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29 Nov 24. The Serious Fraud Office has launched an investigation into suspected bribery and corruption at multi-national aviation and defence electronics group Thales. The Serious Fraud Office (SFO) has launched an investigation into suspected bribery and corruption at multi-national aviation and defence electronics group Thales. The Thales Group is headquartered in Paris and its subsidiary Thales UK employs over 7,000 staff in the UK across 16 sites. Investigators from the SFO and French authority Parquet National Financier (PNF) have this week informed the company of the investigation. The SFO and PNF are conducting a joint investigation in their respective jurisdiction. Director of the Serious Fraud Office, Nick Ephgrave QPM, said: “Working collaboratively with our international partners is a crucial factor in the fight against international corruption and with this case I hope to reinforce the SFO and PNF’s long-standing relationship, built on mutual cooperation and shared success. We will together rigorously pursue every avenue in our investigation into these serious allegations.” (Source: https://www.gov.uk/)
28 Nov 24. Germany offers re-deployment of Patriot air defence units to Poland. Germany has offered to re-deploy Patriot air defence systems to NATO ally Poland at the start of the new year, the German defence ministry said on Thursday. The units could be deployed for up to six months, the ministry said in a statement. “With this we will protect a logistical hub in Poland which is of central importance for the delivery of materials to Ukraine,” German Defence Minister Boris Pistorius said. From January to November 2022, Germany had already deployed 300 troops together with three Patriot units to Poland. They were based in the town Zamosc, about 50 km (31 miles) from the Ukrainian border, to protect the southern town and its crucial railway link to Ukraine. The deployment was triggered by a stray Ukrainian missile that struck the Polish village of Przewodow in November 2022, in an incident that raised fears of the war in Ukraine spilling over the border. (Source: Google/Reuters)
28 Nov 24. Sir Keir Starmer will be invited to meet EU leaders to discuss European security as Brussels seeks closer ties with the UK, in a significant post-Brexit move. The British prime minister will be asked to dine with the leaders of the 27 member states at an informal retreat in Belgium on February 3 by António Costa, incoming president of the European Council, two EU officials said. Nick Thomas-Symonds, the UK minister in charge of negotiations for a post-Brexit “reset” of relations with the EU, met Costa this week in Brussels. No British prime minister has attended such a gathering since the country left the bloc in 2020. The invitation is a milestone as Starmer attempts to “reset” Britain’s relations with the EU after years of strained ties. Starmer wants a security pact with Brussels, covering defence, energy and irregular migration, as a key element of his attempt to improve on the post-Brexit framework agreed by former Conservative prime minister Boris Johnson. “We are determined to reset the relationship and we have already begun that,” Starmer told MPs on Wednesday. He said work was already under way on “trading, security and other co-operation”. A spokesperson for Costa declined to comment on the February meeting, as did Downing Street. But Starmer would be unlikely to spurn the invitation, given his determination to put defence at the heart of the remodelled UK-EU relationship. Like his Tory predecessors Liz Truss and Rishi Sunak, Starmer has met EU leaders as part of the wider European Political Community. Britain hosted a meeting of the group, which includes more than 40 countries, in July. Starmer’s invitation to discuss defence with the EU27 is a reflection of the fact that the UK has one of the most advanced military and intelligence capabilities in Europe. The February meeting also comes as European capitals come to terms with a potential change to the continent’s security framework, with the return of Donald Trump to the White House in January. The two EU officials stressed that the meeting, which will be held at a venue outside Brussels, was an informal gathering without written conclusions. “It’s about brainstorming ideas,” said one. Nato secretary-general Mark Rutte will attend lunch, with officials hoping that his acceptance would reassure Starmer. A spokesperson for the security alliance declined to comment. Brussels would like to collaborate more closely with the UK on defence spending and deployments but has no desire to replicate the US-dominated military alliance, EU officials have previously said. Recommended The Big Read The UK’s high-wire act between the US and Europe Mujtaba Rahman, managing director for Europe at the Eurasia Group consultancy, said: “Costa is keen to engage the European Council in more strategically oriented discussions, and Rutte is going to be a key messenger of EU policies and ideas to Trump.” He added: “The UK also has a key role to play given the focus on security and defence, but Number 10 will be keen to avoid creating the perception of a binary choice between the US and EU.” Andrius Kubilius, incoming EU defence commissioner, has said the UK is important to plans to increase arms manufacturing. “We consider Britain as part of Europe,” he told the Financial Times in September. “Democratic Europeans should be as united as possible.” Kubilius told the European parliament this month that Russia could attack an EU member within the next five years. David Lammy, UK foreign secretary, has said he wants to negotiate a wide-ranging security pact covering defence, cyber security and energy co-operation as the foundation of a new post-Brexit relationship after the turmoil of recent years. The UK and EU are also working on plans for a summit in the first half of next year. (Source: FT.com)
27 Nov 24. New EU Commission determined to boost defence. Industry: “At least 100bn in the budget.” Von der Leyen promises white paper within first 100 days, ASD calls for change of pace from member states with cold-war approach With the new European Commission set to take office, one can already think about the new EU political course. President Ursula von der Leyen is already looking ahead to the next five years of work. The priorities on her personal agenda, starting from December 1 college, are there, and one of them concerns the defence industry. In asking for confidence for her team, she promises, “within the first 100 days“, a white paper on defence to revitalize the industry and business and reshape European aspirations. “Strengthening the defence industrial base,” “Joint European projects on defence,” and again “Improving our military mobility.” These are all necessities that become commitments for von der Leyen, also in light of a Russian-Ukrainian war that continues in the wake of policies of aggression fueled by clear-cut choices, in the face of which the EU is struggling. “Russia is spending up to 9 per cent of its Gross Domestic Product on defence, Europe is spending an average of 1.9 per cent,” stresses a concerned EU Commission chairwoman. The revitalization of the defence industry is no longer postponable and boils down to one big collective effort: “Our defence spending must increase.” It is on this program that the new Commission will work, with a commissioner in charge, Andrius Kubilius, and a whole team called to a new effort. The industry in the sector welcomes announcements and intentions of the chair of the EU executive positively and is already offering openness and contribution to the discourse. “This initiative comes at a critical time, in time to shape the upcoming negotiations on the EU’s next multiannual financial framework and to enshrine the importance of European defence,” comments ASD-AeroSpace and Defence Industries Association of Europe, the association of European defence industries. From the industry world comes first a suggestion: overcoming national divisions. Because, they point out, “the defence industry serves first and foremost the needs of the armed forces, and for this reason, the EU’s defence industrial policy “must ultimately be guided by the defence planning of member states, in which capability goals and operational requirements are defined.” Then, the exquisitely financial advice. “The EU defence investment budget should be at least €100bn in the next multi-year budget (MFF 2028-2034).” Since the next EU budget will not be in force before 2028, while we need to start pressing on the accelerator immediately, the spending effort should be increased right away. In fact, Asd acknowledges, “there is little hope that Europe’s security environment will improve in the next three years.” To stimulate production, you need orders, which national governments have to get going. You need contracts since the defence industry sells not to individuals but to countries. With Russia continuing its war in Ukraine, China flexing its muscles on Taiwan, and tensions in the Middle East, you have to change the way you think about things. “During the Cold War, Europeans regularly spent more than 3 per cent of their Gross Domestic Product on defence,” ASD reminds. “Considering the current security environment, a similar effort would likely be needed in the near future to ensure a minimum degree of defence readiness and deterrence capabilities.” (Source: Google/https://www.eunews.it/)
27 Nov 24. EU: New European Commission will almost certainly prioritise defence, economic competitiveness. Earlier on 27 November, the European Parliament (EP) voted to confirm new members of the European Commission (EC), which is to be led by the already re-elected EC President Ursula von der Leyen. The vote followed lengthy discussions over gender balance and candidates’ credentials. We assess that ongoing geopolitical challenges will act as the key shapers of the EC’s priorities; increased centre-right- and right-wing influence in the EP since June’s election will also drive policy. The EC has committed to increasing defence spending, bolstering economic competitiveness, accelerating the green transition and addressing immigration issues. The commissioners for foreign and security policy (Estonia’s Kaja Kalas) and defence policy (Lithuania’s Andrius Kubilius) are fierce critics of Russia’s full-scale invasion of Ukraine. Trade negotiations with the US and China will be undertaken by Slovakia’s Maroš Šefčovič, who is one of the most experienced commissioners. Other key appointments include Spain’s Teresa Ribera (for clean, just and competitive transition), France’ Stéphane Séjourné (for industrial strategy) and the Netherland’s Wopke Hoekstra (for climate policy). The new commission will take office on 1 December. (Source: Sibylline)
23 Nov 24. UK Equipment Plan “unlikely in current form” in 2025. In his first session in front of the new Defence Committee, the Secretary of State revealed that he will defer the Equipment Plan until after the SDR is completed. As the UK undertakes major defence reforms through the Strategic Defence Review (SDR), the forthcoming assessment will push the government’s annual Equipment Plan beyond 2025. “With the SDR underway, it’s unlikely that we’ll produce an Equipment Plan in the same way for this year,” admitted the Secretary of State for Defence, John Healey, addressing the newly formed UK Defence Select Committee on 21 November 2024. Typically, the Ministry of Defence (MoD) releases details of the capabilities in the Armed Forces each year covering the course of a decade due to the long-term nature of certain defence programmes. In conjunction, the National Audit Office (NAO), a public spending watchdog, will subsequently publish a report reviewing the budgetary implications. In December 2023, the NAO found that the MoD faced its largest equipment deficit – worth £17.5bn ($22bn) – since the Equipment Plan was first launched 12 years ago. “There is absolutely an intent to return to publishing the Equipment Plan and getting the NAO to review it and to produce a report, if that’s what serves the purpose of parliamentary scrutiny,” the Permanent Secretary to the MoD, David Williams, assured the Committee. When contacted, the MoD did not explicitly address when the next Equipment Plan will be published. However, during the hearing, Williams stipulated that this will be at some point after the SDR is concluded in the spring of 2025, after which the government will present plans “for the rest of this Parliament.”
While there is no precise time set for this, a spokesperson did inform Army Technology that the Labour government is “committed to improving transparency, including around financial management, and we will continue to make information available about departmental spending.” A lot rests on the SDR next year, which will tackle a wide range of issues including procurement, global strategy and waste. Some of these are problems the former Conservative government had begun to address with a new Integrated Procurement Model and a supposed plan to boost defence spending to 2.5% of Britain’s GDP by 2030. Since the new Labour government formed in July, the defence community has been left to speculate and interpret their plans from recent activity in the lead up to the long-awaited SDR. Just this week, on 20 November, Healey shut down several defence programmes in one fell swoop. This included the Watchkeeper UAV programme and, more significantly, two Albion-class amphibious assault ships. This comes at a time when the Armed Forces are lacking a sufficient force posture; perception is everything in a new age of strategic competition against autocratic regimes such as Russia and China. It is strange that a government that champions transparency and accountability continues to operate on such an arbitrary and indeterminate timeline ahead of the SDR, even if it is devised from good intentions. (Source: army-technology.com)
23 Nov 24. UK defence official says Royal Navy escort force is “credible.” The Royal Navy has just 73% of the 19 escorts that were previously considered the “absolute minimum” required to perform its duties. Asenior official of the UK Ministry of Defence has said that the Royal Navy’s current escort fleet of just eight Type 23 frigates and six Type 45 destroyers is a “credible force” able to meet defence requirements at both the international and multinational level. At its present level, the Royal Navy’s 14-strong escort force is the lowest it has been for decades, with the number of available vessels even lower, calculated at just eight hulls as of 31 October 2024. This is just 73% of the previously considered minimum required for the Royal Navy to be able to perform its required duties. HMS Northumberland was the latest to be axed, along with the service’s two amphibious assault ships in a swathe of defence cuts announced by the government this month. This includes a frigate forward deployed in the Middle East, one set as Fleet Ready Escort to operate in home waters, and one vessel dedicated to a submarine-based Strategic Deterrent mission.
“The Royal Navy’s escort fleet, comprising Type 23 frigates and Type 45 destroyers, is a credible force calibrated to meet individual and multinational defence outputs effectively,” stated Undersecretary of State, Luke Pollard, on 22 November, in response to a parliamentary question.
“These vessels remain poised to defend the fleet against complex threats and are central to the UK’s Carrier Strike Capability, as witnessed in Carrier Strike Group 21,” said Pollard.
Pollard, who is MP for Plymouth Sutton and Devonport, home of the Royal Navy’s frigate force, said the “importance of the escort fleet” would be “further illustrated” in Carrier Strike Group (CSG) 25, which will deploy to the Indo-Pacific next year. The previous CSG in 2021 saw two Type 23 frigates and two Type 45 destroyers escort a UK carrier into the Indo-Pacific. It is unclear whether a similar force would able to be generated for the 2025 deployment, or if Nato allies would be required to fill any gaps. When in opposition, Pollard posed parliamentary questions to the then-Conservative government regarding the condition of the Type 23 frigate fleet, which is currently operating far beyond its intended service life. Just eight Type 23 frigates are still in service: HMS Lancaster, HMS Iron Duke, HMS Richmond, HMS Somerset, HMS Sutherland, HMS Kent, and HMS Portland. It is unclear how much longer HMS Lancaster can continue operating, with the vessel intended to retire from service this year. HMS Lancaster has been based out of Mina Salmon Naval Support Facility in Bahrain since 2022, with a decision required on whether to undertake a further live extension programme upon its return in 2025, or else decommission the vessel. Should the vessel be decommissioned in 2025, the Royal Navy will be down to just 13 surface escorts, far below the 19 hulls that had previously been considered the minimum standard. HMS Lancaster and HMS Iron Duke are the two oldest remaining Type 23 frigates, with the latter vessel completing a refit in 2023 that could provide another five years of operational service. The availability of the Type 45s has been hit in recent years as the class undergoes the PIP programme at Cammell Laird shipyard, intended to fix long-standing propulsion issues. The first of the replacement Type 31 and Type 26 frigates, currently under build, are still years away from joining the Royal Navy.
25 Nov 24. “The Defence era: capital and innovation in the current geopolitical cycle”. The report, presented exclusively by the Director of the Mediobanca Research Area Gabriele Barbaresco and by leading analyst Nadia Portioli, analyses the financial data of 40 multinationals and 100 Italian firms operating in the security industry, with a focus on the most recent trends in the sector and its prospects. The Chief Executive Officer of Mediobanca, Alberto Nagel, commented on the main findings of the research in his introductory speech. Also taking part in the event were Matteo Perego di Cremnago, Under-Secretary of the Italian Ministry of Defence, and Glenn McCartan, representative of the Defence Innovation Unit at the US European Command. The data illustrated in the report will form the basis for the discussions as part of a roundtable featuring leading sector operators: Domitilla Benigni, CEO of Elt Group, Pierroberto Folgiero, CEO of Fincantieri, Emanuele Serafini, Vice President of Western Europe Lockheed Martin, and Guido Lami, Executive Group Director of MBDA Italy. In the current scenario, in which the threats to global security are escalating, the defence sector requires large-scale investment to be able to ensure that the nations’ stability continues to be protected. Such investments are required to increase both the level of protection and to develop technological innovation. Financing defence is a challenge for governments required to balance resources between investing in national security and other forms of spending geared more closely to the population’s economic and social prosperity, such as welfare. Furthermore, public ownership of so many defence sector companies places governments in the dual role of owners and clients, further complicating the spending decisions to be taken. The perception of external threats and the demand for security thus play a crucial role in determining the level of spending to be incurred in the area of defence, influencing governments’ political and strategic decisions. The escalation of the geopolitical tensions triggered by the conflicts in Ukraine and the Middle East, as well as those in Sudan and Myanmar, has led to growing attention being focused on security issues and an increase in defence spending, which in 2023 reached a record high of $2,443bn at global level (up 6.8% on 2022),the equivalent of $306 per person. This has had a direct impact on the results of the leading industry players, and on their stock market returns, demonstrating their dynamism, financial and industrial health, and excellent prospects. The upshot of this has been a particularly buoyant consolidation process. Considering all companies at a global level with individual revenues deriving from security in excess of €0.5bn, the aggregate global turnover generated by the defence industry reached nearly €615bn in 2023 (up 9.8% on 2022). Excluding the players for which insufficient earnings or financial visibility is available (primarily the large Asian companies) and the smaller operators, the analysis of the global defence industry in this report is concentrated on the leading 40 multinationals (the “Top 40”) that are responsible for almost Media Relations Tel. no.: (0039) 02-8829.914/766 60% of the aggregate turnover in the sector, generating revenues of €355bn from their core defence business in 2023 (up 6.9% on 2022 and up 18.6% on 2019).
Top 40 defence industry multinationals
Of the 40 defence sector multinationals with individual turnover in 2023 of above €1bn, 17 of which are located in Europe (four in the United Kingdom, four in France, two each in Germany, Italy and the Netherlands, one each in Poland, Spain and Sweden), 16 in the United States and seven in the Middle East and Asia (two in South Korea and India, one each in Israel, Turkey and Taiwan). The panorama has for a long time now been dominated by the US groups, with a share of 68% of the aggregate global revenues posted in 2023, followed by the European players with 27% and the Asian operators with 5%. Italy, represented by Leonardo and Fincantieri, is responsible for 14% of the European turnover and for 4% of the global revenues. The market is concentrated, with the top ten multinationals accounting for more than two-thirds of the aggregate turnover. The degree of concentration is highest in the US panel of companies (the top ten operators represent 92% of the total), ahead of the European panel (86%). The top five positions are held exclusively by US groups which alone generate more than half of the total revenues originated from the core defence business: Lockheed Martin (€55.0bn in 2023), RTX (€36.8bn), Boeing (€31.0bn), Northrop Grumman (€30.6bn), and General Dynamics (€26.8bn). Leonardo (€11.5bn) and Fincantieri (€2.0bn), rank in ninth and 31st positions respectively. The European players are large, but still a long way off the size of the US operators: the average size is just over one-third of the US groups. The European rankings are headed up by UK firm BAE Systems (€25.8bn), followed by Airbus (€11.8bn), Leonardo (€11.5bn), Thales (€10.1bn) and Rheinmetall (€5.1bn); Fincantieri (€2.0bn) ranks in thirteenth position. To make the European companies more competitive, a round of industrial consolidation is required, along with a supranational vision of Europe as a “whole”, which is especially important for the security ecosystem. The European defence industry as a whole is suffering from a double structural deficit: reduced focus on innovation, with lower investments compared to the United States (by approx. one-third), and high levels of fragmentation, which limit its range and efficiency, increases costs, and hampers its operations on the ground, as the decision-making centres continue to be located at the individual Member State level. To address the issue of global competition and to guarantee security at European level, increased integration between the sector’s different industries is indispensable, as is the establishment of poles for major supranational programmes. The defence sector is a highly technological industry, featuring dynamic innovation, which means that huge investment in R&D is required. The European Union spends less than one-tenth of what the United States does on R&D for defence: €10.7bn, vs €130bn. In the 2019-23 five-year period, the growth in total revenues generated by the European groups from defence business (average rate 3.3%) was below that reported by the US groups (4.3%) and the Asian groups (12.2%). In response to the current challenges facing the industry, for the Top 40 companies a 9% increase in aggregate revenues is forecast for 2024, more than twice the rate at which global GDP is expected to grow (3.2%), driven by the European groups which are expected to outperform their US counterparts: in 2024 it is estimated that the European players will report an 11% increase in turnover versus 2023, compared with 8% by the US giants. For 2025, in a disinflationary scenario and with interest rates falling, with the world fragmenting increasingly into different blocs that are talking less and less to each other, aggregate total revenues are set to rise by 12%, still outperforming the growth in global GDP estimated (up 3.2%). This estimate is based on a relatively stable geopolitical environment which continues to support defence spending budgets, without considering risks related to new conflicts or protectionist tendencies that could drive a further increase, but does factor in the potential effects that the newly elected Trump administration might have on the security industry, which translate to additional orders of a certain size being acquired. The aggregate profitability of the Top 40 companies is decreasing: the Ebit margin has gradually declined from 7.7% in 2021 to 7.5% in 2022, to 7.2% in 2023 and to 7.1% in 1H 2024 (the same as in 2019).Here the top three performers were all Asian: Indian companies Bharat Electronics (Ebit margin 26.5%) and Hindustan Electronics.
25 Nov 24. France has dropped its opposition to non-EU companies accessing EU-funded financial incentives for Europe’s defence industry, as Brussels pushes to develop a stronger domestic arms industry less dependent on the US. French diplomats in Brussels have voiced support for a proposal that would allow for up to 35 per cent of EU budget-financed cash incentives to be spent on defence products from outside the 27-member bloc, according to five people briefed on technical discussions last week. That follows around a year of opposition from Paris to allowing defence companies from countries such as the US, UK, Israel and Turkey from participating in the EU’s proposed European Defence Investment Plan (EDIP), on the grounds that it should only promote homegrown companies amid a push for European “strategic autonomy”. But that position had shifted this month, two of the officials said, adding that it would be difficult for the EU to simultaneously lobby incoming US president Donald Trump not to reduce US military support to Europe, while excluding US companies from efforts to build up the European defence industry. “Everyone is thinking a bit smarter since [the US election],” said one of the officials. Countries such as Sweden that have strong links to the UK defence industry had been opposed to France’s previous position, arguing that it could exclude their defence contractors that had British shareholders or relied on UK-sourced components. The 65/35 proposal was drawn up by the Hungarian rotating presidency of the EU and involved inputs from France, Germany, Italy and Spain, three of the officials said. Negotiations on the proposal were set to take place in the coming weeks and it could change before it is presented to parliament in early 2025, they added. The proposal also includes a clause banning the participation of countries deemed to “contravene” the bloc’s security and the principle of “good relations.” France viewed the proposal as “a good basis” for compromise, another of the officials said. The French representation to the EU declined to comment. EDIP, which was first proposed last February and must be agreed by both the EU’s 27 capitals and the European parliament in order to come into force, would pump cash into joint production and procurement of European weapons. The initiative seeks to stimulate investment in the continent’s underfunded arms industry and encourage capitals to buy weapons together, to promote interoperability and bring down prices. The EDIP’s aims include increasing the “availability and supply” of key defence products and “addressing bottlenecks in critical supply chains” supporting the European arms industry, and involving Ukrainian manufacturers. The project is only earmarked for a €1.5bn cash pot under the existing EU budget to 2027, but many capitals are pushing for it to grow significantly in the future. Officials also say that its spending rules would probably provide a long-term framework for similar EU defence initiatives. (Source: FT.com)
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