The UK defence industry is set for a difficult 2011, as the government's austerity programme begins to impact on existing and potential contracts. The UK government has already taken certain significant moves – such as grounding the Harrier, cancelling various naval projects and cutting the overall size of the army. It is likely that further moves will follow. Furthermore, the government has made reforming the procurement system at the Ministry of Defence a main priority. While this is likely to ensure better value for money for the government, it risks limiting the profits of firms and disincentivising research and development if costs have to be increasingly borne by the companies themselves. To overcome these domestic burdens, it is likely that UK defence firms will focus on exports in the coming years.

A number of high-profile defence industry figures accompanied the Prime Minister David Cameron on his tour of the Middle East in February 2011. While the trip was overshadowed by the political developments in the region, which forced Cameron to finish the trip ahead of schedule, it had long been in the works. Securing defence contracts was viewed as a major objective of the trip, with the BAE Systems’ CEO, Ian King, as well as representatives from Thales, QinetiQ and Rolls-Royce, accompanying the prime minister. It is hoped by many in the industry that higher sales in the Middle East could counterbalance the negative effects of defence budget cuts in the UK and other Western countries.

The UK's largest defence firm, BAE Systems, has released its 2010 performance figures. The firm has seen slight improvements in its fiscal position over the year, despite a worsening of its broader prospects. Sales grew from GBP22bn (US$35.5bn) in 2009 to GBP22.39bn (US$36.14bn). This slight improvement has had a disproportionate effect on operating profit, which rose to GBP1.6bn (US$2.57bn) in 2010 – up from GBP966mn (US$1.56bn) in 2009. These improvements do bode well for the firm, which has proven itself capable of maintaining profitability in very difficult market conditions.

BAE Systems is seeking to boost its sales in international markets, particularly the Middle East. The firm has reported that it has entered talks to sell the Eurofighter Typhoon to Qatar and Oman. The firm views the Middle East as an important market for future sales, given the security concerns and high budgets of many countries as well as the lack of domestic firms.

Rolls-Royce has also released its 2010 financial figures. The firm has seen pre-tax profit grow slightly, with profits up from GBP915mn (US$1.48bn) in 2009 to GBP955mn (US$1.54bn) in 2010. This improved profitability came on the back of higher revenue, a larger order book and higher defence unit activity. Much of the firm's business is in the marine and civil aviation sectors but the firm received GBP2.1bn (US$3.4bn) in new defence orders in 2010.

Key Benefits

• Independent 5-year defence and security industry forecast on United Kingdom to test other views - a key input for successful budgetary and strategic business planning in the British defence and security market.
• Target business opportunities and risks in the British defence and security sector through reviews of latest industry trends, regulatory changes, and major deals, projects and investments in United Kingdom.
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TABLE OF CONTENTS

Executive Summary  

SWOT Analysis  
UK Political SWOT
UK Political SWOT

Europe Security Overview
The Strategic Outlook For The 2010s
Europe In A Global Context
Europe's Key Security Issues Over The Coming Decade

Western Intervention In Libya? Challenges Assessed  
The West's Military Options  
Conclusion  

Security Risk Ratings
Table: Europe Security Risk Ratings
Table: Europe State Terrorism Vulnerability To Terrorism Index
The UK’s Security Risk Ratings
City Terrorism Rating
Table: BMI’s Western Europe City Terrorism Index

Political Overview

Domestic Security Overview
Internal Threats
Domestic Terrorism  
Northern Ireland
Table: Proscribed Irish Groups  
Table: United Kingdom Insurgent Groups  
Latest Developments
Timeline: Internal Threats
External Threats
WMD Fears
Drug Trafficking
International Terrorism  
Table: Proscribed International Groups
Latest Developments
External Security: Recent Developments  

Armed Forces And Government Spending
Military Structure And Defence Industry
International Deployments
Table: Principal Deployments Of UK Armed Forces
Weapons Of Mass Destruction  

Market Overview  
Arms Trade Overview
Industry Trends And Developments
Table: Key Players In The UK’s Defence Sector
Timeline: UK Government Procurement

Industry Forecast Scenario
Armed Forces
Table: UK Armed Forces Personnel, 2000-2008 (‘000)
Table: Manpower Available For Military Services (aged 16-49, unless otherwise stated)  
Government Defence Expenditure  
Table: UK Government Defence Expenditure, 2008-2015  
Table: UK Defence Expenditure Scenario – Changing % Of GDP, 2008-2015 (US$mn)
Defence Trade
Table: UK Defence Exports, 2008-2015 (US$mn)  
Table: UK Defence Imports, 2008-2015 (US$mn)
Table: Defence Trade Balance, 2008-2015 (US$mn)
Key Risks To BMI’s Forecast Scenario
Macroeconomic Outlook
Table: United Kingdom - Economic Activity, 2007-2015

Company Profiles  
BAE Systems
GKN
QinetiQ
Rolls-Royce

Country Snapshot: UK Demographic Data  
Section 1: Population
Table: Demographic Indicators, 2005-2030
Table: Rural/Urban Breakdown, 2005-2030
Section 2: Education And Healthcare
Table: Education, 2002-2005
Table: Vital Statistics, 2005-2030
Section 3: Labour Market And Spending Power
Table: Employment Indicators, 2000-2005
Table: Consumer Expenditure, 2000-2011 (US$)
Table: Average Annual Wages, 2000-2012