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Defence Equipment (Industrial Report) - UK - December 2014

“The Strategic Defence and Security Review in 2010 has heavily influenced what the sector has been able to achieve over the last four years. With the spending cuts lasting for at least another year, strategies and defence equipment procurement will continue to be chosen with efficiency and ‘best value’ as the main two priorities.”

– Lewis Cone, Research Analyst

This report will explore the following key issues regarding the defence equipment industry in the UK:

  • What are the key determinants driving the defence equipment industry?
  • Was the market affected by the financial crisis and how has it recovered since? Has there been any structural changes as a consequence?
  • How has the government influenced and shaped the development of the sector?
  • What are the key issues the UK industry needs to address to be able to maintain its global position in an ever-competitive market?
  • How have companies adapted to cost pressures and the changing nature of threats?
  • What does the future hold for the UK’s defence equipment industry?

For the purposes of this report, UK public expenditure on defence falls under the heading Total Managed Expenditure (TME). This is segmented into Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME).

DEL is further broken down between resource and capital budgets, with the resource budget formerly known as current budget, while AME is largely made up by Main Departmental Programmes and locally financed expenditure.

All of the values quoted in this report are at current prices unless otherwise specified. The term billion denoted one thousand million.

Public Private Partnerships (PPP) covers a variety of procurement initiatives, such as Private Finance Initiative (PFI), Partnering Arrangements, Outsourcing, the Wider Markets Initiative and the Defence Estates Prime Contract Programme.

PFI remains the cornerstone of the PPP programme. Through PFI, the government is committed to seeking value for money by using private sector management expertise, innovation and capital investment. This involves the private sector in creating or buying a new asset and then selling a range of services based on those assets to the MoD.

A Partnering Arrangement describes a long-term contract based on the partnering ethos until the end of the project. In a Partnering Arrangement there is not necessarily a clear direction but rather this is developed during the life-time of the contract.

Outsourcing, or contracting out, remains a key method of achieving targets set under the Public Service Agreement, with requirements often being bundled together under a Multi Activity Contract. Outsourcing contracts are often five to seven years in length. Other forms of PPP are more appropriate when large capital investment is required or if a long-term contract is envisaged.

Prime Contracting is a different approach to the procurement system. A contract is awarded for the delivery of property management services with payment linked to performance and innovation. The Prime Contractor will co-ordinate and actively manage sub-contractors and ensure that lower-tier sub-contractors are working to the same objectives of meeting standardised targets and improving efficiency. This may be compared with the traditional method of estate maintenance procurement, which involves many contracts and many contractors and is expensive to operate and difficult to manage.

Wider Markets refers to exploiting spare capacity in assets on a commercial basis to make the best use of equipment, land, skills etc.

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK defence departmental expenditure limits and defence spending, 2009/10-2013/14
        • Figure 2: MoD equipment expenditure, 2009/10-2013/14
      • Market trends
        • Figure 3: Military holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, by equipment group, 2010 and 2014
        • Figure 4: Defence spending 2009 and 2013, world’s top six
      • Market factors
        • The Defence Industrial Policy still dictates the industry’s purchasing and investment decisions
          • Monopolistic market for complex weapons restricts other entrants to the sector
            • The Defence Growth Partnership is hoped to boost the sector’s growth potential
              • The outcome and implementation of Strategic Defence and Security Review expenditure cuts has had the greatest impact upon defence activity and performance
                • Companies
                  • Forecast
                    • Total Departmental Expenditure Limit followed SDSR guidelines from 2012/13, but economic growth and political agendas lead to an uncertain future
                      • Figure 5: Defence budget, planned and revised, 2010/11-2015/16
                    • The next SDSR, due in 2015, is expected to follow a similar pattern to the last review, but the contents are subject to change depending on political and economic factors
                      • The UK’s position as the second largest defence equipment exporter in the world will come under increasing danger
                        • What we think
                        • Introduction

                            • Definitions
                              • Methodology
                                • Abbreviations
                                  • Political
                                      • Figure 6: Trends in public sector total managed expenditure, 2004/05-2013/14
                                      • Figure 7: Trends in public sector total managed expenditure graph, 2004/05-2013/14
                                    • Market positioning
                                    • UK Economy

                                      • Key points
                                        • Overview
                                            • Figure 8: UK GDP, 2003-14 Q2
                                            • Figure 9: Quarters after GDP peak, 1979, 1990 and 2008
                                          • Inflation
                                            • Interest rates
                                              • House prices
                                                • Consumer spending
                                                  • Manufacturing
                                                    • Business investment
                                                    • Market Factors

                                                      • Key points
                                                        • Strategic defence policy
                                                          • Royal Navy
                                                            • Royal Air Force
                                                              • Royal Navy
                                                                • RAF
                                                                  • Defence policy
                                                                  • Market Size

                                                                    • Key points
                                                                        • Figure 10: The UK defence departmental expenditure limits and defence spending, 2009/10-2013/14
                                                                        • Figure 11: The UK defence departmental expenditure limits and defence spending graph, 2009/10-2013/14
                                                                        • Figure 12: The UK defence departmental capital expenditure limits, 2006/2007-2010/11
                                                                        • Figure 13: The UK defence departmental capital expenditure limits, 2011/12-2013/14
                                                                        • Figure 14: The UK defence departmental cash resource expenditure limits, 2011/12-2013/14
                                                                        • Figure 15: The UK defence departmental cash resource expenditure limits graph, 2011/12-2013/14
                                                                        • Figure 16: The UK defence annually managed expenditure limits, 2009/10-2013/14
                                                                        • Figure 17: The UK defence annually managed expenditure limits graph, 2009/10-2013/14
                                                                        • Figure 18: MoD equipment expenditure, 2009/2010-2013/14
                                                                        • Figure 19: MoD equipment expenditure graph, 2009/10-2013/14
                                                                        • Figure 20: MoD Research and development expenditure outturn, 2007/2008-2011/12
                                                                        • Figure 21: UK defence expenditure by industry, 2008/09-2012/13
                                                                        • Figure 22: MoD major equipment projects, as at 31 March 2013
                                                                      • PPP/PFI
                                                                        • PFI
                                                                            • Figure 23: MoD PFI projects, 2013
                                                                        • Market Trends

                                                                          • Key points
                                                                              • Figure 24: Number of vessels in the Royal Navy and Royal Auxiliary Fleet, 2005-13
                                                                              • Figure 25: Number of vessels in the Royal Navy and Royal Auxiliary Fleet graph, 2005-13
                                                                              • Figure 26: Aircraft fleets, by type of aircraft, for the Royal Navy Fleet Arm, 2005-13
                                                                              • Figure 27: Aircraft fleets for the Royal Navy Fleet Arm, by type of aircraft, 2005, 2009 and 2013
                                                                              • Figure 28: Aircraft fleets for the Royal Air Force, by type of aircraft, 2005-13
                                                                              • Figure 29: Aircraft fleets in the Joint Helicopter Command and Joint Force Harrier, by type of aircraft, 2005-13
                                                                              • Figure 30: Aircraft fleets in the Joint Helicopter Command and Joint Force Harrier graph, by type of aircraft, 2005, 2009 and 2013
                                                                              • Figure 31: Number of tanks and artillery holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2005-14
                                                                              • Figure 32: Number of tanks and artillery holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty graph, 2005, 2008, 2011 and 2014
                                                                              • Figure 33: Number of Armoured Combat Vehicle Holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2005-2014, (Number)
                                                                              • Figure 34: Aircraft holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2005-14
                                                                              • Figure 35: Military holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, by Equipment Group, 2010 and 2014
                                                                              • Figure 36: Defence spending 2009 and 2013
                                                                              • Figure 37: Defence spending 2009 and 2013, world’s top six
                                                                          • Industry Structure

                                                                            • Key points
                                                                              • Industry development
                                                                                  • Figure 38: Analysis of the changes in the structure of the weapons and ammunition industry, 2010-2014,
                                                                                  • Figure 39: Analysis of the changes in the structure of the air, spacecraft and related machinery industry, 2010-14
                                                                                  • Figure 40: Analysis of the changes in the structure of the air, spacecraft and related machinery industry, 2010-14
                                                                                  • Figure 41: Analysis of the changes in the structure of the ship and floating structures industry, 2010-14
                                                                                • Structure by employment
                                                                                  • Figure 42: Analysis of the employment structure of the weapons and ammunition manufacturing industry, 2013 and 2014
                                                                                  • Figure 43: Analysis of the employment structure of the weapons and ammunition manufacturing Industry graph, 2013 and 2014
                                                                                  • Figure 44: Analysis of the employment structure of the air, spacecraft and related machinery industry, 2013 and 2014
                                                                                  • Figure 45: Analysis of the employment structure of the shipbuilding and repair Industry, 2013 and 2014
                                                                                • Structure by turnover
                                                                                  • Figure 46: Analysis of the financial structure of the weapons and ammunition manufacturing industry, 2013 and 2014
                                                                                  • Figure 47: Analysis of the financial structure of the air, spacecraft and related machinery manufacturing industry, 2013 and 2014
                                                                                  • Figure 48: Analysis of the financial structure of the air, spacecraft and related machinery manufacturing industry graph, 2013 and 2014
                                                                                  • Figure 49: Analysis of the financial structure of the shipbuilding and repair industry, 2013 and 2014
                                                                                • Defence contracts
                                                                                • Company Profiles

                                                                                  • AWE Management

                                                                                        • Figure 50: Financial analysis of AWE Management, 2009-13
                                                                                    • BAE Systems

                                                                                          • Figure 51: Financial analysis of BAE Systems, 2009-13
                                                                                        • BAE Systems’ Surface Ships
                                                                                            • Figure 52: Financial analysis of BAE Systems’ Surface Ships, 2009-2013, (£ 000)
                                                                                          • BAE Systems (Operations)
                                                                                            • Figure 53: Financial analysis of BAE Systems (Operations), 2009-13
                                                                                        • HP Enterprise Services Defence & Security UK

                                                                                            • Figure 54: Financial analysis of HP Enterprise Services UK, 2009-13
                                                                                        • Netma

                                                                                          • AgustaWestland

                                                                                                • Figure 55: Financial Analysis of AgustaWestland, 2009-13
                                                                                            • Cobham

                                                                                                  • Figure 56: Financial analysis of Cobham, 2009-13
                                                                                              • QinetiQ

                                                                                                    • Figure 57: Financial analysis of QinetiQ, 2010-14
                                                                                                • Rolls-Royce

                                                                                                      • Figure 58: Financial analysis of Rolls-Royce, 2009-13
                                                                                                      • Figure 59: Profiled companies’ turnover, 2009-13
                                                                                                  • Forecast

                                                                                                    • Key points
                                                                                                      • Market size
                                                                                                        • Figure 60: Defence budget, 2010/11-2014/15
                                                                                                        • Figure 61: Revised defence budget, 2010/11-2015/16
                                                                                                        • Figure 62: Defence budget, planned and revised, 2010/11-2015/16
                                                                                                        • Figure 63: Post-Main Gate major equipment projects, 2013
                                                                                                        • Figure 64: Estimated payment under MoD PFI contracts, based on signed defence deals as of March 2013
                                                                                                      • Industry
                                                                                                      • Further Sources and Contacts

                                                                                                        • Trade associations
                                                                                                          • Trade magazines
                                                                                                            • Trade exhibitions

                                                                                                            Companies Covered

                                                                                                            To learn more about the companies covered in this report please contact us.

                                                                                                            Defence Equipment (Industrial Report) - UK - December 2014

                                                                                                            £995.00 (Excl.Tax)