Page 63 - 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

defence companies since they are able to avoid adopting the more conservative financial policies that
ratings agencies value when assessing public company creditworthiness.

“Defence companies’ expansion plans are being hobbled by wary lenders. Regulation, ethics and
reputation are big stumbling blocks, depriving the industry of the cash it needs to expand
production.”
(The Lex Column, Financial Times, August, 2024)

The burden of the increasing cost of debt has been exacerbated by a more challenging environment
in which to source debt. Faced with pressure from Non-Governmental Organisations (“NGOs”) based
in the UK who question the ethics of financing defence business, UK financial institutions are less
willing to fund their activities. For many, US debt markets have provided a helpful source of money.
The US has provided opportunities both to reduce the cost of debt and to gain access to liquidity.

In December 2012, with liquidity constraints still affecting businesses recovering from the global
financial crisis and UK troops reportedly short of basic equipment in Afghanistan, the UK
government-owned Royal Bank of Scotland’s (now NatWest) Chief Risk Officer advised its
Investment Banking Committee that, following pressure from a number of NGOs, the Bank’s
board of directors had decided to suspend indefinitely all its business (lending, trade finance, debt
and equity capital markets, risk management) with the UK’s, western Europe’s and the USA’s
largest defence companies, from BAE and Rolls-Royce to Boeing, Lockheed Martin and from
Airbus (then EADS), Thales, Rheinmetall and Leonardo (then Finmeccanica).
(Author’s contemporary notes)
With fewer British defence companies now listed on the London Stock Exchange, there has been a
corresponding reduction in the number of equity analysts specialising in defence. This has undermined
both the quality and availability of advice to investors and lenders and so, in turn, the availability of
UK debt and equity finance for defence business. In London, reflecting on the poor value realised in
the sale of Cobham plc, City professionals expressed their concern that the London Stock Exchange no
longer has the ability to value defence shares.
Commenting on why UK defence stocks were trading at between 10-20% discounts to their peers
(even though parts of their operations are in the USA), Jefferies’ equity analyst Sandy Morris
reported in August, 2021, “the UK equity market is not very good at judging what defence
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businesses are worth to another company” .
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(Sandy Morris, Jefferies Investment Banking, Financial Times, August 21 2021)

Further research, notably by management consulting firm McKinsey & Company, suggests that the
UK equity market in general has underperformed relative to other G-7 countries since the global
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financial crisis .
The fact that there are fewer UK-listed defence companies has also affected the composition of the
country’s relevant professional and trade associations. From ADS to the Royal Aeronautical Society,
the Institute of Mechanical Engineers and the Defence Industries Council, their members reflect the
UK DIB’s transition to increased foreign ownership. As a consequence, American, Italian, French,
German, Israeli and other overseas companies’ objectives and policies influence the professional
development of those building careers in the sector as well as influencing some aspects of regulation
(the application of UN conventions, for example). Whilst this is consistent with an increasingly
interdependent and multinational industry, guidance offered to inform UK government policy now
reflects a multinational perspective that will be less objective and therefore authoritative in informing
or influencing UK national security policy.

In particular, the number of former senior UK civil servants hired by American, French, Italian, Swedish
and Israeli defence companies and private investors and submitting evidence to UK Parliamentary
select committees has introduced the potential for bias in UK Defence Reform: its “international
competition by default” policy, for example, was strongly endorsed by French and American company
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spokesmen, only receiving criticism from a British industry witnesses . This point featured in
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07/07/2025 Richard Hooke 2025