Western arms makers eye emerging markets

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Spending cuts and dithering over big defence contracts mean British and American arms suppliers are chasing new business in the Middle East and Asia to make up for stalling domestic military spending, executives told a conference.

“We can’t rely on traditional markets for growth any more – the real growth will come from international markets,” Ian King, the chief executive of Europe’s biggest defence contractor BAE Systems , told an ADS defence conference in London.
“In five years India will be spending more on defence than the UK. China and Russia will also become accessible in time,” King said.

Aerospace and defence companies have been hit by uncertainty about the future path of UK and U.S. defence expenditure, both of which have slowed in recent months, Reuters reports.

Such cuts — on top of a recent round of defence-related budget belt-tightening in Europe — may mean there is not enough work to go around for Western defence firms, which are likely to continue to shift their focus elsewhere.
“The future will be dominated by China, Russia and India and we need to work in their world,” said Richard Fenning, Chief Executive of UK defence consultancy Control Risks.
“People are preoccupied by the UK and U.S. but this gloom is not shared in China, India, Brazil, Turkey and Korea,” he added.

Britain is the second-biggest defence exporter in the world after the U.S. Its defence industry, with 35 billion pounds in annual turnover, sustains some 300,000 jobs in the UK.

However, Britain last week said it would make 22,000 redundancies at the Ministry of Defence and in the UK armed forces over the next four years, leaving many concerned about the government’s plans for the industry.

Peter Rogers, chief executive of UK military firm Babcock International believes Britain needs to develop a clear strategy to develop its defence industry or risk losing out to emerging nations which are building up their own defence sectors.
“There are four key papers on the future of the UK defence industry due to come out, which have been delayed, but at the moment the industry doesn’t actually know the future direction the government wants to go in,” he said.

Foreign military sales are “clearly a way to grow to fill the revenue gap which is expected,” said Tom Captain, head of aerospace and defence at global accountancy firm Deloitte.

INCREASED COMPETITION

Competition between British and U.S. arms makers is also seen intensifying as they look to offset belt-tightening in their home markets.

The U.S. government is pushing hard to help defence contractor Lockheed Martin win a deal to supply Taiwan with 66 new F-16 fighter jets, a sale that would help the firm weather possible cuts to U.S. weapons programmes.

The Obama administration has also begun consulting congress on plans to sell Global Hawk spy planes made by Northrop Grumman to South Korea – a deal which would require a waiver for an arms control pact involving about 30 countries.

Britain is also pushing defence exports. Business secretary Vince Cable has led trade missions to India and Brazil over the last year.
“At the moment there are significant export opportunities in Asia and the Middle East,” said BAE’s King. “There are great opportunities for the Typhoon in India, Oman and Japan.”

In Libya, Russia had billions of dollars worth of arms deals under deposed leader Muammar Gaddafi, which are now in doubt.

Russia’s arms exporting monopoly Rosoboronexport recently said it may have lost some $4 billion in existing and potential deals with Gaddafi’s government.



Moscow wants to ensure they are not lost during the transition but there may be opportunities for British firms.
“In time there will be a focus on a new beginning in Libya but it’s hard to know what will happen,” said Control Risks’ Fenning.