U.K. Defense Industry Awaits New Guidance

 

Photo: House of Commons

Aug 26, 2011 By Robert Wall aerospace daily and defense report

LONDON — As Britain’s defense industry adjusts to a new era of fiscal austerity, it has been looking for government guidance on what capabilities to preserve and where it can afford to retrench. But there is now growing concern that one of the key documents to allow that to happen will not deliver what has been expected.

The defense ministry has been working on a follow-on to the 2005 Defense Industrial Strategy (DIS) for more than a year — the so-called Defense Industrial and Technology Policy. The White Paper is due for completion before year’s end.

However, several industry officials worry about what that document may deliver. The White Paper does not “hold out much promise of being anything like a defense industrial strategy,” notes one industry official, adding “it will be more about philosophy than practicality.”

The DIS set out specific equipment priorities, and carved out funding to help bolster some activities, such as guided-weapons research activities. Such detail is not expected this time.

The questions surrounding the industrial strategy come at a time when industry is grappling with other uncertainties. Bernard Gray, the chief of defense materiel, is working on a new plan to manage equipment programs. He also is working on reforms in the relationship between defense suppliers and the Defense Equipment and Support organization, which is the procurement arm of the defense ministry. Gray is expected to spell out his thinking to industry next month.

Furthermore, the defense ministry is still working through existing contracts to see what changes it may want to make in their terms to generate savings.

Industry concerns also remain about potential budget cuts looming next year when the 2012 program review is undertaken.

For industry, the uncertainty poses problems. BAE Systems, for instance, already has announced layoffs resulting from program terminations announced in last year’s Strategic Defense and Security Review, such as the early retirement of the Harrier GR9 fleet and the termination of the Nimrod MRA4 program.

More personnel adjustments are being eyed, but making those decisions will require a clearer picture of what the near-term future holds, one senior company official says. The hope is there will be clarity by year’s end to allow the company to properly position itself going forward, he says.

Although the current government has vowed to rebalance the economy to focus more on manufacturing than services, there is skepticism that the aerospace and defense industry will benefit, despite the positive trade balance associated with the sector.

Nevertheless, industry officials still expect the emerging document will answer some questions. “We’re still hopeful [the White Paper] may have some guidance, at least, on which industry can base long-term investment planning decisions,” one official says.