Midlands defence sector awaits full impact of SDR cuts

THE full impact of defence cuts on Midlands businesses is still to be felt – despite the Government’s announcements on the Strategic Defence Review, a leading analyst has said.

Ian Wilson, corporate finance partner and aerospace and defence sector leader at Grant Thornton in Birmingham, said it was likely that a lot of smaller programmes dealt with by firms further down the supply chain could be adversely affected by cutbacks at larger firms.

“The SDR conversation is still taking place and how it will affect those at the highest level still isn’t clear yet,” he said.

“However, it’s likely that somewhere between 700-800 smaller programmes could be reviewed because of decisions taken in the SDR and many of these will still be under discussion.

“As with most things, there are likely to be winners and losers – those involved in servicing contracts for the Harrier and Tornado fleets could well be affected while those involved with the Joint Strike Fighter and Typhoon (Eurofighter) could benefit.”

He said firms which were unable to diversify would be the ones likely to suffer most , while the larger companies had recognised that moving into different areas would help to sustain them as the cutbacks took effect.

Firms with many of the larger firms would also be watching developments in the United States with interest, following the shift in control of the Senate following the recent mid-term elections.

Mr Wilson said many of the firms which were affected by the cuts would need to consider their business models and there may have to be a shift in focus towards new defence markets, in particular cyber warfare and homeland security.

“Many of the primes have already recognised the shift in emphasis away from traditional war theatres and are diversifying their operations into these new areas – it would be a model others would do well to follow,” he said.

The shifting trends in the defence sector are highlighted in a new report compiled jointly between HIS Jane’s and Grant Thornton and of which Mr Wilson is a co-author.

The report, Mergers & Acquisitions in the Third Quarter of 2010: Defence, Security and Military Aerospace, highlights activity in the defence sector during the three months between July and September.

It concludes the sector remained buoyant during the period although this may have been a last push before the SDR was announced in October.

One of the firms highlighted in the report is Black Country based Key Technologies. In May, the firm acquired the business and assets of Primetake , a specialist developer, manufacturer and supplier of special purpose ammunition and equipment.

The deal provided a major boost to business for the Cradley Heath firm and Mr Wilson said the company could be set to benefit from consolidation in the wiring harnesses sector.