Defence sector cautions on spending cutbacks

Britain’s defence and aerospace industry is urging European governments not to pay for economic bailouts by slashing defence budgets and programmes.
Reuters says concern among the sector has mounted in the run-up to NATO’s 60th anniversary summit today following delays to a string of UK projects, including the £4 billion new aircraft carrier programme.
Industry executives are also worried about what they see as the parlous state of the country’s state finances.
Across Europe, seven nations will decide by July whether to scrap orders for the severely-delayed Airbus A400M military transport plane.
“Bailouts for other sectors provoke concerns in the aerospace industry that money will be diverted from current aerospace investment to fund them,” said Ian Godden, Chief Executive of the Society of British Aerospace Companies (SBAC).
“The sector is also concerned about research funding drying up,” he added.
Allan Cook, Chief Executive of FTSE 100 defence electronics group Cobham said the grass roots of the industry were at threat.
“I’m bearish on European defence budgets … Research and Development is the life-blood of the industry, and if governments are not providing resources, they will lose business to India and China,” he said. 
If you are looking to create a stimulus package to kick-start the economy, you should be looking at aerospace,” he added.
Britain’s defence ministry has a budget of £35.2 billion for the 12 months to March 2010, rising to £36.7 billion in 2010/11 — during which the government must hold a general election.
Of those sums, just £500 million a year is spent on research, a figure the industry has said is falling although the MoD has yet to publish 2008/09 figures.
The government has seen a series of delays to military programmes in recent years, of which the December shelving of two new aircraft carriers for up to two years was the most recent.
The defence committee of the House of Commons called the aircraft carrier delays “strange” earlier this year, while also urging the abandonment of the orders for the A400M — likely to be a major talking point a the NATO conference.
Howard Wheeldon, senior strategist at BGC stock-brokers, said the government could avoid headline cut-backs by taking a more stealthy approach.
“When it comes to the crunch, programmes get pushed back, or it (the government) can put more pressure on the supply chain to cut costs for the MoD. I do not envisage seeing cuts other than by the stealth factor,” he told Reuters.
The one major exception would be an abandonment of orders for the A400M, which would save hundreds of millions of pounds, as this can be put down to the repeated failures of its maker EADS to set a delivery date.