I am delighted to be here today at the Defence and Security Equipment International (DSEI) exhibition.
My first DSEI.
I have been impressed both by the huge scale of equipment on show and by the diversity of delegations and exhibitors from our overseas allies and partners.
96 official overseas delegations, 26 more than last time.
You are particularly welcome.
As you would expect the UK’s own industrial presence here is a strong one. This country has a strong track record in innovation, in exploiting our world class engineering and entrepreneurial skills.
British industry leads the way in many areas of defence. Although not in all.
So one of the key aims of DSEI is for allies and friends to learn from one another.
Each of us has particular world leading technologies to share.
And many of those technologies are showcased at this event. This year’s exhibition is bigger than ever. Bringing together more than 1,400 exhibitors in 6 dedicated zones as well as in the multitude of pavilions.
Four of those pavilions are here for the first time and I’ll try to get to each of them.
It remains the pre-eminent European event for defence professionals and the place to forge new relationships.
But the exhibition doesn’t stand still.
I would point particularly to the expansion this year in the importance of disaster relief capabilities, reflected in the superb ‘medical theatre’ here at DSEI.
UK industry makes some of the best medical equipment in the world, much of it suitable for use in the austere environment of military and disaster relief operations.
That equipment is often the first step in establishing security.
Now security depends crucially on the links between the electronics and defence sectors, where cyber in many ways is becoming a fourth environment along with maritime, land and air.
So I urge you, too, to visit the security theatre.
I spoke about the critical importance of cyber security back in June.
Following the government’s decision to extend the UK’s National Cyber Security Programme, the investment of an additional £210 million on top of the £650 million provided in the Strategic Defence and Security Review in 2010.
But, of course, the life blood of all these capabilities remain the Small and Medium-sized Enterprises (SMEs). And I am delighted by the range of SMEs here today and those from the UK particularly.
Today I want to celebrate success and to encourage you to take full advantage of the innovative potential that is on show.
Context: the UK MOD
That success is now on a much surer footing.
As the Secretary of State emphasised yesterday, this government has balanced the defence budget for the first time in living memory. We have also set out our equipment plan for the next 10 years. In this way we are able to provide you, our partners in procurement, with forward visibility of our programme for new equipment and support for existing equipment.
Some £160 billion over 10 years. An example I can announce today is a £367 million contract to provide engine maintenance for the Apache and Merlin fleets.
This 6 year agreement with Rolls Royce Turbomecca will provide essential support to the helicopters that defend this country’s interests and protect our personnel on operations in Afghanistan.
The company is showcasing here in the air theatre today; please do visit them.
And this agreement will also save more than £300 million compared to previous arrangements.
We’re also investing in equipment like Foxhound, giving our forces enhanced mobility, enhanced protection and enabling them to operate in a wide range of environments. Today I’ve also approved the purchase of a further 24 of these vehicles bringing the total fleet to 400.
There is an excellent array of Foxhounds here at the exhibition today.
It is a further demonstration of our ability to provide our armed forces with the equipment they need to get the job done.
Meanwhile, we have also devolved primary responsibility for equipment capability to the 4 commands. So that requirement setting is more directly aligned with the needs of the service chiefs.
They are best placed to identify the sort of innovation in equipment that they will need. And the sorts of capabilities that they are seeking to develop.
Innovation: ceramics and Sea Ceptor
In the last few days we’ve been able to pick out several excellent examples of this type of innovation.
At one end of the scale, MOD is using its science and technology budget to create new sovereign capability, such as the state-of-the art ceramic armour facility in Newport in south Wales.
This will allow onshore development of enhanced ceramic materials for both armoured fighting vehicles and body armour, leveraging the ceramic manufacturing expertise that already exists in the civil sector in the UK.
It is the biggest plant of its type in Europe although itself a fairly small endeavour.
At the other end of the innovation spectrum, I was particularly pleased that the Secretary of State yesterday announced the new Sea Ceptor contract.
This £250 million manufacturing contract with MBDA is to provide a supersonic air defence missile.
Sea Ceptor will enter service on our Type 23 frigates, such as HMS Sutherland that you can see tied up alongside.
In the longer term Sea Ceptor is planned to be used on the Royal Navy’s new Type 26 Global Combat Ship to maintain a seamless air defence capability for our surface fleet.
I am immensely proud of this product. It is a real example of UK innovation.
And I believe it has every prospect of succeeding in the export market.
New approach to exports
I refer to exports deliberately.
The UK defence industry cannot rely solely on the MOD as much as it traditionally has in the past. New and innovative thinking is required to explore all the potential routes to market for their equipment and services.
Those markets continue to evolve and diversify, with contraction in some parts of the world while ambitious acquisition programmes grow other markets.
So the UK defence industry is increasingly going to need to sustain itself by ever greater efforts to compete in the global race rather than seeing UK MOD as its default customer.
As the MOD Minister with a responsibility for defence exports, I am delighted to see here at DSEI so many, good, vibrant companies who are doing just that.
Approximately half of them are UK based.
And my department is playing its part.
You can be sure that the Prime Minister and his defence team are passionate about the role defence can play in our drive for an export led recovery for the UK.
The MOD, too, has thrown the weight of its operational and equipment expertise, as well as actual military assets, behind these efforts.
This has been undertaken under the leadership of our Director General Exports in MOD and in partnership with the UK Trade & Investment Defence and Security Organisation (UKTI DSO).
So international business is at the heart of the UK’s growth agenda.
Exportability is now embedded, too, within the MOD approvals process as set out in the ‘National security through technology’ white paper, published 18 months ago.
Industry is aware of the need to ensure that equipments are scoped broadly enough to embrace opportunities for future defence exports.
And this approach is now embedded in our own procurement systems.
We are ready and willing to take industry’s novel and innovative ideas, ideas that foster a win-win outcome by balancing the legitimate requirements of our Armed Forces with the opportunity for exports.
Sea Ceptor is very good example of that.
But exports are also about providing ongoing support and long-term engagement.
It is no longer a case of the equipment sale being the end of the story.
Defence and Security Industrial Engagement Policy (DSIEP)
That deepening industrial cooperation with overseas allies is at the heart, too, of the Defence and Security Industrial Engagement Policy, the DSIEP.
The DSIEP was introduced last year and encourages inward investment by overseas primes.
It is no surprise that the UK’s world class defence and security companies make excellent suppliers to major overseas prime contractors.
Primes like Boeing, Saab, Rockwell and L-3 Communications, who were the first four to sign up and between them have invested over £400 million in the first year of DSIEP. And today I welcome the recent decision by Rheinmetall to come on board.
Other overseas based companies are showing interest in signing up and I would urge them to talk about participating in the scheme with MOD interlocuters.
So DSIEP is another example of the strong and enduring priority that this government places on exports. A policy that delivers real benefits to the UK industry and to the overseas primes who are active here.
But it would be wrong to view these primes as foreign companies.
More and more of the defence industry is now pan-national.
Look for instance at SAAB which today operates in 33 countries, with 70% of its revenue generated by exports. It has decided this year to headquarter its international Europe, Middle East and North Africa business here in the UK.
At MBDA whose parent companies BAES, EADS and Finmeccanica, are some of the biggest players in the European defence market and with manufacturing sites spread across the continent.
And at BAE Systems, whom we regard as a UK company but who are the 4th largest supplier to the US Department of Defense and with business interests spanning Europe, the Americas, India and elsewhere in Asia.
All evidence of more dynamic disciplines in the defence industry, an industry that recognises the need for ever more cost effective solutions to nations’ requirements.
The Defence Growth Partnership, the DGP
Those disciplines are very much part of the Defence Growth Partnership, the DGP, announced originally by the Prime Minister at Farnborough last year.
As a major customer, the Ministry of Defence is fully supporting the work of the Defence Growth Partnership.
So I am delighted to highlight that the strategic vision of the DGP, “Securing Prosperity”, was published on Monday this week.
I attended the launch of this document with my good colleague from BIS Michael Fallon MP and Steve Wadey from MBDA, who is, by the way, doing a fantastic job in steering industry’s contribution to the DGP.
It is clearly in the MOD’s interest to encourage a healthy, vibrant and competitive domestic defence sector to equip us with the technical advantages for our armed forces
And it is vital that industry and government work together to exploit those competitive advantages whether in air capability, in intelligence systems, in technology and enterprise, in skills and the defence value chain as a whole.
It is evidence of the seriousness of intent that Chief Executives of the 15 largest defence contractors operating in the UK are personally committed to contributing to that effort. I am also actively involved alongside a team from the MOD.
And can categorically deny that I am ignoring it. But it is right that, given government is industry’s main customer, there is a gap between us.
We are in the air theatre today.
And of course it is in that domain that some of the most successful cooperative projects have happened.
Think of Typhoon. By working with Germany, Italy and Spain we have been able to develop a first rate, fourth generation aircraft that can, and is increasingly, winning market share in the wider global market.
Think of the A400M military transport aircraft programme, that we expect to be in service here next year and is already in service in France, which is being procured by six countries through OCCAR.
And think of the world beating 6 nation Meteor Beyond Visual Range Air-to-Air Missile, a programme bringing together the best of the participating nations weapons’ industries which has created a superb product that the participating nations and a large number of potential export nations, all want.
But of course the UK has a wealth of experience in cooperating with other nations on defence and security.
Now we are actively investing in future collaboration opportunities, to ensure that the UK and its close partners benefit from cutting edge technology and value for money.
DSEI provides us with a unique opportunity to build on these relationships and deliver further collaborative projects with so many important friends and partners.
The reality for future co-operative projects
But it is simply not enough that the co-operative alternative is more affordable for individual nations than any theoretical national programme, it must also be able to punch its weight in the ever more competitive global market.
Delivering value for money will remain key.
And we have all perhaps been our own worst enemy in the past.
Individual nations have demanded too much in the way of national specific requirements and fixed work share regardless of competitiveness; with industry in turn being willing to oblige.
For a manufacturer to develop similar but slightly different capabilities for each customer is no way to get the most out of our national defence budgets which are under some pressure.
It is a price we can no longer afford.
So I reinforce my challenge to industry.
I encourage you to be proactive in identifying international co-operative opportunities and be willing to challenge inefficient requirements and solutions.
And I encourage you to be more challenging to the customer.
To have the best opportunity to win in global markets we must all drill down on excessive costs that sometimes feature in cooperative programmes.
That discipline needs to drive more innovative ways to co-operate for the many smaller scale and less capital intensive programmes that are likely to feature more in the future.
Such programmes might require contractors to come together for one off programmes rather than lead to any permanent industrial restructuring.
And more can be done to identify opportunities to co-operate in the defence and security services sector, be it traditional equipment in service support or more innovative ways of delivering support infrastructure.
UK industry has been at the forefront here, contracting for availability and capability is standard, for example through the UK Military Flying Training System, which I visited at RAF Valley last month, and the seamless support supplied to our fast jets on the front line.
I believe this is an area that is ripe for more focus across Europe, especially as a result of the ongoing downward pressure on defence budgets.
And it has the potential to have a much more immediate and sustainable benefit on nations’ defence budgets.
For instance we are at the early stages of developing collaborative support solutions for JSF.
But there is a key role to play by the defence sector’s Small and Medium Sized Enterprises, the SMEs.
They are critical to the future health of the defence market and it is important that we encourage their development and simplify their access to each others defence markets.
The UK government is a staunch supporter of SMEs.
Particularly through the MOD SME Forum, which I chair, where small businesses can talk directly to my department
We also support the Centre for Defence Enterprise. Bringing new thinking and new ideas to defence and acting as a key bridge between small business, suppliers, investors and the rest of government.
And it is good to see many of our smaller suppliers represented here at DSEI.
Overall the MOD currently places about 40% of its new direct contracts with SMEs, £1 billion of our annual procurement spend.
I’ve already spoken about the DSIEP, where overseas primes have voted with their wallets by investing in the UK supply chain.
Investment in the UK is an appropriate point on which to conclude. The UK is a good place to do business. For proof that we punch above our weight just consider our work on the Joint Strike Fighter F-35 programme.
The most valuable defence programme in the world at present, quite possibly of any peacetime period. And UK industry is responsible for manufacturing 15% by value of each and every F-35 aircraft.
That’s not just for those aircraft manufacturers for UK defence but for the entire global fleet.
Altogether 500 british based companies are involved in the F-35, together generating billions of pounds and tens of thousands of jobs for the british economy.
I’m very keen to build on this success.
I have set out that the UK is at the forefront of the new, innovative approach necessary for defence acquisition and support.
Our procurement plans are now on a secure footing and we have provided forward visibility over the next ten years.
Our SMEs continue to provide novel and cost-effective solutions for the 21st century. Solutions that are recognised by overseas primes who have chosen increasingly to invest here.
But innovation and a constant focus on cost will be key.
That is why I am heartened by the approach taken by UK industry.
An approach that is being recognised more widely across Europe.
And an approach that has seen UK defence exports rise again in 2012, by 62%.
So we want continually to encourage our overseas allies to engage with UK industry.
Either through investment in our SMEs;
Or through developing, with UK companies, innovative ideas for meeting future requirements;
Or through seeing the UK as the partner of choice as allies seek to develop their own indigenous defence capability.
So let us make a reality of these aims.
And please do take full advantage of all the facilities and opportunities to network here at DSEI.