UK MOD Conundrum –

Conventional versus Specialist Capabilities

September 2009

“We Accelerate Growth”

Sabbir Ahmed, MBA

Industry Analyst

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Introduction

After visiting frontline Afghanistan in July 2009, the Chief of Armed Forces remarked that the

Army would need more helicopters and boots on the ground

• Would it be able to retain full spectrum of conventional capability while fighting ongoing

global war on terror (GWOT)?

• Or, Would they have to eventually give up some of the conventional prowess in favour of

specialist capability to fight current and future GWOTs better?

AND

The Royal United Services Institute (RUSI), a prominent security think tank, has revealed that the

UK defence budget would face cuts by 10 to 15% (approximately $6.6 to $9.9 billion) during the

period 2010 to 2016

AND

The UK defence budget is already running at £35 billion over budget YTD, accumulated primarily

from programme slips and procurement of urgent operational requirements (UORs)

What does this mean for UK MOD and

the UK defence industry?

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Revisiting Equipment Need for Ongoing War

After visiting frontline Afghanistan in July, the Chief of Armed Forces remarked that the Army

would need more helicopters and boots on the ground

• The Army needs more soldier protective gears, IED- busters, MRAPs, helicopters and

communication gears, including other elements of situational awareness.

• The government should contemplate recruiting more troops going forward and find ways

to retain them

• The Ministry of Defence (MOD) needs to put more frontline lessons into practice in order

to procure the right equipment at the right time.

GWOT

The UK government is under

constant pressure to put more

troops and right equipment on

ground for the Operation Telic in

Helmand province, Afganistan

High rate of casualty in the

warzone suggests that more

measures need to be taken for

developing specialist

equipment, capability and

tactics

The daily business of Whitehall

(UK government administration)

does not reflect the urgency of

the frontline, complained an Ex-

General

Most casualties occur from

Indigenous Explosive Devices

(IEDs) when troops are

vulnerable during foot and

vehicle patrols

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Can the Budget Support it?

Budget Cuts

A possible £1.5 billion budget cut

in 2010-11 means more cuts

might follow with the prospect of

a future Tory Government

The cut is expected to be in line

with the overall government

spending cuts, which is

estimated to be 11% in real

terms (inflation-adjusted) during

the same period.

It is believed that the UK MOD

can no longer afford budget for

building both the capabilities

with equal emphasis.

The soaring public debt means

that the government would pay

more on debt servicing than its

defence budget from 2011

The Royal United Services Institute (RUSI), a prominent security think tank, has revealed that

the UK defence budget would face cuts by 10 to 15% (approximately $6.6 to $9.9 billion)

during the period 2010 to 2016

• The downward pressure on budget until 2016 and the priority of acquiring specialist

capability means eventual cuts on conventional capabilities are more realistic

• US DOD thrust towards building specialist capabilities – at the expense of standing

programs such as F22 Raptor and Transformational Satellite Program (TSAT), among

others, is also impacting UK MOD’s procurement decisions.

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How about £35 Billion over Budget Hangover?

• The review of ongoing programmes for possible cutbacks reflects the downward pressure

on future budgets.

• The UK Government is looking at government-to-government deals to pass over the

slashed number of equipment (such as Euro fighters, Type 45 Destroyers, among others), so

as to avert penalty accruing from contractual obligations and let the programmes run as

planned

Programme

Over Runs

The Institute of Public Policy

Research (IPPR) predicted that a

thorough review of current

weapon programmes might aim

at making cuts worth £24 billion

It is estimated that MOD

suffered £6 billion in various

projects YTD. The UORs are

the other substantial

contributors for the total of £35

billion YTD

The Type 45 Destroyer project has

experienced setbacks, with the six

ships now costing £6.46 billion, an

increase of £1.5 billion (29%). ISD

slipped from 2007 to 2010.

The Future Aircraft Carriers

project suffered £1 billion

increase in the cost of £5 billion

for two

The UK defence budget is already running at £35 billion over budget YTD, accumulated

primarily from programme slips and procurement of UORs

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What Does all this Mean for UK MOD?

UK MOD

As the Armed Forces need

thorough restructuring, Gen. Sir

David Richards, the new Chief

of the Army has emphasized

specialisation as the way forward

at a RUSI land warfare

conference on June 25, 2009.

A recent report by the Institute for

Public Policy Research urged the

government to consider restructuring

of the military, in order to focus on

specialist capabilities as part of a

deepening European defence

integration and the wider NATO

alliance.

Malcolm Chalmers, the Professor

of Defence and Foreign Policy at

Kings College of London, has

questioned about the type of

armed forces that can be afforded

by Britain during the mid to long

term.

Finding the real balance between

capabilities and addressing

conventional threat, besides

asymmetric warfare is something

MOD needs considering a thorough

review on

UK Defence Strategy Needs a Thorough Scrutiny

• It is no longer affordable to fully prepare for confronting two contrasting set of threats and

hence, needs a clear strategy in terms of resource sharing and deepening of alliance.

•The MOD needs to demonstrate character in doing away with some of the conventional

capabilities (such as Trident) in favour of more boots on the ground

•

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What Does all this Mean for UK MOD?

(Contd…)

The drop of the Trident replacement programme alone would result in savings

of approximately 6% of the budget every year, totalling to £70 billion over the

lifecycle.

• Future carriers

• Type 45 destroyers

• Trident nuclear system

• Joint strike fighters

• Euro fighters

• Cyber warfare

• C3I systems

• Civilian-military

stabilisation and

reconstruction force

Conventional Capabilities Specialist Capabilities

Major Shift in Future Allocations as Restructuring Usher in

IPPR estimates £24 billion worth of

equipment cuts through a strategic

review of all defence programmes

The cut would be partly offset by

an additional investment worth

£3 billion in sectors listed below

during 2009 to 2016.

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Outcome: Increased acrimony between services

might jeopardise Armed forces battle worthiness

As the Air force played a lesser role in the Iraq and

in Afghan war, there might be a sizable cut in the

budget. Programmes such as JSF, Typhoon,

Tornado, MRA4 would continue to be affected

Increasing the number of troops, equipment and

helicopters is currently the most important need for

the Army, as demanded by the frontline. Therefore,

any budget cut for the Army is least likely

Services

Least Affected

Army

Air Force

Navy

Most Affected

Navy

Most Affected

Source: Frost & Sullivan

Impact

The replacement of Trident is not being

considered. Future Carrier and Type 45 Destroyer

programmes are under severe pressure. The

Royal Navy is experiencing a severe shortage of

ships

Medium Affected

Impact on the Relationship of Three Services

The immediate past and present

chiefs of Army have been critical

about the ambitious projects such

as Trident which is worth £20bn.

What Does all this Mean for UK MOD?

(Contd…)

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UK MOD

Challenges

Source: Frost & Sullivan

Uncertainty of Black box

Time

A security risk remains in the

transition time between when

the specialist capabilities are

built at the expense of

traditional capabilities and the

regaining of tradition

capabilities, which is unlikely

until UK economy fully recovers

from current crunch

Finding a Balance between

Traditional and Specialist

Capabilities

The UK think-tanks and

politicians need to jointly work out

a balanced strategy. The

economic downturn would result

in unfavourable conditions, but it

is crucial to find the balance

between choices with respect to

time, money and urgency.

Challenges of Retaining

Skills and Capabilities

The key challenge is to retain the

skill set and industry capability,

and more importantly, job intact,

while cutting back on

conventional arsenals; prioritise

capabilities and support them to

navigate difficult times.

Fulfilling UORs of Ongoing

War in Afghanistan

The phenomena is expected to be

in place for years until the war is

over. This means the threat of

cutbacks on traditional projects,

re-scheduling or even cancellation

would remain until 2016.

MOD Faces New Challenges

What does all this mean for UK MOD?

(Contd…)

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Defence

Industry

The assurance given by the

MOD through its “defence

industry strategy” to help sustain

the domestic industry by offering

a consistent stream of revenues

over longer term is under

question mark

The fear of budget cuts would

threaten £35 billion a year UK

defence Industry and over

300,000 high-value jobs, as

viewed by Ian Godden, chief

executive of the Society of

British Aerospace Companies.

The individual companies need

to take a hard look on how their

revenue stream and

sustainability are being

impacted by the cutbacks on

many major projects

The government has to find a

way for protecting the largest

defence industry in Europe and

its capabilities, which is crucial

for not only jobs, but also for

security and technological

advancement.

UK Defence Industrial Strategy Faces a Big Question Mark

• The defence industry associations are required to work with the government to

find a way of recovering from recession, with sustenance of the sector.

• The defence industry needs a realignment of its resources and capabilities

towards fulfilling the changing requirements of MOD.

What Does all this Mean for UK Defence Industry?

(Contd…)

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Soldier

Systems

• Soldier Radio with

navigation and sensor

• Sniper Rifle

• Ballistic Jacket

• IED-proof boots

• Lithium-ion/fuel cell

battery

• SDR waveform

• IR

• Anti-blast

Systems Equipment Technologies

• MRAPs

• UGVs

• Heavy armoured cars

• Helicopters

• Autonomous system

• Ballistic shield

• IED-proof platform

• Artificial Intelligence

• UAVs

• SATCOM

• SDR

• Computer terminals

• Navigation systems

• Communications,

navigation and sensor

technology

• Space technology

• Systems integration

• Soldier-vehicle

interface

Transportation

Systems

C4ISR

Source: Frost & Sullivan

Equipment and Technologies under Spotlight

What Does all this Mean for UK Defence Industry?

(Contd…)

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• Specialist capability procurement includes Land and C4ISR, and conventional capability

procurement includes Air and Sea.

• On an average, UK MOD can spare approximately 22 to 25% of the defence budget for

equipment procurement.

UK MOD Procurement Expenditure Trends – Conventional versus

Specialist Capability Allocations

Source: Frost & Sullivan

Defence Companies Would See Change in Future Revenue

Streams

0

1000

2000

3000

4000

5000

6000

7000

8000M

illi

on

£

2008 2009 2010 2011 2012 2013 2014 2015 2016

Year

Procurement Expenditure Forecast (UK), 2008-2016

Specialist Conventional Others

What Does All this Mean for UK Defence Industry? (Contd…)

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Strategic Recommendations

• The UK MOD might undertake a Strategic Defence Review in order to work out a

balance between conventional and specialist capabilities in light of the 21st century

security needs. The review should consider parameters such as shift in the nature of

threats, shift in the way current war is fought (such as the use of soft power by the war

fighters), growing impact of cyber warfare (which is not less then nuclear weapon),

globalisation and demographic shifts and the possibility a nuclear free world, among

others.

• The National Security Council should be proactively engaging and closely monitoring the

war efforts in Afghanistan. It should have an oversight of the transactions between the

Armed forces and the Government so that real demands of the military are not

overlooked by the decision makers at the helm. It also needs to be vigilant, in order for

the maintenance of trust between public, military and political decision makers, especially

when the country is at war.

• As a way of cutting cost on conventional capabilities and free up resources for specialist

capabilities, the UK MOD should look at the possibility of sharing more expensive

strategic capabilities with the neighbouring allies (such as the United States and France).

These include sharing of strategic nuclear strike capability (the like of Trident), strategic

air strike capabilities (the likes of Euro fighters and F-35 JSFs) and blue water naval

capabilities (the like of Aircraft Carriers).

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Strategic Recommendations (Contd…)

• The UK defence industry participants should closely monitor what the MODs and the

Think-tanks across the Atlantic perceive of the 21st century defence needs, so that they

better align their resources and capabilities to fulfil the changing requirements. They

must believe that traditional concerns about losing domestic jobs or skill sets might no

longer pursue the MOD from cutting many conventional capabilities in favour of specialist

ones, which is crucial for the ongoing and future wars. Therefore, they should be

sufficiently flexible and responsive to carry out internal restructuring, and pursuing

technologies, skills and capabilities that better fulfil the war fighter needs of the 21st

century.

• The UK MOD might have to closely monitor the developments across the Atlantic with

respect to ongoing restructuring efforts in the US DOD. It might consider reviewing daily

business process to bringing in the sense of urgency in procurement process, so that

the war fighter needs could be met in time and without influence of interest groups.

• A UK-US-EU joint initiative towards wiping out nuclear arsenals altogether from the

global face might look something radical in short term, but would be good for the

comprehensive security of the world in the longer term. This has the potential to free up

significant resources for investing on the research and development of futuristic

specialist capabilities.

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