The likely shape of the Defence Industry in the future Simon Allan Berwin Leighton Paisner LLP

Structure of Presentation Assumptions Some existing trends Some sources of change Synthesis

Policy Assumptions DIS maintained Defence Procurement Directive implemented UK Market remains “open” Constant budget Shipbuilding and complex weapons in a special position

UK Defence Spending as % of GDP Calculation = Defence Expenditure Limits as a percentage of gross domestic product at market prices. Sources: Defence Spending Reviews 2004 and 2007 and UK National Statistics UK Output, Income and Expenditure 2 nd Qtr 2007 Policy Assumptions

Lockheed Martin Martin Marietta Lockheed Loral OAO Corp ACS Oricon Sipping Holdings Sytax Gray Stasy Ltd (UK) Aspen Systems Northrop Corp Grumman Corp Westinhouse Electric Logicon Teledyne Ryan Litton Industries Newport News Shipbuiding TWR Inc. Integic Corp Xon Tech Illgen Simulation Northrop Grumman Raytheon Corp Raytheon CTASTexas Instruments Hughes Aircraft E-Systems Beechcraft Oakley Networks Photon Research Honey well Business Unit Solypsis Corp Boeing Co McDonnell Douglas Rockwell Aerospace Hughes Electronics Boeing Co. BAE Systems C-Map Aviall Jeppeson Sanderson United Defence Industries Vickers Alvis LM Electronics Systems Siemens Plessey Electronic Systems SEMA STIATPI British Aerospace Marconi GKN Armour Holdings Industry consolidation

Industry Consolidation Capacity effects Competition effects Market attraction effects

Mod Procurement Strategies Outsourcing/PPPs/Privatisation Condo/Sponsored Reserves Use of “integrator” models – FRES, MFTS etc

Platform Longevity Upgrades Inserts TLCM

“unmanned” Technologies Section 220 National Defence Authority Act 2006 “It shall be a goal of the Armed Forces that: (1) by 2010, one-third of the aircraft in the fleet are unmanned; and (2) by 2015, one-third of the operational ground combat vehicles are unmanned”

Changes to the “definition” of “defence” Social appetite for sustained ground troop deployments? Boundaries between “defence” and “homeland security” Cyber warfare – economic “warfare” – sovereign funds Climate change/security of supply issues

Synthesis Growing support service companies High level systems integrators supported by agile technology companies Consolidation with higher levels of “foreign” ownership New product “segments” eg UAVs, UCAVs etc Migration to “new” markets with higher margins and better social profile