Defence & Obsolescence
Raising our game
The defence market in Europe is facing profound change over the next ten years, not least because of the budgetary pressures that are being caused by European governments following policies of austerity. Neil Tyler looks at how the market is changing and adapting to a new environment
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cross Europe the defence sector is undergoing a profound change, whether that’s in terms of defence spending being cut or the regulations governing the European defence market or the performance and structure of the sector’s industrial base. According to figures from the Center for Strategic and International Studies (CSIS) defence spending across Europe - their figures cover 37 European countries - has declined over the ten years to 2011 by on average 1.8% year on year. From 263bn euros in 2001, at 2011 prices, the market was valued at just over 220bn euros in 2011. That record of decline compares to global growth of around 4.5 per cent per annum over the same period. Changes in regulations governing the industry have been undertaken or are in the process of being amended. A variety of national and supranational regulations built up over the years had resulted in a host of inefficiencies in the allocation of defence resources with efforts being duplicated and a lack of competition. Parts of that environment are changing with regulatory reforms being implemented that look to reduce the fragmentation seen across the European defence sector. Addressing that problem will prove crucial at a time when defence funding is under so much strain. The opening up of the defence market
in Europe, combined with falling defence spending, means that the market is going to become increasingly competitive and for many companies to survive they will have to start looking to markets beyond Europe. Not an easy thing to do when the world’s largest defence market in the US is itself slowing. Relative US weakness will mean that European companies will have to look beyond traditional markets to those in Latin America, the Middle East and Asia and for companies to be successful in those markets will require much collective effort between government and industry. Another result of the wave of defence cuts affecting both Europe and the US is
16 March 2013
growing consolidation in the electronics industry. Industry watchers suggest that over the last six months the number of mergers and acquisitions has accelerated and that trend looks likely to continue over the coming years.
Defence spending In 2011 the UK and Greece were the only two countries within Europe that maintained their defence spending at or above the 2 per cent of national income that is recommended by NATO. The defence industry in the UK employs
upwards of 200,000 people directly and is seen as vital to the health of the technology and manufacturing base in the UK. Exports are said to be worth £50bn a year to the economy and are continuing to grow. For example the UK is now targeting Libya and India as possible markets, competing with the likes of Italy and France.
Britain still has the world's fourth largest military budget, spending around £34bn each year on defence and British armed forces have regularly been deployed since the end of the cold war from Iraq and Libya to Bosnia and Sierra Leone and have been operating in Afghanistan for the last 10 years. However, the government is radically restructuring the armed forces and by doing so has raised doubts about the UK’s future military capabilities.
In January the Ministry of Defence published figures that show the UK is committed to spending £159bn, over the next ten years. That spend includes £17.4bn on two aircraft carriers, six destroyers and the global combat ship, £18.5bn for jets and drones, £12.1bn on helicopters, and £13.9bn on cargo planes and refuelling aircraft. By far the largest part of the bill is the £35.8bn that has been allocated to the Vanguard submarines which will house the country’s future nuclear deterrent. The government believes that after decades of overspending it has managed to overhaul the defence procurement process
Components in Electronics
bringing new efficiencies and commercial rigour back to the process.
As defence spending waxes and wanes, companies are making more effort to re- direct plans for product development that meets the needs of parallel markets such as transportation and homeland security. So how can defence and aerospace companies begin to explore how they can apply their skills to other sectors to compensate for stagnating defence budgets?
US firms such as Lockheed Martin, Raytheon and Northrop Grumman, and Europe’s Saab and Finmeccanica, for example, have signed up to a statement that looks at co-operation to tackle what they called "global challenges" from the likes of renewable energy, climate change, and disaster relief. These companies have technologies such as satellite surveillance and long-range drones to plot the impact
© Bae Systems
vulnerable to flooding, and portable power systems to overcome blackouts. In the defence space smaller defence companies are especially vulnerable to the cyclical nature of defence orders. It is still unclear how reduced defence spending will impact on electronic component and subsystem suppliers, many of whom are re- inventing themselves as key enablers for electronic systems upgrades that will keep existing platforms in the field for as long as possible to save money or are looking at new markets.
In the UK Supacat, a small British engineering company involved with military vehicles, is currently looking at new sectors. Speaking to the BBC the company’s managing director, Nicholas Ames, said his concerns about the nature of the defence business drove him to look at new areas. "I've always been thinking about other sectors we should be looking at with our skills," he explained. He highlighted opportunities in the offshore renewable energy sector because of work Supacat has done with Britain's Royal National Lifeboat Institution. "For my part I see a whole plethora of marine engineering challenges that are frankly being thrown out by these new renewable energy devices."
© Bae Systems
of melting ice, and robust command and control systems which could help communities cope with natural disasters. Northrop Grumman manufactures drones for the US military and it certainly believes its expertise could be put to other uses. Experts argue that defence and
aerospace companies could offer technology that includes mapping and sensing techniques to spot areas most
Electronics The role of technology in delivering new levels of system performance is critical to the success of companies operating in a global defence market. The use of electronics in defence equipment is on the increase and growing increasingly complex, and a whole range of new products are under development.
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