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Cobham – More Takeover Myths Dispelled By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

 

 

Speaking in relation to the proposed agreed takeover of Cobham by Advent International last week in front of the House of Commons Defence Select Committee Lady Nadine Cobham, daughter-in-law of the Cobham founder, was reported in the ‘Mail on Sunday’ over the weekend as having told the committee that UK defence capability has been ‘steadily eroded’ by foreign takeovers and that valuable intellectual property and manufacturing expertise have been transferred abroad and placed under foreign control’. What possible evidence Lady Cobham might have for making such ill-founded remarks frankly defeats me! 

The reality is that nothing could be further from the truth and Lady Cobham would do better to remember that the UK defence and aerospace industry has not only prospered over the decades due to foreign investment in our sovereign capability but so too has the UK economy and defence exports. Equally important is that UK based defence companies such as Cobham have also prospered over the years through being allowed to buy US based companies. 

Defence industry prosperity in the UK is based on two fundamental principles. The first is based on actual numbers or shall we say, pieces of equipment or components required by the MOD and the second on the future ability to export.

What the MOD buys today in respect of quantity or numbers if you like are clearly substantially less than they used to be. In respect of exportability, while UK based companies still do well it is equally true to say that they need to fight very hard to win orders.

Over the past decade and either because the UK no longer produces what the MOD wants or that from a cost point of view the UK is no longer competitive, we have seen the MOD purchase far more equipment on a ‘off the shelf’ basis from international companies that can in the MOD’s eyes provide better value to the taxpayer whilst at the same time reduce the possibility of development cost risk. Like it or not, this is the way that under significant cost pressures, the MOD is now forced to do its business.

Conversely, government policy over many years has dictated that the UK now has the most open and deliberately competitive defence procurement system in the world. This has, as I have suggested above, provided huge benefits for both MOD buyer and UK taxpayer. US companies that have acquired defence interest in the UK have done so primarily because they see the UK as being a still large defence market and also that the UK is a good place to be to export from. Frankly, I am struggling to find recent examples of where a US or indeed, Continental European based company has walked away with UK based defence technology IP.

It is worth noting too that UK owned companies get absolutely no preferential treatment in respect of MOD procurement and that as an example, Cobham was forced to compete on a large number of its MoD contracts last year (note here that the number of MOD contracts actually competed last year was 42%) and that in the majority of cases it then lost out. For example, the company recently lost out on the MOD MFTS plan for future flying training and also the UK’s future operational readiness hostile training (ASDOT) programme, which was suddenly terminated by the MOD without an award being made. The fact that Cobham has, as a UK based company, been operating the existing military hostile flying training for the past 30 years very successfully counted for nothing with the MOD. Nonetheless, Cobham had found itself competing on the planned ASDOT replacement against three other consortia who were based on Israeli, Italian and French led solutions before the plug on the programme was suddenly pulled by the MOD.    

MOD policies in relation to open and more competitive defence procurement have also played a part in forcing industry consolidation but by the same token it also encouraged UK based companies to increase their levels of investment abroad. To that end, Cobham has acquired no fewer than 55 new businesses since 2005, the majority of which have been located in the USA, a nation that as I have already said, shares a broadly similar open markets policy to that of the UK.

It is also worth noting that the Competition and Markets Authority which is currently investigating the bid by Advent International for Cobham (this due to report this time next week) has investigated no fewer than nine proposed takeover deals of UK defence companies in relation to national security fears and has passed ruling in favour of allowing the takeover to proceed on eight of these. Ruling on the ninth, the merger of Inmarsat and Connect Bidco, is awaited from the CMA. FYI, those that the CMA has looked at include the 2004 acquisitions of Alvis by General Dynamics and that of Agusta Westland by Finmeccanica (now Leonardo), Lockheed Martin’s acquisition of Invensys in 2005 and General Electric Company’s purchase of Smiths Aerospace (then part of Smiths Group plc).

Prior to this period back in 2005 my notes remind me that the CMA investigated the disposal of the remaining 25% stake held by BAE Systems in avionics systems and radar company Selex on similarly based national interest concerns but found no reason for halt the process. I am in no doubts whatsoever that in each case that they looked the CMA ruling has been more than fully justified by there being no subsequent national interest security issues raised. Indeed, each of the company’s acquired has benefited from long term investment.

High development costs and an in inability to take on specific risk led to defence companies increasingly collaborating on large development projects. The UK has worked in partnership development programmes with its European allies for decades with fantastic results and benefits – Jaguar, Tornado, Eurofighter Typhoon partnerships are excellent examples and UK involvement on the Lockheed Martin F-35 Joint Strike Fighter project on which the UK enjoys a 15% share of manufacturing are important examples. Cobham has played a significant role in most if not all of these defence programmes as a supplier of specific equipment capability and continues to do today on both Eurofighter Typhoon and F-35 Joint Strike Fighter.

As to the future and given that most of Cobham’s interests are already overseas in the USA and elsewhere, I for one cannot see any reasoning whatsoever for national interest concern. What important sites that Cobham does have here in the UK are already ring-fenced by the MOD as ‘List X’ sites and no matter who owns the company nothing is about to change in respect of these. 

CHW (London – 22nd October 2019)

Howard Wheeldon FRAeS 

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon

hwheeldon@wheeldonstrategic.com

@AirSeaRescue  


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