Bloomberg News

U.K. Weapons Exports Face Rising Rivalry From Former Customers

March 08, 2013

BAE Systems Plc (BA/) is among U.K. weapons manufacturers facing increased competition from previous customer countries joining established companies in seeking sales abroad.

“You are seeing countries which you helped into a position of having a defense industry becoming your competitors,” said Richard Paniguian, the head of the Defence & Security Organisation at the U.K. Trade & Investment export agency. “The marketplace is ever more competitive.”

Among countries emerging as a force on the global arms scene is South Korea, which entered the list of top five exporters in 2011, and Turkey is also pushing for a more dominant role, according to the arms export agency. The U.K. was the second-largest arms exporter in 2011, behind the U.S.

Defense companies from Lockheed Martin Corp. (LMT:US), the world’s largest weapons maker, to BAE, Europe’s biggest, have been pursuing sales in the Middle East and Asia to mitigate the effect of military spending cuts in the U.S. and Europe. To bolster exports, Paniguian’s organization has increasingly been promoting security exports in addition to traditional weapons deals as border protection and cybersecurity gain prominence.

The emergence of new competitors creates pressure on companies to find industrial partners, Paniguian said. BAE’s strong exports attracted European Aeronautic, Defence & Space Co. last year as it sought a combination before European governments blocked the merger. Both companies have said they’re not entertaining a renewed attempt to merge.

Fighter Sales

For BAE, the Middle East has turned into a major region of growth. Oman in December agreed to buy 12 Eurofighter Typhoons, built by a consortium of BAE, EADS and Finmeccanica SpA. (FNC) Prime Minister David Cameron used a recent visit to the United Arab Emirates to lobby for the jet.

In Latin America, naval modernization, particularly in Brazil, is gaining attention, Paniguian said. The U.K. has been trying to interest Brazil in the Type 26 Global Combat Ship in development by BAE. Asia also remains a priority for British firms, Paniguian said, with Malaysia expected to increase efforts to buy a new combat plane this year.

While U.S. defense spending is stagnant as the White House and Congress spar over expenditure levels, Paniguian said sales to the Pentagon continue to be important.

“Even after the full effect of sequestration, the U.S. remains by some distance the largest defense market in the world and the U.K. remains well placed to perform in that market,” he said.

A new area of attention is to sell equipment traditionally used by militaries to support civil emergency applications.

“We often find that the technologies and products developed by the defense and security industry have lateral applications in disaster recovery,” Paniguian said. “This is something we are turning our attention to with greater seriousness.”

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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Companies Mentioned

  • LMT
    (Lockheed Martin Corp)
    • $174.0 USD
    • -0.10
    • -0.06%
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