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Defence Industry Market Review 2003
Key Note Publications Ltd, July 2003
Although the Armed Forces have been in the public eye recently, the industry that sustains them is probably less well understood. In the run-up to the 2003 Iraqi Campaign, the UK defence industry responded to 170 Urgent Operational Requirements, valued at £500m, in order that the Services would be properly equipped. This seventh edition of our Market Review of The Defence Industry examines the complex world surrounding the Ministry of Defence (MoD), in which the industry operates.
A Strategic Defence Review (SDR) was undertaken after the Labour Party's victory in the 1997 General Election. Eventually published in July 1998, the SDR indicated the way ahead for the Services: from static (Army and Royal Air Force) positions in Germany to expeditionary warfare based around two new, large aircraft carriers. Following the terrorist attacks on the US on 11th September 2001, the MoD had to revise its thinking and a New Chapter to the SDR was published in July 2002. The resultant policy from these deliberations is examined in Chapter 1 of this Market Review (Defence Policy), which also looks at the MoD's planning, capabilities and requirements. Attention is given to the European military environment within which the MoD operates, and to the associated capability shortcomings.
Chapter 2 (Armed Forces) reviews the number of men and women who make up the UK's Armed Forces and the civilian personnel who support them. The problems of retention in the Services - particularly the Army - are all too apparent, with an overall shortage of 8,560 trained personnel on 1st January 2003, despite the requirement continually being lowered. The percentage of women in the Services continues to increase, as does their importance. Chapter 2 also covers the organisation of the Services and the equipment they operate.
The defence budget and its place within national expenditure is examined in Chapter 3 (Defence Expenditure). As in other Departments of State, the biennial Spending Reviews (SR) have become more important to the MoD than the annual Budget Statements. The third SR, setting Departmental Expenditure Limits (DEL) for 2003/2004 and the following 2 years, was announced in July 2002. The fourth Review is expected in July 2004. Although the Chancellor has allocated some extra money to the MoD, defence is forecast to receive a decreasing proportion of total government expenditure: 7.0% in 2002/2003, falling to 6.4% in 2005/2006.
The MoD's procurement regime is considered in Chapter 4 of this Review (MoD Procurement), with an explanation of the new acquisition cycle. The chapter concludes with a listing of 114 significant current and future equipment programmes, arranged chronologically, with details of costs and numbers where these are publicly available. The Eurofighter Typhoon programme provides a case study.
The consolidation of the European defence industry between January 1999 and April 2003 is tabulated in Chapter 5 (Defence Suppliers). The chapter continues with a survey of the companies forming the UK defence industry and the Defence Procurement Agency's (DPA) key suppliers. Thales is now established as one of the most important prime contractors in the UK, second only to BAE Systems. The chapter ends with profiles of the ten leading MoD contractors.
Chapter 6 (European Industrial Developments) takes a wider look at the European defence industry, with particular reference to Nato (North Atlantic Treaty Organisation) expenditure and European co-operation. Political aspirations continue to be hampered by declining defence budgets. BAE Systems, Eads and Thales dominate the European defence industry, and the UK's defence industrial policy is considered against this reality.
Chapter 7 (Global Defence Market) discusses the world market for defence equipment, and the UK's position within that market. Five importing countries accounted for over a third of all global trade in major conventional weapons between 1997 and 2001, and nine countries accounted for almost half this trade. The US occupies an unassailable position as the dominant exporter, with the UK claiming 13% of the market in 2000 and 19% in 2001. The UK's customer countries are identified and the importance of the Defence Export Services Organisation (Deso) is explained.
An exclusive opinion poll conducted to coincide with the publication of this Market Review is analysed in Chapter 8 (Public Opinion of the Armed Forces). Respondents were most in favour of the use of the Armed Forces for peacekeeping activities (89%), followed by the need for Europe to have a defence capability independent of the US (76%) and equality for women in the Armed Forces (69%). The lowest levels of agreement were recorded for compulsory National Service for men (45%) or women (22%).
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