Page 59 - Five Forces of Americanisation Richard Hooke 04072025 final post SDR1

The UK Defence Industry in the 21 Century
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The Five Forces of Americanisation

The Five Forces of Americanisation

5. Financial Markets

Synopsis
It will surprise few people that the world’s three largest spenders on defence are the USA, China and
Russia. Together, they invest over 53% of the world’s total defence expenditure. UK spending accounts
for 3.1%. It would logically follow, therefore, that nine of the world’s top ten defence companies are
either American, Chinese or Russian.

Given its host government’s “competition by default” domestic procurement policy for over 30 years
and regarding the reshaping of its DIB as “very much industry’s business”, it is noteworthy that one of
the world’s top ten defence companies is British. Whilst this is largely due to the fact that most of its
business is in the USA, it reflects the uniquely interdependent nature of US and UK defence industrial
relations.

Successive UK governments’ policies have created a multinational UK DIB. The nationalities of its
owners naturally tended to reflect the international frameworks established at the end of World War
II. Hence, whilst the USA is the dominant participant in UK Defence, French, Italian, Israeli, German and
Swedish companies have also acquired British firms. US management consultants, investment bankers,
private investors and corporate leaders have also played major roles in formulating and implementing
UK Defence Reform.

With the UK state stepping back as investors or business leaders, it follows that capital market
principles and practices have progressively exerted more influence on the shape and structure of the
DIB than UK government policy. Having brought its largest British-based company, BAE Systems, to the
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brink of financial collapse in 2003 , between 2019 and 2021, the effects of reform culminated in a
private US fund manager exploiting inefficiencies in UK financial markets and a period of acute UK
government instability to acquire and break up two of the UK’s most influential defence groups trading
on the London Stock Exchange, Cobham plc and Ultra Electronics plc. Since, at the same time, Russian
troops were massing on the Ukrainian border preparing for the most serious war in Europe for several
decades, the transactions exemplified the UK’s relaxed attitude to its national defence and security
infrastructure: summarised by a government spokesman as a “a commercial matter for the companies
involved”.

These two transactions are highly significant, not only from a financial markets perspective but also in
reflecting a significant absence in government of both financial acumen and of a reasonable
understanding of how financial markets affect the delivery of numerous public services. Including
defence. Cobham and Ultra are therefore reviewed at length in the following pages. They reflect a shift
away from the pragmatic behaviour of global stock markets and the notion of share ownership:
stability, transparency, long term visibility of earnings, prudent financial policy, all supported by
resilient capital structure. Instead, they highlight the emergence of a new business culture. A culture
attuned to shorter timescales and a transactional attitude to ownership energised by the aggressive
use of debt to realise substantial financial rewards. The appointment in March, 2025 as US Deputy
Secretary of Defense of one of the USA’s most successful financier in this category may well be a
notable development in how the defence industry will be structured and finance in future.
The sales of Cobham and Ultra also continued a trend that we identified in 2005: the transfer to foreign
ownership of an increasing number of UK-based defence companies, cutting the number of UK-listed
defence manufacturing companies by 50% in the process. The remaining indigenous British businesses
now prioritise the larger and more lucrative US market, even though they remain listed in the UK.
Defence Reform has affected the wider UK defence industrial community too, depleting the national
financial, professional, intellectual and commercial infrastructure that had previously played its part

in sustaining its competitiveness at home and abroad. If British companies believe that a UK listing
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07/07/2025 Richard Hooke 2025