With many governments cutting back on defence budgets, once-secure revenue stream growth is drying up. To counteract this change, armaments companies are looking for opportunities outside the traditional military sector.
Defence companies think outside the ammo box to generate revenue
Defence companies are increasingly turning to activities outside the military.
They want to sell their expertise, innovations and products to commercial customers or for ventures that have a non-military application.
One of the biggest beneficiaries of the defence companies’ moves into parallel markets is probably the motor industry.
BAE Systems has been able to adapt technology used in armoured vehicles to make hybrid engines that are use in 3,8000 public buses around the world.
BAE is also adapting its cyber, intelligence and security businesses for commercial applications. This year, it announced a five-year strategic partnership with Vodafone and will be developing new security products with the mobile giant for smartphones and tablets.
It has also had, for some time, a significant presence in the commercial aircraft electronics market, through its engine and flight controls activities.
In the same way, Babcock now has about a third of its business outside defence. It provides engineering services to the mining and construction industry and it is the United Kingdom’s biggest trainer of apprentices, training staff for Volkswagen, Audi, BMW and Nissan. It also has a significant role in maintaining high-voltage electricity and transmission in the UK and Africa.
Babcock is also involved in education in Surrey and has around 4,000 staff that are involved in the clean-up of some of the UK’s older nuclear sites, including Dounreay, the UK’s first nuclear reactor, in the Highlands of Scotland, which is being demolished.
The US multinational Lockheed Martin, which has had offices in the UAE and Saudi Arabia for five decades, has also been developing significant non-defence businesses, focusing on areas including energy services and systems, seabed resources, commercial aerospace systems and services and healthcare IT.
Last month, Lockheed bought Amor Group in the UK, which specialises in IT systems for the energy, transport and public services sectors.
It is Lockheed technology that helps to deliver millions of letters and parcels to homes in the United States each day and Lockheed systems also help to manage more than 60 per cent of the world’s air traffic, as well as the company being a provider of alternative and renewable energy systems and one of the biggest suppliers of commercial satellite and space technologies.
One of the factors behind the UK’s Ultra Electronics’ success was its ability to sell its Electronics and sensor equipment into commercial aeroplanes, including Boeing’s Dreamliner, and nuclear reactors.
Pressure on government budgets is not going to disappear.
“Fiscal pressures in the US and internationally are forcing our customers to make difficult choices and do more with less,” a spokesman for Lockheed says.
The business recently opened Lockheed Martin International to strengthen its international relationships and help to grow its global business. It is already active in 70 countries and does not intend to stop there.
The new division will be headquartered in London and Washington, but will have corporate offices in Ottawa, Riyadh, Abu Dhabi, Singapore and Canberra.
The UK armed forces may be shrinking but British and US defence businesses have the whole world to target.