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SDSR 2015 – Credibility Partially Restored plus New Journey For Rolls-Royce By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

mod24 Nov 15. In haste this morning ahead of other defence related requirements in Westminster but here are just a few very quick comments on the final SDSR 2015 document which I was fortunate to be able to read in detail and to discuss in Main Building yesterday. A more detailed analysis will follow over the next week and as I am in Birmingham overnight please note that there will be no Commentary until Thursday.

SDSR 2015 is undoubtedly a very well-constructed strategy document. I congratulate all those involved not just because of what they produced but that this time they listened to those that were there to help them. This, unlike SDSR 2010, really is a strategy that was worth waiting for.

Having set as its aim the need to fill various capability gaps left by SDSR 2010 the result is nothing short of excellent from an overall defence perspective. Is there that much in it for UK industry? Not as much as we would have liked. Does it embrace the need for sovereign capability? Not in terms of pouring money into much needed research and development even though innovation is at its heart. Yes, it embraces exportability but it skates over the need for the MOD to acquire that equipment first.

Is it affordable? Most of us sitting in Historic Room 1 in Main Building yesterday afternoon were, and indeed, remain perplexed as to where the new £12bn new money being thrown at enhancing equipment capability will come from. We had some answers of course and one of the most important points to make about SDSR 2015 is that there is no use being cynical that not all of what was laid out in front of us will happen. It will happen because the National Audit Office (NAO) to whom the government is accountable for departmental spending plans and for how it actually spends its money will be all over it with criticism of it fails.

While I very much welcome almost all of the strategic military based intentions in SDSR 2015 – this is not an area that I would other than on rare occasions proffer views on – and the equipment plan I am however very concerned at the proposed 30% cut in MOD based civil servants. While I accept that this cut in part reasons why we can spend more on equipment a 30% cut is very severe. Indeed, it can too easily be construed as suggesting that the hard working people are neither needed or that they do anything worthwhile. Nothing could be further from the truth.

Added to the above comments the Chancellor’s autumn statement will undoubtedly do further damage to defence pay. Fears of another long pay freeze are real and while defence will, as it always does, take it on the chin whatever the Chancellor decides to do will undoubtedly impact on defence morale.

For industry Boeing was a clear winner with its win of nine P-8 Poseidon Maritime Patrol Aircraft and I guess some of the other contenders for this prize are unlikely to take the decision lightly. The list of equipment purchase plans is long and very much as detailed by me yesterday. I regret though that FCAS appeared to receive rather scant attention and the work being done by the UK in unmanned aerial vehicle technology has been largely ignored. BAE Systems also gained not just because of Typhoon upgrade and extended MRO but also because there is now a commitment to acquire 138 Lockheed Martin Joint Strike Fighter aircraft. I hazard a guess that not all of these will be the ‘B’ STOVL variant either. BAE Systems gained on Type 26 commitment for the first eight ships although while I welcome the additional OPV’s that the Government will; acquire for the Royal Navy I question the overall policy here and the intention to have another Shipbuilding review. Time prevents me going further other than to say that Rolls-Royce and a number of other large, medium and small contractors also gain from yesterday although there seems little in it for UK rotary.

Which brings me to my last point. Many will argue that sovereign capability did not feature nearly enough and that while the government set out an innovation and prosperity agenda O am left to conclude that words are meaningless unless they are turned into actions. We will see.

Rolls-Royce

rollslogA piece on Rolls-Royce which will later today will set out its plans to reduce fixed costs and to lay the ground for a new generation of success will also follow in due course. Clearly, the next two years will be torrid for the company as it goes without saying that the company is in for a period of uncertainty and change. Warren East and David Smith will do what needs to be done without fear or favour. Remember that through all this RR has a forward order book of £76.5bn and that in just a few more years’ time it will be able to claim that it has 50% of the wide bodied engine market. Yes, mistakes have been made and the company is top heavy on management. Those in engineering should of course have no worry through this period of change. Investment has gone into product, manufacturing and achieving market share. Now is the time to respond to the challenges the company is faced with, to reduce complexity, to streamline senior management and to lose expensive and unnecessary people.

CHW (London 24th November 2015)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

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