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United Kingdom Defence and Security Report Q2 2011


United Kingdom Defence and Security Report Q2 2011

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Additional Information
Price $530.00
Meta Description No
Publisher Business Monitor International
Date of Report Apr 15, 2011
Quick Overview
The UK defence industry is set for a difficult 2011, as the government's austerity programme begins to impact on existing and potential contracts. The UK government has already taken certain significant moves – such as grounding the Harrier, cancelling various naval projects and cutting the overall size of the army. It is likely that further moves will follow. Furthermore, the government has made reforming the procurement system at the Ministry of Defence a main priority. While this is likely to ensure better value for money for the government, it risks limiting the profits of firms and disincentivising research and development if costs have to be increasingly borne by the companies themselves. To overcome these domestic burdens, it is likely that UK defence firms will focus on exports in the coming years.
A number of high-profile defence industry figures accompanied the Prime Minister David Cameron on his tour of the Middle East in February 2011. While the trip was overshadowed by the political developments in the region, which forced Cameron to finish the trip ahead of schedule, it had long been in the works. Securing defence contracts was viewed as a major objective of the trip, with the BAE Systems’ CEO, Ian King, as well as representatives from Thales, QinetiQ and Rolls-Royce, accompanying the prime minister. It is hoped by many in the industry that higher sales in the Middle East could counterbalance the negative effects of defence budget cuts in the UK and other Western countries.
The UK's largest defence firm, BAE Systems, has released its 2010 performance figures. The firm has seen slight improvements in its fiscal position over the year, despite a worsening of its broader prospects. Sales grew from GBP22bn (US$35.5bn) in 2009 to GBP22.39bn (US$36.14bn). This slight improvement has had a disproportionate effect on operating profit, which rose to GBP1.6bn (US$2.57bn) in 2010 – up from GBP966mn (US$1.56bn) in 2009. These improvements do bode well for the firm, which has proven itself capable of maintaining profitability in very difficult market conditions.
BAE Systems is seeking to boost its sales in international markets, particularly the Middle East. The firm has reported that it has entered talks to sell the Eurofighter Typhoon to Qatar and Oman. The firm views the Middle East as an important market for future sales, given the security concerns and high budgets of many countries as well as the lack of domestic firms.
Rolls-Royce has also released its 2010 financial figures. The firm has seen pre-tax profit grow slightly, with profits up from GBP915mn (US$1.48bn) in 2009 to GBP955mn (US$1.54bn) in 2010. This improved profitability came on the back of higher revenue, a larger order book and higher defence unit activity. Much of the firm's business is in the marine and civil aviation sectors but the firm received GBP2.1bn (US$3.4bn) in new defence orders in 2010.
Table of Contents
Executive Summary ........................................................................................................................................ 5
SWOT Analysis ................................................................................................................................................ 6
UK Political SWOT ............................................................................................................................................................................................... 6
UK Political SWOT ............................................................................................................................................................................................... 6
Europe Security Overview ............................................................................................................................. 23
The Strategic Outlook For The 2010s ................................................................................................................................................................. 23
Europe In A Global Context................................................................................................................................................................................ 23
Europe's Key Security Issues Over The Coming Decade .................................................................................................................................... 23
Western Intervention In Libya? Challenges Assessed .............................................................................. 29
The West's Military Options ................................................................................................................................................................................ 29
Conclusion .......................................................................................................................................................................................................... 30
Security Risk Ratings ................................................................................................................................... 31
Table: Europe Security Risk Ratings .................................................................................................................................................................. 31
Table: Europe State Terrorism Vulnerability To Terrorism Index ....................................................................................................................... 32
The UK’s Security Risk Ratings .......................................................................................................................................................................... 33
City Terrorism Rating ......................................................................................................................................................................................... 34
Table: BMI’s Western Europe City Terrorism Index .......................................................................................................................................... 35
Political Overview .......................................................................................................................................... 37
Domestic Security Overview ......................................................................................................................... 41
Internal Threats ....................................................................................................................................................................................................... 41
Domestic Terrorism ............................................................................................................................................................................................ 41
Northern Ireland ................................................................................................................................................................................................. 41
Table: Proscribed Irish Groups .......................................................................................................................................................................... 41
Table: United Kingdom Insurgent Groups .......................................................................................................................................................... 42
Latest Developments ........................................................................................................................................................................................... 43
Timeline: Internal Threats .................................................................................................................................................................................. 44
External Threats ...................................................................................................................................................................................................... 51
WMD Fears ........................................................................................................................................................................................................ 53
Drug Trafficking ................................................................................................................................................................................................. 54
International Terrorism ...................................................................................................................................................................................... 55
Table: Proscribed International Groups ............................................................................................................................................................. 55
Latest Developments ........................................................................................................................................................................................... 57
External Security: Recent Developments ............................................................................................................................................................ 58
Armed Forces And Government Spending ................................................................................................. 63
Military Structure And Defence Industry ............................................................................................................................................................ 63
International Deployments .................................................................................................................................................................................. 66
Table: Principal Deployments Of UK Armed Forces .......................................................................................................................................... 67
Weapons Of Mass Destruction ............................................................................................................................................................................ 68
Market Overview ............................................................................................................................................ 71
Arms Trade Overview ......................................................................................................................................................................................... 72
Industry Trends And Developments .................................................................................................................................................................... 77
Table: Key Players In The UK’s Defence Sector ................................................................................................................................................ 78
Timeline: UK Government Procurement............................................................................................................................................................. 86
Industry Forecast Scenario ........................................................................................................................... 94
Armed Forces ..................................................................................................................................................................................................... 94
Table: UK Armed Forces Personnel, 2000-2008 (‘000) ..................................................................................................................................... 94
Table: Manpower Available For Military Services (aged 16-49, unless otherwise stated) .................................................................................. 95
Government Defence Expenditure ...................................................................................................................................................................... 95
Table: UK Government Defence Expenditure, 2008-2015 .................................................................................................................................. 96
Table: UK Defence Expenditure Scenario – Changing % Of GDP, 2008-2015 (US$mn).................................................................................... 97
Defence Trade ..................................................................................................................................................................................................... 98
Table: UK Defence Exports, 2008-2015 (US$mn) .............................................................................................................................................. 98
Table: UK Defence Imports, 2008-2015 (US$mn) .............................................................................................................................................. 99
Table: Defence Trade Balance, 2008-2015 (US$mn) ......................................................................................................................................... 99
Key Risks To BMI’s Forecast Scenario ............................................................................................................................................................... 99
Macroeconomic Outlook ....................................................................................................................................................................................100
Table: United Kingdom - Economic Activity, 2007-2015 ...................................................................................................................................102
Company Profiles ........................................................................................................................................ 104
BAE Systems ......................................................................................................................................................................................................104
GKN ...................................................................................................................................................................................................................109
QinetiQ ..............................................................................................................................................................................................................111
Rolls-Royce ........................................................................................................................................................................................................114
Country Snapshot: UK Demographic Data ................................................................................................ 117
Section 1: Population .........................................................................................................................................................................................117
Table: Demographic Indicators, 2005-2030 ......................................................................................................................................................117
Table: Rural/Urban Breakdown, 2005-2030 .....................................................................................................................................................118
Section 2: Education And Healthcare ................................................................................................................................................................118
Table: Education, 2002-2005 ............................................................................................................................................................................118
Table: Vital Statistics, 2005-2030 ......................................................................................................................................................................118
Section 3: Labour Market And Spending Power ................................................................................................................................................119
Table: Employment Indicators, 2000-2005 ........................................................................................................................................................119
Table: Consumer Expenditure, 2000-2011 (US$) ..............................................................................................................................................119
Table: Average Annual Wages, 2000-2012 ........................................................................................................................................................120
Methodology ................................................................................................................................................ 121
How We Generate Our Industry Forecasts ........................................................................................................................................................121
Defence Industry ................................................................................................................................................................................................121
City Terrorism Rating ........................................................................................................................................................................................122
Table: Methodology ...........................................................................................................................................................................................124
Sources ..............................................................................................................................................................................................................125




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