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Defence Industry - UK - November 2015

“The government’s commitment to spend the NATO-recommended 2% of GDP on the defence sector until 2020 has allowed the industry to plan its operations going forward. However, the western world’s growing tension with Russia, the global threat of terrorism, and emerging cyber security dangers provide a reminder of the changeable nature of conflict and that all those involved in operations must remain vigilant, flexible, and prepared to enter conflicts when required.”
– Lewis Cone, B2B 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 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?

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
        • Figure 2: MoD Equipment Expenditure, 2011/12-2015/16
      • 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 2010 and 2014, World’s Top Six
      • Market factors
        • Current conflicts dictate spending patterns
          • R&D funding affecting response time and ability to compete as a global equipment buyer
            • Shift in global spending levels and exports
              • Monopolistic market for complex weapons restricts other entrants to the sector
                • The next Strategic Defence and Security Review is likely to lead to a further push towards efficiency
                  • Companies
                    • Forecast
                      • Defence DEL set to rise over the next three years while total DEL is anticipated to fall
                        • Figure 5: Forecast UK DEL on Defence, 2015/16-2017/18
                      • The next SDSR, due in November, is expected to continue to streamline full-time force numbers and military holdings to improve efficiency
                        • The directional change in global defence spending patterns and exports poses challenges to the UK’s position as the second largest defence equipment exporter in the world
                          • What we think
                          • Key Insights

                              • What are the biggest barriers to equipment procurement and sales?
                                • How significant is the government’s commitment to spend 2% of GDP on defence?
                                  • Where are the key development opportunities for the industry?
                                  • Introduction

                                      • Definitions
                                        • Methodology
                                          • Abbreviations
                                          • Political

                                                • Figure 6: Trends in Public Sector Total Managed Expenditure, 2004/05-2015/16
                                                • Figure 7: Trends in Public Sector Total Managed Expenditure, 2004/05-2015/16
                                            • Market Positioning

                                                • The single market
                                                  • Competitiveness
                                                    • Research and innovation
                                                      • International issues
                                                      • UK Economy

                                                        • Key points
                                                          • Overview
                                                            • Figure 8: UK GDP, 2004-2015
                                                            • Figure 9: Quarters after GDP Peak, 1979, 1990 and 2008
                                                          • Inflation
                                                            • Interest rates
                                                              • House prices
                                                                • Consumer spending
                                                                  • Manufacturing
                                                                    • Business investment
                                                                      • Figure 10: UK GFCF 2003-15
                                                                    • Imports
                                                                      • Exports
                                                                      • Market Factors

                                                                        • Key points
                                                                          • The Defence Industrial Policy
                                                                            • The Defence Growth Partnership
                                                                              • The Arms Trade Treaty
                                                                                • Current conflicts
                                                                                  • R&D funding
                                                                                    • Strategic Defence Policy
                                                                                      • Defence policy
                                                                                      • Market Size

                                                                                        • Key points
                                                                                            • Figure 11: The UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
                                                                                            • Figure 12: UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
                                                                                            • Figure 13: The UK Defence Departmental Capital Expenditure Limits, 2011/12-2015/16, (£ Million)
                                                                                            • Figure 14: The UK Defence Departmental Cash Resource Expenditure Limits, 2011/12-2015/16
                                                                                            • Figure 15: UK Defence Departmental Cash Resource Expenditure Limits, 2011/12 and 2015/16
                                                                                            • Figure 16: The UK Defence Annually Managed Expenditure Limits, 2009/10-2013/14
                                                                                            • Figure 17: The UK Defence Annually Managed Expenditure Limits, 2009/10-2013/14
                                                                                            • Figure 18: MoD Equipment Expenditure, 2011/12-2015/16, (£ Million)
                                                                                            • Figure 19: MoD Equipment Expenditure, 2011/12-2015/16
                                                                                            • Figure 20: MoD Research & Development Expenditure Outturn, 2008/09-2012/13, (£ Million)
                                                                                            • Figure 21: UK Defence Expenditure by Industry, 2009/10-2013/14, (£ Million)
                                                                                            • Figure 22: MoD Major Equipment Projects, as at 31 March 2014, (£ Million)
                                                                                            • Figure 23: MoD PFI Projects, 2014, (Year and £ Million)
                                                                                        • Market Trends

                                                                                          • Key points
                                                                                            • SDSR and the National Security Strategy
                                                                                              • Royal Navy and Royal Auxiliary Vessels
                                                                                                • Figure 24: Number of Vessels In the Royal Navy and Royal Auxiliary Fleet, 2006-2014, (Number)
                                                                                                • Figure 25: Number of Vessels in the Royal Navy and Royal Auxiliary Fleet, 2006-2014
                                                                                              • Aircraft fleet
                                                                                                • Figure 26: Aircraft Fleets, by Type of Aircraft, for the Royal Navy Fleet Arm, 2006-2014
                                                                                                • Figure 27: Aircraft Fleets for the Royal Navy Fleet Arm, by Type of Aircraft, 2006, 2010 and 2014
                                                                                                • Figure 28: Aircraft Fleets for the Royal Air Force, by Type of Aircraft, 2006-2014
                                                                                                • Figure 29: Aircraft Fleets in the Joint Helicopter Command and Joint Force Harrier, by Type of Aircraft, 2006-2014
                                                                                                • Figure 30: Aircraft Fleets in the Joint Helicopter Command and Joint Force Harrier, by Type of Aircraft, 2006, 2010 and 2014
                                                                                              • Conventional armed forces in Europe treaty holdings
                                                                                                • 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, 2006-2015
                                                                                                • 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, 2006, 2009, 2012 and 2015
                                                                                                • 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, 2006-2015
                                                                                                • Figure 34: Aircraft Holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2006-2015
                                                                                                • 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, 2011 and 2015
                                                                                              • Global defence spending
                                                                                                • Figure 36: Defence Spending 2010 and 2014
                                                                                                • Figure 37: Defence Spending 2010 and 2014, World’s Top Six
                                                                                              • The changing nature of conflict is dictating spend and use of specific equipment
                                                                                                • Dstl and QinetiQ
                                                                                                  • Other trends
                                                                                                  • Industry Structure

                                                                                                    • Key points
                                                                                                      • Industry development
                                                                                                        • Industry Structure
                                                                                                          • Figure 38: Analysis of the Changes in the Structure of the Weapons and Ammunition Industry, 2011-2015
                                                                                                          • Figure 39: Analysis of the Changes in the Structure of the Air, Spacecraft and Related Machinery Industry, 2011-2015
                                                                                                          • Figure 40: Analysis of the Changes in the Structure of the Ship and Floating Structures Industry, 2011-2015
                                                                                                          • Figure 41: Analysis of the Changes in the Manufacture of Military Fighting Vehicles Industry, 2011-2015
                                                                                                        • Structure by employment
                                                                                                          • Figure 42: Analysis of the Employment Structure of the Weapons and Ammunition Manufacturing Industry, 2014 and 2015
                                                                                                          • Figure 43: Analysis of the Employment Structure of the Air, Spacecraft and Related Machinery Industry, 2014 and 2015
                                                                                                          • Figure 44: Analysis of the Employment Structure of the Shipbuilding and Repair Industry, 2013 and 2014
                                                                                                          • Figure 45: Analysis of the Employment Structure of the Manufacture of Military Fighting Vehicles Industry, 2014 and 2015
                                                                                                        • Structure by turnover
                                                                                                          • Figure 46: Analysis of the Financial Structure of the Weapons and Ammunition Manufacturing Industry, 2014 and 2015
                                                                                                          • Figure 47: Analysis of the Financial Structure of the Air, Spacecraft and Related Machinery Manufacturing Industry, 2014 and 2015
                                                                                                          • Figure 48: Analysis of the Financial Structure of the Shipbuilding and Repair Industry, 2014 and 2015
                                                                                                          • Figure 49: Analysis of the Financial Structure of the Manufacture of Military Fighting Vehicles Industry, 2014 and 2015
                                                                                                        • Defence Contracts
                                                                                                        • Company Profiles

                                                                                                          • AgustaWestland

                                                                                                                • Figure 50: Financial Analysis of AgustaWestland, 2010-2014
                                                                                                              • Company outlook
                                                                                                              • AWE Management

                                                                                                                    • Figure 51: Financial Analysis of AWE Management, 2009-2013
                                                                                                                  • Company outlook
                                                                                                                  • BAE Systems

                                                                                                                        • Figure 52: Financial Analysis of BAE Systems, 2010-2014
                                                                                                                      • Company outlook
                                                                                                                        • BAE Systems’ Surface Ships
                                                                                                                            • Figure 53: Financial Analysis of BAE Systems’ Surface Ships, 2010-2014
                                                                                                                          • BAE Systems (Operations)
                                                                                                                            • Figure 54: Financial Analysis of BAE Systems (Operations), 2010-2014
                                                                                                                        • Cobham

                                                                                                                              • Figure 55: Financial Analysis of Cobham, 2010-2014
                                                                                                                            • Company outlook
                                                                                                                            • General Dynamics UK

                                                                                                                                  • Figure 56: Financial Analysis of General Dynamics UK, 2009-2013
                                                                                                                                • Company outlook
                                                                                                                                • HP Enterprise Services Defence & Security UK

                                                                                                                                      • Figure 57: Financial Analysis of HP Enterprise Services UK, 2009-2013
                                                                                                                                    • Company outlook
                                                                                                                                    • Lockheed Martin (UK)

                                                                                                                                          • Figure 58: Financial Analysis of Lockheed Martin (UK), 2010-2014
                                                                                                                                        • Company outlook
                                                                                                                                        • NETMA

                                                                                                                                          • QinetiQ

                                                                                                                                                • Figure 59: Financial Analysis of QinetiQ, 2011-2015
                                                                                                                                              • Company outlook
                                                                                                                                              • Rolls-Royce

                                                                                                                                                    • Figure 60: Financial Analysis of Rolls-Royce, 2010-2014
                                                                                                                                                  • Company outlook
                                                                                                                                                    • Figure 61: Profiled Companies’ Turnover, 2010-2014
                                                                                                                                                • Forecast

                                                                                                                                                  • Key points
                                                                                                                                                    • Market size
                                                                                                                                                      • Figure 62: Defence Budget, 2010/11-2014/15
                                                                                                                                                      • Figure 63: Revised Defence Budget, 2010/11-2015/16
                                                                                                                                                      • Figure 64: Defence Budget, Planned and Revised, 2010/11-2015/16
                                                                                                                                                      • Figure 65: Forecast UK DEL on Defence, 2015/16-2017/18
                                                                                                                                                      • Figure 66: Forecast UK DEL on Defence, 2015/16-2017/18
                                                                                                                                                      • Figure 67: Post-Main Gate Major Equipment Projects, 2014
                                                                                                                                                    • PFI
                                                                                                                                                      • Figure 68: Estimated Payment under MoD PFI Contracts, based on Signed Defence Deals as of March 2014
                                                                                                                                                    • Industry
                                                                                                                                                      • The SDSR 2015
                                                                                                                                                        • Direction change in global spending patterns and exports
                                                                                                                                                          • Efficiency improvements and further savings still required
                                                                                                                                                            • Recruitment issues remain even with enforced personnel restrictions
                                                                                                                                                              • The emerging cyber-security threat
                                                                                                                                                              • 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 Industry - UK - November 2015

                                                                                                                                                                    US $1,333.00 (Excl.Tax)