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Future Of The UK Defense Industry - Market Attractiveness, Competitive Landscape And Forecasts To 2017

The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.

The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.

The report helps the reader to understand the competitive landscape of the defense industry in the UK. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis. Key Market IssuesThe UK government has announced a reduction in defense expenditure over the next five years in order to control the country's increasing fiscal deficit. Such reductions will lead to a decline in procurements and are expected to have a negative impact on domestic defense companies. The announcement of defense budget cuts followed the Strategic Defense and Security Review conducted in October 2010 and follows many other countries that have already cut their defense budgets, resulting in a contracted global defense market. MoD is planning to reduce personnel by 33,000 across all three military services, including 5,500 in Royal Navy, 19,500 in Army, and 8,000 in Royal Air Force by 2020. In addition, civilian workforce is being reduced by 32,000 at the same tim.

The MoD protects domestic defense companies by allowing only direct offsets to foreign exporters and by encouraging foreign bidders to use UK sub-contractors on a competitive basis. In addition, the UK government gives priority to domestic companies in meeting its Urgent Operational Requirements. Since the UK is a member of the EU, defense procurements for goods and services are conducted in accordance with the EU Procurement Regulations. According to these regulations, EU firms are given priority over non-European firms when similar financial and technical bids are offered. Additionally, the government favors agreements in joint development with other European defense firms making it inaccessible to non-European defense firms. As an example, the UK government has taken the initiative in cooperative procurement, including several major programs, such as: the Airbus A400M and MBDA Meteor, and in the creation of the European Defense Agency (EDA) in July 2004. The EDA supports the more effective harmonization of military requirements and promotes a more open defense equipment market in Europe, acting as a barrier for entry for non-European companies.

Key HighlightsThe MoD is one of UK industry's largest customers, with average of GBP14 billion ( US$22.04 billion) worth of purchases. MoD procures a wide range of goods and services Industry Participation governs the country's defense offset policy, and includes procurement of equipment and services; personnel and payroll services; educational services; and also non-military purchases such as catering and facility management. The MoD, UK Trade and Investment, and Defense and Security Organization are able to sanction the transactions for accepted offset activities, provided they support the objectives of the policy. It further stipulates that offsets have to be defense related, new, and of equivalent technical quality, and must be fulfilled within the period of the main contract. A minimum of 100%offset is essential for all contracts over £50 million ( US$78.3 million) for French and German companies and £10 million ( US$16.1 million) for others. Bidders are free to determine the percentage of offsets they want to quote and decide with whom to do business within the defense industry. The effective period of the offset agreement is equal to the effective contract period. For effective contract management, MoD launched a new website MOD Defense Contracts Online (MOD DCO). MoD encourages participation of SMEs (Small and Medium Enterprises) to participate in contracts either as part of Prime Contracts or through sub-contracts. It has lowered the sub-contract threshold at which Prime Contractors can advertise sub-contract requirements.

The UK permits 100% FDI in its defense industry, with security issues being addressed through verification and clearance procedures in addition to export controls. The UK government applies strategic export controls to prevent exports that are inconsistent with its legal commitments, such as international sanctions, respect for human rights and fundamental freedoms, the internal political situation in the country of final destination, concerns that proposed exports might be used for internal repression or international aggression, risks to regional stability, national security, the recipient's attitude to the international community, terrorism, and the risk of diversion. With 11 of the world's top 100 defense companies based in the UK, and a further 20 having significant operations in the UK, international investment activity in the UK defense sector is high. Recent defense investments include Denmark's Royal Ten Cate acquisition of AML UK and EADS Astrium's 85% acquisition of Surrey Satellite Technology.

Security threats from internal and external terrorist groups have compelled the country to focus on strengthening its borders and internal security. UK's role in Afghanistan, Iraq and Northern Africa has resulted in the country moving up the terrorism index. The domestic terrorism threat originates from the partition of Ireland in 1921, and from the dispute between Irish Nationalists and Unionists. As the security situation in Northern Ireland evolved, the domestic intelligence body MI5 took on responsibility for national security intelligence work in Northern Ireland in 2007, bringing the arrangements there in line with the rest of the UK. In addition, the UK is threatened by hostile cyber-attacks from other states, potential shortcomings in the UK's cyber infrastructure, and the actions of cyber terrorists and criminals.

Table of Contents

1 Introduction1.1. What is this Report About?1.2. Definitions1.3. Summary Methodology1.4. SDI Terrorism Index1.5. About Strategic Defence Intelligence2 Executive Summary3 Market Attractiveness and Emerging Opportunities3.1. Defense Market Size Historical and Forecast3.1.1. The UK's defense expenditure is expected to decline at a CAGR of XX%3.1.2. Counter-terrorism activities and peacekeeping operations are the primary factors driving defense spending3.2. Analysis of Defense Budget Allocation3.2.1. Majority of defense budget allocated for revenue expenditure3.2.2. More than XX% of the UK's defense budget is expected to be allocated to enhance defense capability3.2.3. Withdrawal of troops from Afghanistan expected to result in lower allocation for peacekeeping operations3.2.4. Focus on a reduction in the number of troops expected to affect defense capability budget allocation over the forecast period3.2.5. Defense equipment and support to constitute XX% of defense capability budget during the forecast period3.2.6. Allocation for war pension benefits to register a CAGR of XX% over the forecast period3.3. Homeland Security Market Size and Forecast3.3.1. Workforce reduction will affect homeland security budget allocations over the forecast period3.3.2. Border security and Counter Terrorism to be the key drivers in the homeland security market3.3.3. The UK experienced moderate terror activity during the review period3.4. Benchmarking with Key Global Markets3.4.1. The UK ranks among major Global Defense Markets3.4.2. The UK is expected to be among Top 10 defense spending countries in the world3.4.3. The UK allocates a significant percentage of GDP towards defense3.4.4. The UK features in Top 10 Arms Exporters in 20113.5. Market Opportunities: Key Trends and Growth Stimulators3.5.1. Border Security3.5.2. Police Modernization3.5.3. Counter Terrorism3.5.4. Networking/Information Management3.5.5. Fighters and Multi-role Aircraft3.5.6. Attack Aircraft MRO3.5.7. Aircraft Carriers3.5.8. Transport and Utility Aircraft4 Defense Procurement Market Dynamics4.1. Import Market Dynamics4.1.1. Defense imports expected to decline over the next five years4.1.2. The UK sources majority of its defense imports from the US and France4.1.3. Missiles, aircraft and armored vehicles account for more than three quarters of UK arms imports4.2. Export Market Dynamics4.2.1. The UK's Defense Exports grew at a CAGR of XX% during the review period4.2.2. UK Defense exports find major buyers in Saudi Arabia, the US and India4.2.3. Aircraft dominates of the Country's Defense Exports5 Industry Dynamics5.1. Five Forces Analysis5.1.1. Bargaining power of supplier: low to medium5.1.2. Bargaining power of buyer: high5.1.3. Barrier to entry: medium5.1.4. Intensity of rivalry: low to high5.1.5. Threat of substitution: low to medium6 Market Entry Strategy6.1. Market Regulation6.1.1. Offset policy aids development of the domestic defense industry6.1.2. The UK permits XX% FDI in its defense industry6.2. Market Entry Route6.2.1. Joint weapons development programs are a viable market entry opportunity6.2.2. Joint ventures open up new market entry strategy choices6.2.3. Forming subsidiaries in the UK and the acquisition of domestic companies provide good market entry opportunities6.3. Key Challenges6.3.1. Defense budget cuts will have negative implications for defense companies6.3.2. Preference for domestic and EU companies pose a challenge for non-European companies7 Competitive Landscape and Strategic Insights7.1. Competitive Landscape Overview7.2. Key Domestic Companies7.2.1. BAE Systems Plc.: overview7.2.2. BAE Systems Plc.: products and services7.2.3. BAE Systems Plc.: recent announcements and strategic initiatives7.2.4. BAE Systems Plc.: alliances7.2.5. BAE Systems Plc.: recent contract wins7.2.6. BAE Systems Plc.: financial analysis7.2.7. GKN Aerospace Services: overview7.2.8. GKN Aerospace Services: products and services7.2.9. GKN Aerospace Services: recent announcements and strategic initiatives 7.2.10. GKN Aerospace Services: alliances 7.2.11. GKN Aerospace Services: recent contract wins 7.2.12. GKN Aerospace Services: financial analysis 7.2.13. Rolls-Royce Plc.: overview 7.2.14. Rolls-Royce Plc.: products and services 7.2.15. Rolls-Royce Plc.: recent announcements and strategic initiatives 7.2.16. Rolls-Royce Plc.: alliances 7.2.17. Rolls-Royce Plc.: recent contract wins 7.2.18. Rolls-Royce Plc.: financial analysis 7.2.19. Babcock International Group Plc.: overview 7.2.20. Babcock International Group Plc.: products and services 7.2.21. Babcock International Group Plc.: recent announcements and strategic initiatives 7.2.22. Babcock International Group Plc.: alliances 7.2.23. Babcock International Group Plc.: recent contract wins 7.2.24. Babcock International Group Plc.: financial analysis7.3. Key Foreign Companies7.3.1. AgustaWestland: overview7.3.2. AgustaWestland: products and services7.3.3. AugustaWestland: recent announcements and strategic initiatives7.3.4. AugustaWestland: alliances7.3.5. AugustaWestland: recent contract wins7.3.6. Thales UK: overview7.3.7. Thales UK: products and services7.3.8. Thales UK: recent announcements and strategic initiatives7.3.9. Thales UK: alliances 7.3.10. Thales UK: recent contract wins 7.3.11. General Dynamics UK Ltd: overview 7.3.12. General Dynamics UK Ltd: products and services 7.3.13. General Dynamics UK Ltd: recent announcements and strategic initiatives 7.3.14. General Dynamics UK Ltd: alliances 7.3.15. General Dynamics UK Ltd: recent contract wins 7.3.16. Boeing UK: overview 7.3.17. Boeing UK: products and services 7.3.18. Boeing UK: recent announcements and strategic initiatives 7.3.19. Boeing UK: alliances 7.3.20. Boeing UK: recent contract wins 7.3.21. Boeing UK: financial analysis 7.3.22. L-3 TRL: overview 7.3.23. L-3 TRL: products and services 7.3.24. L-3 TRL: recent announcements and strategic initiatives 7.3.25. L-3 TRL: alliances 7.3.26. Northrop Grumman UK: overview 7.3.27. Northrop Grumman UK: products and services 7.3.28. Northrop Grumman UK: recent announcements and strategic initiatives 7.3.29. Northrop Grumman UK: alliances 7.3.30. Northrop Grumman UK: recent contract wins 7.3.31. Lockheed Martin UK Ltd: overview 7.3.32. Lockheed Martin UK Ltd: products and services 7.3.33. Lockheed Martin UK Ltd: recent announcements and strategic initiatives 7.3.34. Lockheed Martin UK Ltd: alliances 7.3.35. Lockheed Martin UK Ltd: recent contract wins 7.3.36. EADS UK: overview 7.3.37. EADS UK: products and services 7.3.38. EADS UK: recent announcements and strategic initiatives 7.3.39. EADS UK: alliances 7.3.40. EADS UK: recent contract wins8 Business Environment and Country Risk8.1. Demographics and Social Statistics8.1.1. Population -Rural8.1.2. Population - Urban8.1.3. Population -Number of Households8.2. Economic Performance8.2.1. Gross Domestic Product Per Capita8.2.2. Gross Domestic Product in Current US$8.2.3. Exports of goods and services, current prices8.2.4. Imports of goods and services, current prices8.2.5. Gross National Disposable Income, current prices8.2.6. Manufacturing Output, US$ Billion8.2.7. Customer Price Index8.2.8. Wholesale Price Index8.2.9. Local Currency Unit per US$, Period Average 8.2.10. Local Currency Unit per Euro 8.2.11. Interest Rate (Lending) 8.2.12. Real Interest Rate (%) 8.2.13. Market Capitalization of Listed Companies (US$ Billions) 8.2.14. Market Capitalization of Listed Companies (% GDP) 8.2.15. Government Cash Surplus/Deficit, Local Currency 8.2.16. Government Cash Surplus/Deficit, (% of GDP, LCU) 8.2.17. Central Government Debt, (LCU Billion) 8.2.18. Central Government Debt (% of GDP) 8.2.19. Goods Exports as % of GDP 8.2.20. Goods Imports as % of GDP 8.2.21. Goods Trade Surplus/Deficit as % of GDP 8.2.22. Services Imports as a % of GDP 8.2.23. Services Exports as a % of GDP 8.2.24. Services Trade Surplus/Deficit as a % of GDP 8.2.25. Foreign Direct Investment, Current Values in Billion 8.2.26. Foreign Direct Investment as a % of GDP 8.2.27. International Reserves, including Gold (US$ Bn)8.3. Energy and Utilities8.3.1. Total Conventional Thermal Electricity Generation8.3.2. Net Hydroelectric Power Generation8.3.3. Net Nuclear Electricity Net Generation8.3.4. Total Conventional Thermal Electricity Installed Capacity8.3.5. Total Electricity Exports8.3.6. Total Electricity Imports8.3.7. Proved Reserves of Natural Gas8.3.8. Total Petroleum Consumption8.3.9. Crude Oil Proved Reserves 8.3.10. Total Non-Hydro Renewable Electricity Net Generation8.4. Infrastructure Quality and Availability8.4.1. Roads, Total Network8.4.2. Rail Lines8.4.3. Air Transport, Freight8.4.4. Overall Construction8.5. Minerals8.5.1. Mining, Manufacturing, Utilities Output8.6. Technology8.6.1. Research and Development Expenditure8.6.2. Patents Granted8.7. Telecommunications8.7.1. Fixed Telephone Lines8.7.2. Telephone Lines Penetration Rate9 Appendix9.1. About SDI9.2. Disclaimer

List of Tables

Table 1: UK Defense Expenditure (US$ Billion), 2008-2012 Table 2: UK Defense Expenditure (US$ Billion), 2013-2017 Table 3: UK Defense Budget Split between Capital and Revenue Expenditure (%),2008-2012 Table 4: UK Defense Budget Split between Capital and Revenue Expenditure (%),2013-2017 Table 5: UK Defense Budget Break up(%), 2008-2012 Table 6: UK Defense Budget Break up (%), 2013-2017 Table 7: UK Peacekeeping Services Budget (US$ Billion), 2008-2012 Table 8: UK Peacekeeping Services Budget (US$ Billion), 2013-2017 Table 9: UK Defense Capability Budget (US$ Billion), 2008-2012 Table 10: UK Defense Capability Budget (US$ Billion), 2013-2017 Table 11: UK Defense Capability Break up (%), 2008-2012 Table 12: UK Defense Capability Break up (%), 2013-2017 Table 13: UK War Pension Benefits Budget (US$ Billion), 2008-2012 Table 14: UK War Pension Benefits Budget (US$ Billion), 2013-2017 Table 15: UK Homeland Security Expenditure (US$ Billion), 2008-2012 Table 16: UK Homeland Security Expenditure (US$ Billion), 2013-2017 Table 17: SDI Terrorism Index, 2011 Table 18: Benchmarking with Key Markets - 2008-2012 vs. 2013-2017 Table 19: Top Country Ranking by Value of Arms Exports, 2011* Table 20: UK Defense Offset Regulations Table 21: UK's Participation in International Defense Development Programs Table 22: BAE Systems Plc. - Product Focus Table 23: BAE Systems Plc. - Alliances Table 24: BAE Systems Plc. - Recent Contract Wins Table 25: GKN Aerospace Services - Product Focus Table 26: GKN Aerospace Services - Alliances Table 27: GKN Aerospace Services - Recent Contract Wins Table 28: Rolls-Royce Plc. - Product Focus Table 29: Rolls-Royce Plc. - Alliances Table 30: Rolls-Royce Plc. - Recent Contract Wins Table 31: Babcock International Group Plc. - Product Focus Table 32: Babcock International Group Plc. - Alliances Table 33: Babcock International Group Plc. - Recent Contract Wins Table 34: AgustaWestland - Product Focus Table 35: AugustaWestland - Alliances Table 36: AugustaWestland - Recent Contract Wins Table 37: Thales UK - Product Focus Table 38: Thales UK - Alliances Table 39: Thales UK - Recent Contract Wins Table 40: General Dynamics UK Ltd - Product Focus Table 41: General Dynamics UK Ltd - Alliances Table 42: General Dynamics UK Ltd - Recent Contract Wins Table 43: Boeing UK - Product Focus Table 44: Boeing UK - Alliances Table 45: Boeing UK - Recent Contract Wins Table 46: L-3 TRL - Product Focus Table 47: L-3 TRL - Alliances Table 48: Northrop Grumman UK - Product Focus Table 49: Northrop Grumman UK - Alliances Table 50: Northrop Grumman UK - Recent Contract Wins Table 51: Lockheed Martin UK Ltd - Product Focus Table 52: Lockheed Martin UK Ltd - Alliances Table 53: Lockheed Martin UK Ltd - Recent Contract Wins Table 54: EADS UK - Product Focus Table 55: EADS UK - Alliances Table 56: EADS UK - Recent Contract Wins

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