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Defence Industry - UK - November 2016

“The risks and threats faced by the UK have increased in scale, diversity and complexity since the last SDSR in 2010. Russia’s resurgence, the increasing cyber threat, instability in the Middle East and North Africa, and the growing threat of international terrorism illustrate how the challenge has evolved. The defence industry is continuing to adapt to meet these growing threats and the MoD is set to make over 170 investments to sustain and enhance defence capabilities, as outlined in the 2015 SDSR.”

Lewis Cone, B2B Analyst

This report answers the following questions:

  • How has Brexit already impacted the industry?
  • Is the UK adapting to changes and developments in the nature of conflict?
  • Following the reduction in fleet size, implemented by the 2010 SDSR, is the UK's military capability still at a sufficient level?

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK Defence departmental expenditure limits and defence spending, 2011/12-2015/16
        • Figure 2: MoD equipment expenditure, 2012/13-2016/17
      • Market trends
        • US still dominates global military spending despite China closing the gap
          • Figure 3: Defence spending 2011 and 2015, World’s top six
        • Unmanned aerial vehicles becoming a more dominant sector as the nature of conflict continues to change
          • Market factors
            • The start of Brexit negotiations early next year could change industry plans
              • Military capability affected by poor condition of MoD’s estate
                • Industry development
                  • Lockheed Martin maintains its position as the largest defence company in the world
                    • Figure 4: World top 10 defence companies, by revenue, 2015
                  • Forecast
                    • Defence DEL expected to rise to boost military capability in preparation for immediate threats
                      • Figure 5: Forecast UK defence DEL, 2016/17-2020/21
                    • NATO’s importance likely to grow following the UK’s EU exit
                      • What we think
                      • Key Insights

                          • How has Brexit already impacted the industry?
                            • Is the UK adapting to changes and developments in the nature of conflict?
                              • Following the reduction in fleet size, implemented by the 2010 SDSR, is the UK’s military capability still at a sufficient level?
                              • Introduction

                                  • Definitions
                                    • Methodology
                                      • Abbreviations
                                        • Political
                                            • Figure 6: Trends in public sector total managed expenditure, 2005/06-2016/17
                                            • Figure 7: Trends in public sector total managed expenditure, 2005/06-2016/17*
                                          • Market positioning
                                          • UK Economy

                                            • Key points
                                              • Overview
                                                • Figure 8: UK GDP, 2006-16
                                                • Figure 9: UK output, by industry, 2008-16
                                                • Figure 10: Quarters after GDP peak, 1979, 1990 and 2008
                                              • Inflation
                                                • Interest rates
                                                  • House prices
                                                    • Figure 11: UK house price changes, 2006-16
                                                  • Consumer spending
                                                    • Manufacturing
                                                      • Figure 12: UK manufacturing, 2014-16
                                                    • Business investment
                                                      • Figure 13: UK GFCF 2005-15
                                                    • Imports
                                                      • Exports
                                                      • Market Factors

                                                        • Key points
                                                          • Uncertainties surrounding economic growth yet to be realised...
                                                            • Figure 14: GDP growth rate, Q1 2012-Q3 2016
                                                            • Figure 15: GDP growth rate, Q1 2012-Q3 2016
                                                          • ... but the start of Brexit negotiations early next year could change industry plans
                                                            • Change in US leadership could alter global defence structure and spending patterns
                                                              • Military capability affected by the poor condition of MoD’s estate
                                                                • Other factors
                                                                  • The Defence Industrial Policy
                                                                    • The Defence Growth Partnership
                                                                      • The Arms Trade Treaty
                                                                        • Strategic Defence Policy
                                                                          • 2015 NSS and the SDSR
                                                                            • Royal Navy
                                                                              • Army
                                                                                • Royal Air Force
                                                                                  • Defence Operating Model
                                                                                    • Defence cooperation agreements
                                                                                    • Market Size

                                                                                      • Key points
                                                                                        • SDSR 2015
                                                                                          • Defence spending rises in 2015/16 following government pledge
                                                                                            • Figure 16: The UK defence departmental expenditure limits and defence Spending, 2011/12-2015/16
                                                                                            • Figure 17: UK Defence departmental expenditure limits and defence spending, 2011/12-2015/16
                                                                                          • Single-use military equipment forms largest amount of capital expenditure
                                                                                            • Figure 18: The UK defence departmental capital expenditure limits, 2012/13-2016/17
                                                                                            • Figure 19: The UK defence departmental cash resource expenditure limits, 2012/13-2016/17
                                                                                            • Figure 20: UK defence departmental cash resource expenditure limits, 2012/13 and 2016/17
                                                                                            • Figure 21: The UK defence annually managed expenditure limits, 2011/12-2015/16
                                                                                            • Figure 22: The UK defence annually managed expenditure limits, 2011/12 and 2015/16
                                                                                            • Figure 23: MoD equipment expenditure, 2012/13-2016/17
                                                                                            • Figure 24: MoD equipment expenditure, 2012/13-2016/17
                                                                                            • Figure 25: MoD research and development expenditure outturn, 2010/11-2014/15
                                                                                            • Figure 26: UK defence expenditure by industry, 2010/11-2014/15
                                                                                            • Figure 27: MoD major equipment projects, as at 31 March 2015
                                                                                          • PFI
                                                                                              • Figure 28: MoD PFI projects, 2015
                                                                                              • Figure 29: MoD PFI projects, 2015 (continued)
                                                                                          • Market Trends

                                                                                            • Key points
                                                                                              • North American and Western Europe spending falls, but spending rises in other regions
                                                                                                  • Figure 30: Defence spending 2011 and 2015
                                                                                                  • Figure 31: Defence spending 2011 and 2015, World’s top six
                                                                                                • Unmanned aerial vehicles becoming a more dominant sector as the nature of conflict continues to change
                                                                                                  • UK remains Europe’s leading defence exporter, despite fall in new business
                                                                                                      • Figure 32: Identified orders of UK exports of defence aircraft and equipment, 2011-2015
                                                                                                      • Figure 33: Identified orders of UK exports of defence aircraft and equipment, 2011-15
                                                                                                    • Armed Forces equipment and formations trends
                                                                                                      • Royal Navy and Royal Auxiliary Vessels
                                                                                                        • Figure 34: Royal Navy and Royal Auxiliary fleet of the UK Armed Forces, 2016
                                                                                                      • Aircraft fleet
                                                                                                        • Figure 35: Fixed-wing platforms and unmanned aircraft systems of the UK Armed Forces, 2016
                                                                                                        • Figure 36: Rotary-wing platforms of the UK Armed Forces, 2016
                                                                                                      • Militarily-useful British-registered vessels
                                                                                                        • Figure 37: Number of militarily-useful British-registered vessels (passenger, tanker and dry cargo), 2011-15
                                                                                                        • Figure 38: Number of militarily-useful British-registered vessels (fishing and specialist), 2011-15
                                                                                                      • Land equipment
                                                                                                        • Figure 39: Land equipment of the UK Armed Forces, 2016
                                                                                                      • Conventional Armed Forces in Europe Treaty holdings
                                                                                                        • Figure 40: Number of tanks and artillery holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the conventional Armed Forces in Europe Treaty, 2007-16
                                                                                                        • Figure 41: Number of tanks and artillery holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2007, 2010, 2013 and 2016
                                                                                                        • Figure 42: Number of armoured combat vehicle holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2007-16
                                                                                                        • Figure 43: Number of armoured combat vehicle holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2007-16 (continued)
                                                                                                        • Figure 44: Aircraft holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, 2007-16
                                                                                                        • Figure 45: Military holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the Conventional Armed Forces in Europe Treaty, by equipment group, 2012 and 2016
                                                                                                    • Industry structure

                                                                                                      • Key points
                                                                                                        • Industry development
                                                                                                          • Global military spending showing signs of improving
                                                                                                            • Lockheed Martin maintains its position as the largest defence company in the world
                                                                                                                • Figure 46: World top 10 defence companies, by revenue, 2015
                                                                                                                • Figure 47: World top 10 defence companies, by revenue, 2015
                                                                                                              • SDSR has allowed the MoD to push ahead with awarding military equipment contracts
                                                                                                                • Exports and the UKTI DSO
                                                                                                                  • Single Source Regulations Office
                                                                                                                    • Industry structure
                                                                                                                      • Figure 48: Analysis of the changes in the structure of the weapons and ammunition industry, 2012-16
                                                                                                                      • Figure 49: Analysis of the changes in the structure of the air, spacecraft and related machinery industry, 2012-16
                                                                                                                      • Figure 50: Analysis of the changes in the structure of the ship and floating structures industry, 2012-16
                                                                                                                      • Figure 51: Analysis of the changes in the manufacture of military fighting vehicles industry, 2012-16
                                                                                                                    • Structure by employment
                                                                                                                      • Figure 52: Analysis of the employment structure of the weapons and ammunition manufacturing industry, 2015 and 2016
                                                                                                                      • Figure 53: Analysis of the employment structure of the air, spacecraft and related machinery industry, 2015 and 2016
                                                                                                                      • Figure 54: Analysis of the employment structure of the shipbuilding and repair industry, 2015 and 2016
                                                                                                                      • Figure 55: Analysis of the employment structure of the manufacture of military fighting vehicles industry, 2015 and 2016
                                                                                                                    • Structure by turnover
                                                                                                                      • Figure 56: Analysis of the financial structure of the weapons and ammunition manufacturing industry, 2015 and 2016
                                                                                                                      • Figure 57: Analysis of the financial structure of the air, spacecraft and related machinery manufacturing industry, 2015 and 2016
                                                                                                                      • Figure 58: Analysis of the financial structure of the shipbuilding and repair industry, 2015 and 2016
                                                                                                                      • Figure 59: Analysis of the financial structure of the manufacture of military fighting vehicles industry, 2015 and 2016
                                                                                                                  • Company Profiles

                                                                                                                    • AWE Management

                                                                                                                          • Figure 60: Financial analysis of AWE Management, 2011-15
                                                                                                                        • Company strategy
                                                                                                                        • BAE Systems

                                                                                                                              • Figure 61: Financial analysis of BAE Systems, 2011-15
                                                                                                                            • Company strategy
                                                                                                                              • BAE Systems Surface Ships
                                                                                                                                  • Figure 62: Financial analysis of BAE Systems’ Surface Ships, 2011-15
                                                                                                                                • Company strategy
                                                                                                                                  • BAE Systems (Operations)
                                                                                                                                    • Figure 63: Financial analysis of BAE Systems (Operations), 2011-15
                                                                                                                                  • Company strategy
                                                                                                                                  • Cobham

                                                                                                                                        • Figure 64: Financial analysis of Cobham, 2011-15
                                                                                                                                      • Company strategy
                                                                                                                                      • General Dynamics UK

                                                                                                                                            • Figure 65: Financial analysis of General Dynamics UK, 2011-15
                                                                                                                                          • Company strategy
                                                                                                                                          • Hewlett Packard Enterprise Services UK limited (formerly HP Enterprise Services Defence & Security UK)

                                                                                                                                                • Figure 66: Financial analysis of Hewlett Packard Enterprise Services UK Limited, 2011-15
                                                                                                                                              • Company strategy
                                                                                                                                              • Leonardo Helicopters (formerly Finmeccanica Helicopters and AgustaWestland)

                                                                                                                                                    • Figure 67: Financial analysis of Leonardo Helicopters (formerly Finmeccanica Helicopters and AgustaWestland), 2011-15
                                                                                                                                                  • Company strategy
                                                                                                                                                  • Lockheed Martin (UK)

                                                                                                                                                        • Figure 68: Financial analysis of Lockheed Martin (UK), 2011-15
                                                                                                                                                      • Company strategy
                                                                                                                                                      • NETMA

                                                                                                                                                        • QinetiQ

                                                                                                                                                              • Figure 69: Financial analysis of QinetiQ, 2012-16
                                                                                                                                                            • Company strategy
                                                                                                                                                            • Rolls-Royce

                                                                                                                                                                  • Figure 70: Financial analysis of Rolls-Royce, 2011-15
                                                                                                                                                                • Company strategy
                                                                                                                                                                  • Figure 71: Profiled companies’ combined turnover, 2011-15
                                                                                                                                                              • Forecast

                                                                                                                                                                • Key points
                                                                                                                                                                  • Market size
                                                                                                                                                                    • Defence DEL expected to rise to boost military capability and successfully face immediate threats
                                                                                                                                                                      • Figure 72: Forecast UK defence DEL, 2016/17-2020/21
                                                                                                                                                                      • Figure 73: Forecast UK defence DEL, 2016/17-2020/21
                                                                                                                                                                    • Defence Equipment Plan
                                                                                                                                                                        • Figure 74: Post-main gate major equipment projects, 2015
                                                                                                                                                                      • NATO’s importance likely to grow following the UK’s EU exit
                                                                                                                                                                        • DE&S strategic objectives revealed for up to 2019
                                                                                                                                                                          • MoD’s main immediate priorities listed in NAO review
                                                                                                                                                                              • Figure 75: Estimated payment under MoD PFI contracts, based on signed defence deals as of March 2015
                                                                                                                                                                            • Industry
                                                                                                                                                                              • The level of market uncertainty leading up to Brexit negotiations, and the exit itself, will impact the wider economy and the defence industry
                                                                                                                                                                                • Emerging threats driving global spending patterns
                                                                                                                                                                                  • New policy aims to improve SME’s share of MoD procurement spend
                                                                                                                                                                                    • Cyber-security becoming an integral part of defence strategy
                                                                                                                                                                                    • Further Sources and Contacts

                                                                                                                                                                                      • Trade associations
                                                                                                                                                                                        • Aerospace & Defence Industries Association of Europe
                                                                                                                                                                                          • ADS Group Limited
                                                                                                                                                                                            • British Naval Equipment Association
                                                                                                                                                                                              • Northern Defence Industries (NDI)
                                                                                                                                                                                                • Trade magazines
                                                                                                                                                                                                  • Aerospace Engineering/Aerospace & Defence Technology (Monthly)
                                                                                                                                                                                                    • Defence Contracts Bulletin
                                                                                                                                                                                                      • DefenceEye
                                                                                                                                                                                                        • Defence Global
                                                                                                                                                                                                          • Defence Helicopter
                                                                                                                                                                                                            • Global Defence Technology
                                                                                                                                                                                                              • Helicopter International
                                                                                                                                                                                                                • IHS Jane’s Defence Weekly
                                                                                                                                                                                                                  • The Engineer
                                                                                                                                                                                                                    • Trade exhibitions
                                                                                                                                                                                                                      • Eurosatory
                                                                                                                                                                                                                        • Farnborough 2018
                                                                                                                                                                                                                          • Helitech International 2017
                                                                                                                                                                                                                            • International Defence Exhibition & Conference 2017
                                                                                                                                                                                                                              • ITEC 2017

                                                                                                                                                                                                                              Companies Covered

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

                                                                                                                                                                                                                              Defence Industry - UK - November 2016

                                                                                                                                                                                                                              £995.00 (Excl.Tax)