Thursday, March 10, 2016
Friday, September 14, 2012
UK Defence strategy - 2013 - Options or (less) change please… we're British !
To paraphrase Sir Humphrey Appleby, the fictitious Cabinet Secretary in the BBC satire, Yes Prime Minister when considering UK defence efforts in 2013, "Perhaps I could suggest masterly inactivity".
The UK Ministry of Defence (MOD) seems to have spent most of the past decade on a roller-coaster ride veering between high tempo military commitments and defense policy evolution, reorganization, review and reorganization.
From an operational standpoint, It feels likely that the United Kingdom will want to draw down its forces rapidly during the summer of 2013. Post a US election, the UK Government will be looking for a solid 12-18 months out of Afghanistan ahead of a General election to ensure it is no longer a live issue.
Should military action against Iran occur, the UK role one suspects will be largely symbolic or highly niche and thereby small in nature. Imagine submarine launched cruise missiles, special forces or in flight refueling support.
Therefore, leaving aside the bolt-out-of-the-blue, the tempo of military operations should be able to have some form of pause to reorientate, learn lessons and rebuild. The Royal Marines undergoing sea training ahead of a major amphibious exercise made the point in a recent edition of navy news that they are a little rusty on sea-survival. Time to get back to basics.
There will be likely little cost savings in the operational draw-down and perhaps the armed forces should be left until after the next election to take stock and enjoy a semblance of normality before the next opportunity for international events to weave their spell on politicians.
The UK Ministry of Defence (MOD) seems to have spent most of the past decade on a roller-coaster ride veering between high tempo military commitments and defense policy evolution, reorganization, review and reorganization.
From an operational standpoint, It feels likely that the United Kingdom will want to draw down its forces rapidly during the summer of 2013. Post a US election, the UK Government will be looking for a solid 12-18 months out of Afghanistan ahead of a General election to ensure it is no longer a live issue.
Should military action against Iran occur, the UK role one suspects will be largely symbolic or highly niche and thereby small in nature. Imagine submarine launched cruise missiles, special forces or in flight refueling support.
Therefore, leaving aside the bolt-out-of-the-blue, the tempo of military operations should be able to have some form of pause to reorientate, learn lessons and rebuild. The Royal Marines undergoing sea training ahead of a major amphibious exercise made the point in a recent edition of navy news that they are a little rusty on sea-survival. Time to get back to basics.
There will be likely little cost savings in the operational draw-down and perhaps the armed forces should be left until after the next election to take stock and enjoy a semblance of normality before the next opportunity for international events to weave their spell on politicians.
BAE:EADS - Who will prevail ? The Anglo/Saxons or the forces of Mittel Europa ?
The BAE:EADS prospective tie-up has created a useful milestone to stop and think about how the industry structure has evolved and the implications for what might come.
The strategic dilemma for the major US primes is that although European markets are sub-critical, will the BAE:EADS tie-up lead to a more protectionist Europe ? EADS resulted from a Franco:German combine with arguably few defense projects being uniquely attributable as a success of this merger - The gestation of Eurocopter Tiger an unfortunate example.
The United States remains the biggest, hi-tech defense market with scale due to Pentagon spending - even if some form of retrenchment happens in the New Year. The defense industry has consolidated into a small group of Prime contractors with a 2nd tier of international primes operating in niche areas and then a wide 3rd tier of specialist providers of everything else from nails to microprocessors. The downside of this picture is that ever more high-tech equipment and unit prices put American technologies that can be exported at a competitive disadvantage against those of other players.
Should a US prime acquire BAE Systems ? There are product mix benefits across the board and for access to prospective international markets though the inevitable question comes down to at what price. Synergies would exist amongst land systems (particularly for General Dynamics viz. the United Defense capabilities and naval systems), Lockheed Martin (the F-35 supply chain and grabbing a share in Eurofighter) or for Boeing (would add substantially a naval and land systems business if wanted).
In Europe, budget cuts and defense reviews amid the recession have largely been the order of the day. The lack of a European-wide military or defense budget results in defense capabilities remaining at the national level with the associated duplication and inefficiencies associated with monopolistic positions. In this environment the BAE:EADS tie-up could in a decade represent a European platform provider and with European institutions such as OCCAR create some gradual commonality of equipment, which in a generation could lead to a more homogenous equipment capability amongst the armed forces of the nations of Europe. if NATO gave a common military language and procedures then the tie-up could move towards some more substantial commonality of equipment beyond the aerial domain.
Amongst the European Primes, the boardroom of Thales is likely an interesting place to be a fly-on-the-wall. A BAE:EADS tie-up will leave the company, which in the UK had good traction for a period before BAE reasserted itself, in a tenuous strategic position.
Rest of the World: Russia, China, Chile, South Africa, Israel and the rest - providing niche equipments either tailored for operations in the local region or simply cheap and robust variants of former Soviet designs or alternatively cheaper versions of 'mid-tech' weapons from the 1980s and 1990s.
The strategic dilemma for the major US primes is that although European markets are sub-critical, will the BAE:EADS tie-up lead to a more protectionist Europe ? EADS resulted from a Franco:German combine with arguably few defense projects being uniquely attributable as a success of this merger - The gestation of Eurocopter Tiger an unfortunate example.
The United States remains the biggest, hi-tech defense market with scale due to Pentagon spending - even if some form of retrenchment happens in the New Year. The defense industry has consolidated into a small group of Prime contractors with a 2nd tier of international primes operating in niche areas and then a wide 3rd tier of specialist providers of everything else from nails to microprocessors. The downside of this picture is that ever more high-tech equipment and unit prices put American technologies that can be exported at a competitive disadvantage against those of other players.
Should a US prime acquire BAE Systems ? There are product mix benefits across the board and for access to prospective international markets though the inevitable question comes down to at what price. Synergies would exist amongst land systems (particularly for General Dynamics viz. the United Defense capabilities and naval systems), Lockheed Martin (the F-35 supply chain and grabbing a share in Eurofighter) or for Boeing (would add substantially a naval and land systems business if wanted).
In Europe, budget cuts and defense reviews amid the recession have largely been the order of the day. The lack of a European-wide military or defense budget results in defense capabilities remaining at the national level with the associated duplication and inefficiencies associated with monopolistic positions. In this environment the BAE:EADS tie-up could in a decade represent a European platform provider and with European institutions such as OCCAR create some gradual commonality of equipment, which in a generation could lead to a more homogenous equipment capability amongst the armed forces of the nations of Europe. if NATO gave a common military language and procedures then the tie-up could move towards some more substantial commonality of equipment beyond the aerial domain.
Amongst the European Primes, the boardroom of Thales is likely an interesting place to be a fly-on-the-wall. A BAE:EADS tie-up will leave the company, which in the UK had good traction for a period before BAE reasserted itself, in a tenuous strategic position.
Rest of the World: Russia, China, Chile, South Africa, Israel and the rest - providing niche equipments either tailored for operations in the local region or simply cheap and robust variants of former Soviet designs or alternatively cheaper versions of 'mid-tech' weapons from the 1980s and 1990s.
Thursday, September 13, 2012
BAE:EADS Talks need to shake-up the malaise in the UK's defence procurement thinking
On reflection, you can imagine the stark choices faced in the Boardroom of BAE Systems with regard to the corporations prospects for independence.
The UK defence budget can been, regardless of the methods of monetary measurement, in a state of decline versus the rate of defence inflation (ie. the ever increasing expense of state-of-the-art procurements) probably since the end of the Cold War.
This is not intended as reflecting upon any particular party. The Peace dividend associated with the fall of the Berlin Wall and Gulf War of 1990-91 set in train an ideological position that defence was out of control.
As the post cold war period has unfolded the Ministry of Defence, through repeated difficulties in managing defence acquisition left itself open to repeated charges from Administrations of both sides of the political spectrum to be not managing public funds properly. This in term led to expedition political reorganizations which only served to confuse military and civil service managers, resulting in more problems, more reviews and thus the spiral into chaos. All at a time when the tempo of actual operations is the highest in a generation.
The impact of new accounting methods at the ministry of defence coupled with the challenge of getting politicians to buy into new procurements has led to lower numbers and higher unit costs - which for a prime contractor is not going to offer the long production lines which are rewarding commercially vis-à-vis the risks of construction.
The Astute SSN program me is a good example. Repeated delays led to suppliers, fearful of the only nuclear submarine program in town being cancelled, rapidly increased the charge for their components - leading to an increased unit cost which the Prime could not realistically hold down.
The new aircraft carrier program, which in a more sensible world would probably have been rescoped or cancelled by now in favor of more frigates, will have absorbed political interest in what is on the whole a relatively low-tech manufacturing exercise compared to a fighter jet and leave little stomach for even the essential need to replace the frigate fleet.
Little wonder that BAE executives, having tried the Middle Eastern export route (Al Yamammah - USA now pushing hard on their own with Saudi Arabia), handling civil aviation (divested their Airbus interest), then the US acquisition route (as Iraq and Afghanistan wind down the bonanza in land systems work is slowing) are now left throwing the dice and their market capitalization dwindles and either getting a US player to commit or else harness themselves for protection to a European combine.
The MOD, working with the idea of privatizing its defence procurement activity needs to sit and think really hard about the future - not just about pleasing current political masters. It could be suggested that actually what is required is a small acquisition team focused on the commercial deal and legalese. The military develops requirements in accordance with the size of the cloth. All that remains is a new 'class A' (new platforms) and 'class B' (platform/equipment in service support and upgrade) approach.
The UK was master of defence procurement in the Second World War with a small staff and a will to achieve its goals. Chasing the commercial strategy of its domestic prime is not the way to go - organizing itself to best manage the small and medium sized players who will keep the military in the game is crucial.
The UK defence budget can been, regardless of the methods of monetary measurement, in a state of decline versus the rate of defence inflation (ie. the ever increasing expense of state-of-the-art procurements) probably since the end of the Cold War.
This is not intended as reflecting upon any particular party. The Peace dividend associated with the fall of the Berlin Wall and Gulf War of 1990-91 set in train an ideological position that defence was out of control.
As the post cold war period has unfolded the Ministry of Defence, through repeated difficulties in managing defence acquisition left itself open to repeated charges from Administrations of both sides of the political spectrum to be not managing public funds properly. This in term led to expedition political reorganizations which only served to confuse military and civil service managers, resulting in more problems, more reviews and thus the spiral into chaos. All at a time when the tempo of actual operations is the highest in a generation.
The impact of new accounting methods at the ministry of defence coupled with the challenge of getting politicians to buy into new procurements has led to lower numbers and higher unit costs - which for a prime contractor is not going to offer the long production lines which are rewarding commercially vis-à-vis the risks of construction.
The Astute SSN program me is a good example. Repeated delays led to suppliers, fearful of the only nuclear submarine program in town being cancelled, rapidly increased the charge for their components - leading to an increased unit cost which the Prime could not realistically hold down.
The new aircraft carrier program, which in a more sensible world would probably have been rescoped or cancelled by now in favor of more frigates, will have absorbed political interest in what is on the whole a relatively low-tech manufacturing exercise compared to a fighter jet and leave little stomach for even the essential need to replace the frigate fleet.
Little wonder that BAE executives, having tried the Middle Eastern export route (Al Yamammah - USA now pushing hard on their own with Saudi Arabia), handling civil aviation (divested their Airbus interest), then the US acquisition route (as Iraq and Afghanistan wind down the bonanza in land systems work is slowing) are now left throwing the dice and their market capitalization dwindles and either getting a US player to commit or else harness themselves for protection to a European combine.
The MOD, working with the idea of privatizing its defence procurement activity needs to sit and think really hard about the future - not just about pleasing current political masters. It could be suggested that actually what is required is a small acquisition team focused on the commercial deal and legalese. The military develops requirements in accordance with the size of the cloth. All that remains is a new 'class A' (new platforms) and 'class B' (platform/equipment in service support and upgrade) approach.
The UK was master of defence procurement in the Second World War with a small staff and a will to achieve its goals. Chasing the commercial strategy of its domestic prime is not the way to go - organizing itself to best manage the small and medium sized players who will keep the military in the game is crucial.
BAE Systems & EADS - A global Top 3 player post consolidation ?
Taking a look at yesterday's market capitalization figures for the top US defense contractors plus BAE Systems and EDS shows the logic for them to get together. "BEADS" would, depending on the dilution effects of linking up will put them neck and neck with Lockheed Martin (LMT) and in second place behind Boeing.
Given BAE Systems management are serious enough about EADS to put themselves in play, announcing their intent to the stock markets, one of the cultural reasons behind BAE's move could be that they see it as better to retain autonomy in Europe than risk being the junior partner in a Transatlantic merger scenario.
Amongst US players Northrop Grumman would offer the best option for a merger of near equals and the product mix would be interesting for the combination, though perhaps lower on the value chain than Northrop would like. GD and LMT offer the biggest logic given General Dynamics Land Systems operations versus Lockheed Martin's F-35 Lightning II ("JSF") programs.
The image attached graphs out current market capitalizations offering a ranking of the main players.
Given BAE Systems management are serious enough about EADS to put themselves in play, announcing their intent to the stock markets, one of the cultural reasons behind BAE's move could be that they see it as better to retain autonomy in Europe than risk being the junior partner in a Transatlantic merger scenario.
Amongst US players Northrop Grumman would offer the best option for a merger of near equals and the product mix would be interesting for the combination, though perhaps lower on the value chain than Northrop would like. GD and LMT offer the biggest logic given General Dynamics Land Systems operations versus Lockheed Martin's F-35 Lightning II ("JSF") programs.
The image attached graphs out current market capitalizations offering a ranking of the main players.
BAE Systems Merger discussions with EADS: Red Herring or Strategic cul-de-sac ?
Recent headlines concern the potential merger between London listed defense contractor BAE Systems and the Franco-German defense combine EADS. What does this mean for the political and defense consumer - not to mention investors ?
For the mainland European politician a combination offers the prospect of a European champion in the defense sector. The arguments about efficiencies and ultimately cost-savings to national governments of common procurement are likely some way away - if indeed ever. Obtaining synergies outside of combining back-office functions such as accounting, HR etc. would involve closing production lines which has a geographic and political complication. The decision to continue separate management post merger implies inefficiency from a business and investment standpoint.
BAE Systems however has an interesting strategic culture. In the 1990s it hankered desperately for an American suitor and was ultimately dashed by MacDonnell Douglas's acquisition by Boeing. Acquiring United Defense from the Carlyle Group gained exposure to land systems in the united States which has served the business well and established a toehold in the mindset of the Pentagon. Lets also not forget the BAE sale of its Airbus stake in recent years - not exactly the strategic move of a business keen to enmesh itself with European partners…
How willing is BAE really to put at stake its access to the US in return for 'becoming part' of Europe ?
Perhaps the reality is that this courtship of EADS is a smoke screen for a BAE push for a transatlantic partner. Given the USA will remain the worlds largest defense spender at the highest levels of technology is going to make the C-suites at Lockheed Martin, Boeing, General Dynamics and Northrop Grumman think seriously about cementing a tie-up before Europe becoming a more closed market.
The synergies of English language, military interchange between the principal nations and overseas exports markets such as Saudi Arabia offers a more compelling logic for a tie-up between a North American and British defense contractor surely ?
Looking more broadly the completion of this combine could ultimately reflect the defense industrial drift between the USA and Europe - with Europe reluctant to invest in research and development and the USA having pushed a high level of sustained defense spending.
For the mainland European politician a combination offers the prospect of a European champion in the defense sector. The arguments about efficiencies and ultimately cost-savings to national governments of common procurement are likely some way away - if indeed ever. Obtaining synergies outside of combining back-office functions such as accounting, HR etc. would involve closing production lines which has a geographic and political complication. The decision to continue separate management post merger implies inefficiency from a business and investment standpoint.
BAE Systems however has an interesting strategic culture. In the 1990s it hankered desperately for an American suitor and was ultimately dashed by MacDonnell Douglas's acquisition by Boeing. Acquiring United Defense from the Carlyle Group gained exposure to land systems in the united States which has served the business well and established a toehold in the mindset of the Pentagon. Lets also not forget the BAE sale of its Airbus stake in recent years - not exactly the strategic move of a business keen to enmesh itself with European partners…
How willing is BAE really to put at stake its access to the US in return for 'becoming part' of Europe ?
Perhaps the reality is that this courtship of EADS is a smoke screen for a BAE push for a transatlantic partner. Given the USA will remain the worlds largest defense spender at the highest levels of technology is going to make the C-suites at Lockheed Martin, Boeing, General Dynamics and Northrop Grumman think seriously about cementing a tie-up before Europe becoming a more closed market.
The synergies of English language, military interchange between the principal nations and overseas exports markets such as Saudi Arabia offers a more compelling logic for a tie-up between a North American and British defense contractor surely ?
Looking more broadly the completion of this combine could ultimately reflect the defense industrial drift between the USA and Europe - with Europe reluctant to invest in research and development and the USA having pushed a high level of sustained defense spending.
Thursday, November 11, 2010
Further considerations for UK retirement of the Harrier VSTOL capability
The Congressional Budget Office (CBO) report in May 2009 "Alternatives for modernizing U.S. Fighter forces" grapples with options should, basically, the Joint Strike fighter (JSF) or F-35 program be cancelled.
Interestingly the report makes the point that US Marine Corp concerns about the 2018 in-service date slippage for their own AV-8B Harrier replacement, "instead of being retired as F-35's are delivered to the Marine Corps, AV-8B's would be retained as long as they are flight-worthy" (page XIII). This is in contrast to the United Kingdom, whom as part of the outcome of a recent, resources-led review decided to scrap the Harrier capability ahead of the introduction of a new generation aircraft carrier.
US Marine Corps plans are all based on retaining the AV-8B Harrier through 9,500 airframe hours (page 10).
The report then makes the killer blow (on page 13), "The Marine Corps AV-8B's were purchased (or remanufactured and upgraded) more recently than many F/A-18 A/B/C/D's of more modern design and, hence, have substantial remaining service life"
One of the big alternatives touted in UK circles to the JSF or navalised Eurofighter typhoon is the F-18 Hornet (which would be bought from the US). Why on earth does the RN not lease or buy some of the US aircraft and fly them until they reach the limit of serviceability ?
For the USMC with the resources they can consider the Harrier as obsolete on the modern battlefield. However many of the scenarios for which the is organising would be 'lower intensity' by definition - for which aproven airframe like Harrier is an essential force multiplier.
Alternatively, as was already suggested in 2007, why not manufacture new Harriers under licence in India ? BAE Systems are seeking to carve out a niche in the emerging Indian defence market and US is deploying the President on a major tour (which must chafe the FCO)...
Interestingly the report makes the point that US Marine Corp concerns about the 2018 in-service date slippage for their own AV-8B Harrier replacement, "instead of being retired as F-35's are delivered to the Marine Corps, AV-8B's would be retained as long as they are flight-worthy" (page XIII). This is in contrast to the United Kingdom, whom as part of the outcome of a recent, resources-led review decided to scrap the Harrier capability ahead of the introduction of a new generation aircraft carrier.
US Marine Corps plans are all based on retaining the AV-8B Harrier through 9,500 airframe hours (page 10).
The report then makes the killer blow (on page 13), "The Marine Corps AV-8B's were purchased (or remanufactured and upgraded) more recently than many F/A-18 A/B/C/D's of more modern design and, hence, have substantial remaining service life"
One of the big alternatives touted in UK circles to the JSF or navalised Eurofighter typhoon is the F-18 Hornet (which would be bought from the US). Why on earth does the RN not lease or buy some of the US aircraft and fly them until they reach the limit of serviceability ?
For the USMC with the resources they can consider the Harrier as obsolete on the modern battlefield. However many of the scenarios for which the is organising would be 'lower intensity' by definition - for which aproven airframe like Harrier is an essential force multiplier.
Alternatively, as was already suggested in 2007, why not manufacture new Harriers under licence in India ? BAE Systems are seeking to carve out a niche in the emerging Indian defence market and US is deploying the President on a major tour (which must chafe the FCO)...
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