18 Dec 09. 2009 was dominated by the financial contagion and the Afghan War. In a period when Government spending and debt came under severe pressure governments in the U.K. and USA in particular had to undertake a delicate balancing act to keep the UOR process in the U.K. and the Supplementals in the USA alive to ensure that troops received the best equipment at the same time as keeping the main Defence Budgets alive to develop equipment for the next conflicts.
The USA has continued this process with some tinkering, but the U.K. has taken a different point of view, no doubt caused by Prime Minister’s Gordon Brown’s perceived long-term wish to see a decline in the U.K. Defence budget and the U.K.’s position in the world as a major contributor to world peace. Carl Mortished in The Times pointed out on Wednesday that, given the lack of benefit from waging war in terms of economic and trade benefit. He said, ‘This country has fought distant wars for centuries but until the twentieth it fought mainly for profit. When Britain won a war, it won twice in loot and trade. In Iraq there has been no moral victory and, as yet, not even oil spoils – only tenders for contracts of doubtful value. If the cost of these ventures is so high for so little or no return, surely it is time to review our investment in war.’ This trend started after the Gulf War 1 when the U.K. received only one large contract for Warriors built by GKN and even that had to be renegotiated.
The arrival of Tony Blair and his evangelical approach to the U.K.’s as the world’s peacemaker accelerated the U.K.’s involvement in war but the benefits declined. Germany gained hugely from the Bosnian reconstruction whilst the USA has made billions of dollars of arms sales to the Gulf States, Saudi Arabia and Iraq and significantly oil at $4 a barrel for seven years after Gulf War 1. The decision pushed by Clare Short to make overseas aid packages outside U.K. products was also a huge hit for manufacturers. Gordon Brown’s first decision as Prime Minister was to dismantle the Defence Export Sales Organisation and cut numbers of Defence Attaché post overseas. The new UKTI DSO organisation has taken up the cudgels in an exemplary form but there seems to be dwindling support from on high to support defence sales from the top. This is in stark contrast to France and Italy where president Sarkozy and Silvio Berlusconi have made some very high profile overseas visits supporting huge opportunities in Brazil and Libya in particular. Germany continues to quietly creep up the ladder with continued sales of Leopard tanks, naval ships, submarines and other equipment.
The U.K. and BAE Systems continue to hold on to the vital Al Yamamah contract but has squandered the huge income from this contract in expensive purchases in the USA such as United Defense and Armor Holdings, at the expense of developing key products such as the Hawk trainer, which is now suffering a decline in sales after years of sales. A little noticed figure in the U.K. 2009 Defence Export figures was that 25% was met by spares sales for fighters and trainers.
Looking ahead ten years, without new sales of Hawk or Typhoon, and no new products in the land and marine areas, the U.K. will see a decline in defence exports and the resulting hit on tax receipts and jobs. But, that has been the perceived goal of this administration with defence going the same way as the automotive industry. The Defence Industrial Strategy was seen by this publication as being nothing more than a valuation exercise for an industry stuffed full of huge defence contracts such as FRES, Bowman, CVF, Typhoon and Type 45 as a valuation exercise for U.S. and foreign Companies to bid for U.K. Companies.
But, after an early flurry in the 90s by Thales, there was no big ticket purchase with Companies such as Northrop Grumman, Lockheed Martin and Boeing making niche purchases. Finmeccanica entered the fray late in the early part of the decade maki