce on the trade issue with China right now the underlying danger remains. Markets have reacted badly in recent months and the issue has all the makings of damaging global growth. For all that, growth in the US economy continues and the number of people out of work continues to fall. Even so, with the FED pushing through another rise in interest rates the outlook for US growth looks slightly less exciting than it did a year ago.

Although Brexit has appeared to override almost everything else in the UK save the large fillip given to the NHS and begrudging acceptance by the Cabinet Office and Treasury that more needs to be spent on defence, it is pleasing to note that the new Foreign Secretary, Jeremy Hunt has brought stability to one of the most important of all government offices. Was there a worse Foreign Secretary than Boris Johnson? I doubt it. Mr. Hunt has worked tirelessly to rebuild the UK’s reputation abroad following a very embarrassing period under Mr. Johnson.

In respect of Defence, Secretary of State Gavin Williamson deserves significant praise for the manner that he has embraced to task. I have written on many of the big announcements made during the year such as Combat Air Strategy and Tempest, rebuilding of ‘Carrier Strike’ capability as UK owned F-35 Lightning aircraft completed trials on HMS Queen Elizabeth. I noted my disappointment at the lack of detail provided within the Modernising Defence Programmes strategy review and I commented very positively on Philip Dunne’s Defence in UK Prosperity Review which was published in July. I could not possibly talk about events in relation to defence by failing to mention the exceptional Royal International Air Tattoo, an annual event held at RAF Fairford in July and that in a year we celebrated and commemorated the 100th anniversary of the founding of the Royal Air Force was quite exceptional.

2018 was a year when Government Ministers came and went and the lack of stability in several government departments was very noticeable. I don’t know about a peoples vote but what I do know is that what the people want most of all is stability and a sense that Government is doing what it is supposed to do. They are fed up to the teeth of listening to some of the more crackpot MP’s peddling their own personal views on Brexit without thinking about what is in the national interest.

Stability is key to confidence and lacking confidence the electorate feels uneasy. Business too feels uneasy and right now, manufacturing companies like Airbus, Rolls-Royce and other feel let down by Government. That they are having to make complicate plans to get round the possibility of component delays in the event of a no-deal Brexit is as alarming now as it is also dangerous in terms of their longer term investment in the UK.

Will we end 2019 feeling better that we do now at the end of 2018? I sincerely hope so and somehow I feel that common sense will in the end prevail on all sides.

And what aside from Brexit would be my worst fear? Where do I start but assuming I am only allowed one issue it would be fear that by spearheading a European security and defence union France and Germany NATO will be damaged.

And finally, what has pleased me most in 2018? Probably my belief, mistaken or not, that at long last the message and importance of investing in skills and in retaining them does appear to be getting through. We may be short of pilots, doctors and nurses but we are equally short of engineers and technicians. Companies like Airbus, Rolls-Royce, BAE Systems and others put in considerable investment to train the next generation of people that we need and they all invest in technology development that the UK needs for tomorrow. Some headway is being made but there is a long way to go before the effort should be allowed to diminish.

Brexit or no Brexit, we make too little of what we consume and no economy can survive by consumer spending alone and that is based on so many imported products.

I will as they say, leave it at that and if you have done, thanks for reading. Not sure about next week but Commentary will return when there is either something that needs to be said and certainly before the very end of this year.

CHW (London – 21st December 2018)

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon




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