Engineering opportunities in the defence sector

The UK defence budget may have been cut from £37bn to around £34bn for the next four years, with the US and European markets also being squeezed. But defence spending globally is still rising and demand for engineering skills is expected to remain strong.

Rees Ward, chief executive of the industry trade organisation ADS Group, points out that the UK remains the third-highest defence spending nation in the world. Some parts of the industry may find opportunities in ’adjacent’ markets such as security, or the energy sector and the Department for Business has set up an initiative to help. Many defence companies have already diversified to insulate themselves from a downturn in the domestic defence market. And with the government seeking to rebalance the UK economy towards exports, the defence sector is ideally placed.

’In the short term it will be painful. There are gong to be job losses, no doubt in economic cycles and when budgets are constrained, jobs reduce. SMEs are the most vulnerable part of the industry in a downturn and they will need help; the most agile and responsive companies we have in the defence sector will find a way through,’ said Ward.

The defence sector represents 10 per cent of UK high-technology manufacturing, employs more than 305,000 and generates £35bn annually, and is collectively the biggest exporter in Europe. It already has 21 per cent of the available world export market, second only to the US, and the recent decline in the sterling exchange rate has improved competitiveness. The industry is actively seeking to expand in emerging export markets.

’We do well in exports because we produce high-quality products and services at competitive prices,’ said Rees.

Moreover, he added: ’Beyond 2015, the government has committed to increase defence funding in real terms, which will be the bare minimum funding needed if it continues to use the armed forces in the way it has been doing.’

For exports, even a squeezed US market is huge. Beyond Europe and the US, established export markets in the Middle East are expected to remain strong because of the UK’s strategic links. Then there are emerging opportunities in markets such as India and Brazil.

In the immediate future many long-term projects will progress more slowly than expected while the UK Ministry of Defence (MoD) works on balancing its budget. But a range of significant developments are nevertheless in prospect.

The Type 45 destroyer, of which the fourth, HMS Dragon, was handed over to the MoD in August, is proving its capability as an air-defence ship.

’Its air-defence weapons system Sea Viper doesn’t have a peer in the world at the moment, even in the US. It’s a huge success story,’ said Ward.

Because of its sophistication and hence cost, the Type 45 itself may be hard to sell to other customers, although some of its systems may find export markets. However, the navy needs ships in numbers, as well as high-tech platforms. The forthcoming Global Combat Ship or Type 26 frigate, on which BAE Systems and the MoD are undertaking a four-year development programme, is to be built as a general-purpose frigate, with an eye on the export market. The MoD is in discussion with a number of navies about buying it. ’I see the GCS as being a very capable ship that is also affordable to other countries around the world,’ Ward said.