MI-UK MOD conundrum- final
- 1. UK MOD Conundrum – Conventional versus Specialist Capabilities September 2009 “We Accelerate Growth” Sabbir Ahmed, MBA Industry Analyst
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- 4. 4 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?
- 5. 5 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
- 6. 6 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.
- 7. 7 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
- 8. 8 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 •
- 9. 9 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.
- 10. 10 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…)
- 11. 11 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…)
- 12. 12 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…)
- 13. 13 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…)
- 14. 14 • 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 8000Million£ 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…)
- 15. 15 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).
- 16. 16 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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