Wednesday, October 15, 2008

editorial: "New fighter force at risk in defence cutbacks"

With regard to the London Evening Standard item, "New fighter force at risk in defence cutbacks", it could be suggested that the global financial meltdown has created the perfect foil for the Ministry of Defence to extricate itself from some thorny commercial developments.

Coupled with a change in leadership at the top of the largest defence contractor in the UK, BAE Systems and at the Ministry of Defence, enables the defence management body politic the perfect "get-out-of-jail" card

The Labour Party have been committed since the Strategic Defence Review in 1997 to the acquisition of two new aircraft carriers for the Royal Navy as the centre-piece of an expeditionary warfare strategy.

However, since this time operational commitments have changed priorities in terms of forces and budgets - a re-run of the Falklands conflict: one of the biggest success stories in terms of power projection at global distances in defence of British interests is in serious danger of being discarded.

The tragedy is that whilst the future may be expeditionary and joint, the reality is that today is joint and land-based. The UK defence budget has for sometime been running with an underfunded element of £1 billion plus, so the figures quoted by 'experts' to Robert Fox are little more than the state of play for the since the early 2000's to say the least. Perhaps the truth is an even higher number given the skill of the mInistry in manoeuvering its meagre resources against limitless political demands.

The Joint Strike Fighter ("JSF" or "JCA") program has not hit the most expensive phases of manufacture and so savings could be, in truth light - the political issue for the armed services is that the aircraft carriers under order will need either a) converting to handle conventional flight operations (which the Royal Navy have not dealt with since the early 1970s), b) cancel the carriers or c) get innovative using UAV ("Unmanned Aerial Vehicle" technology).

Likewise, the two aircraft carriers are not yet fully into production - though some expensive long-lead items are contracted for (most recently the power units).

Our prediction at DIB is that the next meeting of the Defence Management Board (DMB) will recommend the following;

a) freezing development of CVF until economic circumstances improve,

b) cancelling the Joint Strike Fighter acquisition (pleasing the RAF no end).

c) Proceeding with the CVF programme using a mix of converted "navalised" Eurofighter aircraft (already committed to purchase), US F-18 Hornet aircraft or UAV's or a blend of all three on the CVF carriers.

d) cancel both projects and channel funds into the fighting forces.

Needless to say the British Army FRES programme is a dead-duck in the current environment and will be de-scoped budgetarily.

However, there is a sting in the tail for the MOD here. The crisis is driving down values of defence contractors - who should be insulated from the downturn - difficulties in obtaining credit will make investment in pet-MOD contracts even harder (read: more expensive) than it is today. Additionally, UK companies could become rich pickings over the next 6-12 months to US defence contractors emerging faster from recession, being buoyed by strong US defence spending. Watch this space.

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