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Commentary no. 17 December 2025 Money, money, money…… By Nick Watts

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“People need to be reminded more often than they need to be instructed”

Samuel Johnson

As we approach the season of goodwill to all, Commentary cannot but help reflect on a theme that has developed across the national and international conversation lately regarding our defence and security. The message from those in the defence and security world is very clear. But are our political leaders listening?

CDS annual lecture at RUSI

This was the first CDS lecture by the new incumbent, Air Chief Marshal Sir Richard Knighton. Speaking on Monday 15th December he said…. “For three decades, many did not have to think about the Armed Forces.  Peace was stable. Conflict was distant.  But that is no longer true. I will argue that the situation is more dangerous than I have known during my career and the price of peace is rising.  Our response needs to go beyond simply strengthening our armed forces.  It needs a whole of nation response that builds our defence industrial capacity, grows the skills we need, harnesses the power of the institutions we will need in wartime and ensures and increases the resilience of society and the infrastructure that supports it.”

NATO Secretary General speech

On the 11th December the Secretary General of NATO gave a speech in Berlin: “When I became NATO Secretary General last year, I warned that what is happening in Ukraine could happen to Allied countries too and that we had to shift to a wartime mindset. This year, we took the big decisions to make NATO stronger. At the Summit in The Hague, Allies agreed to invest 5% of GDP annually in defence by 2035, we agreed to increase defence production across the Alliance, and we agreed to continue our support to Ukraine. But this is not the time for self-congratulation, I fear that too many are quietly complacent, and too many don’t feel the urgency, too many believe that time is on our side. It is not, the time for action is now. Allied defence spending and production must rise rapidly, our armed forces must have what they need to keep us safe, and Ukraine must have what it needs to defend itself – now. Our governments, parliaments, and our citizens have to be in this together. So that we can continue to protect peace, freedom, and prosperity, our open societies, our free elections, and a free press.”

US national Security Strategy

On the 5th December the US government published its latest Security Strategy. The big surprise was the degree to which the senior leaders in the US government now dismiss Europe as an ally. The purpose of this may be to encourage European countries (including the UK) to increase their efforts to fend for themselves in terms of their own defence. This chimes with the remarks by the Sec Gen of NATO, even if it is a bit more crude in the way it is presented.

The challenge for the government will be how it can persuade its US partners, in this more transactional era, that the UK is a credible and reliable partner. From our nuclear deterrent to the five eyes partnership, the US possesses capabilities that will be difficult to replace should this relationship go wrong. Surely one way to do so is to get our own house in order vis a vis our capabilities. The Ajax dilemma is the latest chapter in a sorry saga. The MOD must grip this; our national security is at risk if it is not fixed. The new National Armaments Director must make this job number one on his list of urgent actions.

Defence Investment Plan

At the time of writing there is no sign of the long expected DIP. Sources suggest that it may appear in mid – January, we shall see. In which case the first Commentary of 2026 will examine it and its implications for the defence and aerospace sector.

EU Defence Industry Programme

On the 8th December the European Council formally adopted the European Defence Industry Programme (EDIP), an instrument designed to boost the EU’s defence readiness by strengthening the competitiveness and responsiveness of the European Defence Technology Industrial Base (EDTIB). The adoption marks the final step in the legislative procedure and will enable the programme’s timely implementation.

EDIP is described as the cornerstone of the EU’s renewed commitment to bolster its defence readiness. It will strengthen the ability of EU Member States to face current and future threats, enhance the competitiveness of the EDTIB, and ensure the timely availability and supply of defence products across the Union. The programme provides €1.5 billion in grants for the period 2025-2027 (the current EU budget runs until 2027). Out of this amount, €300 million are earmarked for a dedicated Ukraine Support Instrument.

EDIP also allows for potential further budget reinforcements in the future, such as by voluntary financial contributions by member states or third parties, [such as the UK possibly]. Under the programme, the EU will fund:

  • common procurement actions carried out by at least three countries (of which at least two must be member states), including for the establishment and maintenance of defence industrial readiness pools
  • industrial reinforcement actions, consisting of activities to ramp-up the production capacity of critical defence products
  • the launch of the European Defence Projects of Common Interest, collaborative industrial projects designed to contribute to the development of member states’ military capabilities critical for the security and defence interests of the Union
  • supporting actions, including activities to increase interoperability and interchangeability, and activities to facilitate access to the defence market for SMEs, mid-caps and start-ups

To safeguard and strengthen the EU defence industry, whilst still maintaining cooperation with likeminded international partners, the regulation adopted contains a clause by which components originating outside the EU and associated countries (EEA states), as well as Ukraine for the Ukraine Support Instrument, should not exceed 35% of total component costs of the end product. No components may be sourced from non-associated countries that conflict with the EU’s or member states’ security and defence interests. The regulation will be signed on 17 December 2025 and enter into force on the day following that of its publication in the Official Journal of the European Union.

Budget

There was little expectation of any particularly defence related news from the Budget. And we were not disappointed!

Politico – J P Morgan

A little noted news story was picked up by Politico – at the Raegan National Defence Forum, held in Simi valley California over the weekend of 6th December;  ’JP Morgan Chase CEO Jamie Dimon announced the establishment of a $ 1.5 trillion — “Security and Resiliency Initiative,” including up to $10 billion in direct investments spanning defence, energy, advanced manufacturing and cutting-edge tech. It marks one of the greatest efforts ever by a major financial institution to take part in U.S. defence production.’

Might we expect to see one of the City’s big banks undertaking a similar initiative?

LDC Investment Forum, getting to 5%

Held in the City of London, and chaired by Iain Martin, this event has become a regular feature on the defence scene. It is not the usual suspects explaining what should happen, but an in depth look at how things should happen. The key driver is to ensure that the investment community understands both the necessity and the opportunities arising from the need to invest in the defence sector. There are (still) some fund managers who adhere to the idea that an ESG basis for investment is the only measure that is relevant, and this does not include the defence sector.

NATO members have committed to increasing spending on defence, aiming for 3.5% of GDP by 2035 plus 1.5% on national security and resilience. As a result, in a report authored by Olivier Brochet and Joe Orchard, Rothschild Redburn estimates that European based revenues in the defence sector could increase by 10.5 – 11.5% annually over the next 10 years. The London based IISS estimates that most spending has been in the Air Defence and Land armaments sectors, capturing 47% of the orders received since the start of the Ukraine conflict.

Readers of Commentary will be familiar with the oft repeated mantra, by now, that if the UK government wants to achieve a faster increase in defence funding, it should be engaging with the private sector to leverage some funds into the defence budget. It will also help to drive the innovation needed to remain abreast of the rapidly evolving developments in defence tech.

The price of war

In a similar vein The Price of War Symposium – held at Church House Westminster is in its 4th iteration. Chaired and founded by Susan E. Walton, the symposium brings together global experts to address geopolitical and geoeconomic risks across the themes of Economic Security and Freedom, with specific focus upon Tripartite Resilience: National Security, Critical Infrastructure and Financial Systems. The 4th edition of the event continued critical discussions on the key drivers behind investing in a time of conflict, integrating leading investors and asset allocators, corporates, economists, policy makers, diplomats and academics.

There is no doubt that the wider public needs to understand the times we are living in, not so that they are scared, but that they are well informed. Our open societies are under threat because autocrats detect weakness. A well informed discussion, such as occurred at this event, needs a more widespread audience.

Comment

As the new head of MI6 said in her inaugural speech on 15th December, “we are now operating in a space between peace and war.”

Over the festive break we will no doubt have the opportunity to discuss the state of the world and the outlook for 2026 with colleagues, friends and family. We should not shy away from the fact that the times we live in are different from what we have become accustomed to. The post 1989 era has been described as a ‘holiday from history’ so we would do well to remind ourselves and others that in the end autocracies and empires come to an end. Equally the lessons of appeasement should not be lost on us. The cost of deterrence is much smaller than the cost of reconstruction.

In 2026 Commentary will endeavour to continue to inform the debate about the role of our aerospace and defence sector as a guarantor of our freedom. It remains the duty of our political leaders to use the resources at their disposal to ensure that the UK is a credible and reliable partner for our friends and allies around the world.

As James Freeman Clark an American theologian said: “the difference between a politician and a statesman is that the politician is thinking about the next election, and the statesman is thinking about the next generation.”

NPW 17 12 25

Nick Watts

07714 246478

https://www.nwatts.co.uk

 

National Cyber Force reveals how daily cyber operations protect the UK

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The NCF outlines how it conducts responsible cyber operations to counter state threats, support military operations, and disrupt terrorists and serious crime

From:
National Cyber Force, Ministry of Defence, Government Communications Headquarters, and Strategic Command
Published
4 April 2023

Established in 2020, the National Cyber Force (NCF) is a partnership between GCHQ and the Ministry of Defence which carries out cyber operations on a daily basis to protect against threats to the UK, further the UK’s foreign policy, support military operations, and prevent serious crime.

Following the publication of the Government’s Integrated Review Refresh (IRR) last month, the publication of a new document titled ‘NCF: Responsible Cyber Power in Practice’ today delivers on the commitment in the IRR to be as transparent as possible about the NCF’s cyber capabilities and provide clarity on how the UK acts as a responsible and democratic cyber power.

The UK is reiterating its commitment to international stability and security, and illustrating how states can act responsibly in cyberspace through demonstrating how the NCF’s operations are accountable, precise and calibrated. This contrasts with the reckless and indiscriminate activities of those who would do harm to the UK and its allies.

All of the NCF’s operations are conducted in a legal and ethical manner, in line with domestic and international law and our national values. The operations are based on a deep understanding of the cyber environment, which enables NCF to design, time and target them with precision.

Central to the NCF’s approach is the ‘doctrine of cognitive effect’ – using techniques that have the potential to sow distrust, decrease morale, and weaken our adversaries’ abilities to plan and conduct their activities effectively. This can include preventing terrorist groups from publishing pieces of extremist media online or making it harder for states to use the internet to spread disinformation by affecting their perception of the operating environment.

The NCF’s work is covert and we therefore do not reveal details of individual operations. Indeed the intent is sometimes that adversaries do not realise that the effects they are experiencing are the result of a cyber operation. This ambiguity can help to amplify the cognitive effect.

Despite the necessary level of secrecy, in line with our commitment to being a responsible cyber actor, we have disclosed that over the last three years the NCF has delivered operations to:

  • protect military deployments overseas;
  • disrupt terrorist groups;
  • counter sophisticated, stealthy and continuous cyber threats;
  • counter state disinformation campaigns;
  • reduce the threat of external interference in democratic elections; and
  • remove child sexual abuse material from public spaces online.

Through ‘NCF: Responsible Cyber Power in Practice’, the UK is reiterating its commitment to international stability and security, and illustrating how states can act responsibly in cyberspace, in line with domestic and international law.

Director GCHQ, Sir Jeremy Fleming, said:

In an increasingly volatile and interconnected world, to be a truly responsible cyber power, nations must be able to contest and compete with adversaries in cyberspace. In the UK, the National Cyber Force complements the UK’s world class cyber resilience to give the country operational cyber capabilities at the scale needed to protect our free, open, and peaceful society.

Building upon two decades of experience, the dynamic new partnership has countered state threats, made key contributions to military operations, and disrupted terrorist cells and serious criminals including child sex offenders.

With the threat growing and the stakes higher than ever before, we hope this document provides a benchmark for the UK’s approach and a basis for like-minded governments to come together internationally to establish a shared vision and values for the responsible use of cyber operations.

General Sir Jim Hockenhull, Commander of Strategic Command, said:

The National Cyber Force is a crucial tool in our integrated approach to national security and our defence of the UK.

Working across Government and with our international allies is vital. There is a power in partnerships, and we must go further to out-cooperate and out-compete states that are driving instability.

The NCF is also today avowing its Commander for the first time, as part of the Government’s commitment to provide transparency about how the UK conducts responsible cyber operations.

James Babbage, a GCHQ intelligence officer for nearly 30 years, has led the NCF since its inception in 2020, scaled its operations and led efforts to integrate it effectively with a broad range of other agencies and partners.

He has spent most of his career at GCHQ, with a secondment to the Ministry of Defence and a tour as a liaison officer in the US.

BAE Systems – Eurofighter Typhoon Just Keeps Delivering To UK Prosperity Agenda By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

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Following on from the announcement late last week that the German Government had approved purchase by the German Air Force of 38 new Eurofighter Typhoon Tranche 4 aircraft and that contracts for delivery of these have been signed with Airbus, it is pleasing that through the NATO Eurofighter and Tornado Management Agency (NETMA) which acts as the single point of contact for customers and governments, Eurofighter Jagdflugzeug GmbH, the consortium which represents the core nations industrial partners comprising Airbus, BAE Systems, and Leonardo, has now awarded BAE Systems a £1.3bn contract that will enable the UK company to support production of the 38 Eurofighter Typhoon aircraft to be built for the German Air Force by the Consortium. 

UK work on the new Eurofighter Typhoon aircraft for the German Air Force will commence in 2021 at BAE Systems’ sites in Lancashire. This is a hugely important order for BAE Systems maintain as it will continuity of Typhoon aircraft production through to the mid-2020s and in the process, sustaining high-value engineering roles in the North of England. Maintaining critical military and defence engineering, design and technical skills has perhaps never been more important for the UK than now as we plan for a very different future. The jobs involved are also to be seen as a key element of securing the UK’s sovereign skills and capabilities and that are also, central to realising the Government’s future combat air ambitions.

More than 5,000 BAE Systems employees directly support the Typhoon programme in the UK, supporting a further 10,000 jobs in the UK economy as a whole. The list of UK supply chain companies that will ultimately benefit from the German Eurofighter Typhoon order is large with names such as Rolls-Royce, a member of the Eurojet consortium producing the EJ200 that powers Eurofighter Typhoon aircraft, standing out.  

The Eurofighter Typhoon is the most advanced multi-role combat aircraft in operation, supporting European security and defence objectives. The programme is Europe’s largest defence collaboration generating as it does, economic prosperity for all four consortium nations (Germany, UK, Italy and Spain) and maintaining combat air sector capacity and the necessary industrial development and manufacturing capability required to support supply chains and nations involved together with export customers. 

As one of the larger members of the Eurofighter consortium, BAE Systems will manufacture and deliver over one third of the components required for each of the new Typhoons ordered by the German Air Force – this will include the aircraft’s front fuselage and tail. This being an order from the German Government, final assembly of the aircraft will be undertaken by Airbus at its large Manching facilities in Germany.

The new aircraft will join the existing German Air Force Typhoon fleet from the mid-2020s and will be equipped with the latest technology, including an advanced electronically-scanning radar. Charles Woodburn, Chief Executive BAE Systems,said in the announcement this morning that:

“Germany’s decision to purchase additional Typhoons reinforces the aircraft’s position as one of the world’s most successful combat military aircraft. The Typhoon programme makes a significant contribution to the UK economy, generating billions of pounds through exports and supporting more than 15,000 jobs across the UK including thousands of highly skilled roles in the North of England.”

The combat air sector delivers £6 billion of revenue to the UK every year and is responsible for 87% of the nation’s defence exports, a significant proportion of which comes from Typhoon. Few areas of Government spending deliver such impactful economic returns and it is important to note that so far, export sales of Typhoon have already returned more than double the UK Government’s £12 billion investment in the programme to the UK economy.

The Typhoon programme will, as it has done over many years, continue to help drive innovation as the Company develops the technology required to deliver the next generation of combat air capabilities. For example, BAE Systems engineers are now producing 3D printed components for Typhoon, including the Environmental Cooling System which will be used to cool the next generation radar.

Typhoon has still got a very long way to go and as a leading member of the Consortium it is important that the UK continues to take a long-term view and ensure that we continue to invest in the capability. In the 2018 Combat Air Strategy the Government made its forward intentions clear in what was rightly seen by many as a bold but very necessary vision for future UK combat air capability and that would of necessity also be the embodiment of an ambitious goal to create Tempest, a UK-led international future combat air system development programme that has at its heart the intention to pioneer new technology, capable of exploiting and staying ahead of evolving threats, enabled by decades of expertise in a world leading industry.

Team Tempest continues apace but it is, in my view, also extremely important that we do not allow the huge strategic importance of the Eurofighter Typhoon programme in respect of the ongoing prosperity agenda to diminish in any way. We must ensure that we continue to invest in the Eurofighter Typhoon programme ensuring that the capability not only continues as the enabler of the bolder vison laid down within the Combat Air Strategy but also to ensure continuing exportability and in ensuring that we maintain the strong sovereign capability that is now more important than ever.

As it is and notwithstanding recent announcements in respect of radar upgrade, Eurofighter Typhoon also underpins the UK’s strategically important international relationships and is in operational service with seven nations – Germany, Italy, Spain, the UK, Austria, Oman and Saudi Arabia – with production orders underway for Kuwait and Qatar.

BAE Systems Trading Update (11th November 2020)

While it is somewhat unusual that I comment on trading updates from corporates because this is somewhat timely in regard of the previous remarks in relation to Eurofighter Typhoon I have, for the benefit of those who may not have seen it, copied the main elements of this below. The bottom line is one of continuing strength:

In respect of the trading announcement Charles Woodburn, BAE Systems Chief Executive, said:

“We have continued to deliver a resilient performance in line with our expectations for a strong second half, thanks to the outstanding efforts of our employees in these challenging times. From a position of strength, the actions we took in quarter two to enhance our resilience are working well as reflected in our guidance, ensuring we continue to deliver on our customer priorities, whilst keeping our employees safe. Demand for our capabilities remains high and we recognise our role not only in supporting national security, but also in contributing to the economies of the countries in which we operate.”

Guidance

The Group’s full year guidance for 2020 sales and cashflow remains unchanged from the 2020 interim results. Underlying earnings per share are now expected to be slightly higher than previously guided with good operational performance and an expected lower tax rate offsetting the negative foreign exchange impact.

Outlook

Demand for our capabilities remains high with order intake expectations for the Group ahead of our original pre COVID planning for the year.

The recent German Parliament announcement confirming the approval of the purchase of an additional 38 Typhoon aircraft is significant for the consortium, and we are working with Eurofighter GmbH and our industrial partners to conclude the relevant contracts in the near future.

Our large order backlog and incumbent programme positions are expected to lead to strong and profitable top line growth with increasing cash conversion in the coming years.

Key market update

In the US, the Group’s US-based portfolio remains well aligned to customer priorities and growth areas, which we expect to continue under the next administration. The backlog for the US based business has continued to grow organically and through the two acquisitions made earlier this year. This backlog provides good visibility of growth in the US business. The two-year budget deal enacted in 2019 established a defense spending level of c.$740bn for fiscal year 2021. As lawmakers continue to work on authorization and appropriations bills, Congress passed a Continuing Resolution to provide funding through 11 December, with the CARES Act also extended through the same period.

In the UK, the government has recently re-stated its commitment to meeting the NATO target of spending of at least 2.0% of Gross Domestic Product on defence. The Government’s Integrated Foreign Policy, Defence and Security Review is ongoing and the Ministry of Defence has stated it is progressing its contribution to this Review by planning how best to meet tomorrow’s threats. We see a stable outlook for our UK operations, with defence revenues centred around long-term, contracted and critical defence programmes in the Air and Maritime domains. The Group has limited UK-EU trading and the majority of the UK workforce are UK nationals. Accordingly, any resulting near-term Brexit impacts across the business are likely to be limited.

Our business in Australia, where we are the leading defence contractor, is set to grow significantly in the coming years as the Hunter Class Frigate programme matures. The government announcement in July to increase their 10-year investment in new and upgraded defence capabilities from $195bn AUD to $270bn AUD should provide further opportunities to enhance and extend our growth profile.

In Europe, a number of nations are increasing their defence budgets to address the threat environment and move towards their 2% of GDP NATO commitments. We remain well placed through our positions on the Eurofighter Typhoon, our shareholding in MBDA and our BAE Systems Hagglunds Swedish based land vehicles business.

In Saudi Arabia, we are working closely with industry partners and the UK Government to continue to fulfil the contractual support arrangements in the Kingdom on the key European collaboration programmes.

Operational Update

We are being agile as we address the challenges arising from the global pandemic with employee safety and wellbeing at the forefront.  Collaboration and communication across our many stakeholders, particularly in our supply chain and with our Trade Unions, gives us high confidence in our ability to deliver across our defence programmes. As outlined in July, in our defence businesses most operations are operating with well over 90% of employees working. This includes a high proportion still working from home and critical on-site workers operating under the adjusted protective safety measures. We continue to monitor local operational situations with particular focus on our supply chains as we manage fragility in certain areas.

We have seen some pleasing progress since the half year as we continue to deliver improved operational performance against our strong order backlog. Our focus on F-35 ramp up in both the Air and Electronic Systems divisions has continued in the second half.

The integration of the former Airborne Tactical Radios and Military Global Positioning System businesses into the Electronic Systems sector is progressing well, benefitting from positive levels of engagement by the teams. The businesses are performing as expected and well positioned for growth.

The first of the Low Rate Initial Production (LRIP) Armoured Multi-Purpose Vehicles have been delivered to the US Army customer and dozens of hulls are in progress on the production line as the programme continues to build momentum. The Amphibious Combat Vehicle programme successfully completed Initial Operational Test and Evaluation in September, a key milestone in moving from LRIP levels to the full rate production levels.

The Qatar Typhoon and Hawk build programmes are progressing well and our relationships are strengthening as we implement our support and training commitments with the Qatari Armed Forces.

On the Tempest programme, positive progress continues with the inputs to the outline business case submitted on time and good progress has been made towards a trilateral Memorandum of Understanding with our Italian and Swedish international partners.

In Maritime, the fifth and final OPV, HMS Spey, was accepted by the Ministry of Defence in October, and the acquisition of Techmodal is an exciting step for the sector as we look to support the Royal Navy’s ambition to be a ‘digital navy’ by 2025.

At the start of November, we completed the disposal of the ex-Silversky business. This has no material impact on the guidance.

CHW (London – 12th November 2020)

Howard Wheeldon FRAeS 

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon

@AirSeaRescue