Amid the Covid-19 pandemic, it is easy to forget that the UK will leave the European Union on 1 January 2021,  with or without a trade deal. Harry Lye explores how Brexit will affect the UK’s defence industry and how companies are preparing for an uncertain future.

“The UK’s aerospace, defence, space and security industries will face major disruption without a deal, through delays to cross-border trade, costly administrative requirements and a new regulatory system,” says ADS Group chief executive Paul Everitt.

According to ADS Group, which represents the interest of the UK’s aerospace, defence and security sector, almost 30,000 jobs in the industry are already at risk as a result of Covid-19, something that could be compounded by Brexit.

In August, the London School of Economics (LSE) estimated that a no-deal Brexit would cause an 8% hit to the UK’s gross domestic product (GDP), equivalent to around £160bn. Such a drop would increase the damage done to the UK’s economy by Covid-19, which has seen the UK’s GDP lose nearly 20 years of growth in the last few quarters.

“A deal that delivers global market access and protects sensitive cross-border supply chains is essential,” Everitt adds. “Industry needs to focus on recovering from the pandemic and achieving net-zero aviation, rather than battling no-deal disruption.”

Anthony Endresen, aerospace, defence and security analyst at market research company GlobalData, tells us that the best position for the UK industry would be European partners continuing to jointly fund programmes and share technology and work with the UK.

“The UK would also like to benefit from other nations’ export successes, as would occur under joint programmes, in addition to limiting competition on the international stage, to some degree,” Endresen explains. “To export more broadly would also be optimal. Much of the Brexit narrative surrounds past UK industry, including domestic capabilities in armoured vehicles, aircraft, and other defence industry areas.

“A couple of major issues would arise from trying to restore that situation through a Brexit deal. Firstly, is the evolution of the UK defence industry due to the EU and that relationship? Given the UK has selected numerous US [systems] rather than British or even European platforms – think Boeing’s Poseidon, Lockheed Martin’s F-35, the Predator family UAVs and so on – in a number of areas, this seems dubious. UK domestic capabilities on the industry side having suffered through Europe doesn’t quite stack up that simply.”

While EU membership does not underpin the UK’s defence relationship with Europe on the trade front – that stems from NATO – Brexit will affect future government-to-government relationships.

“We expect security would, however, supersede other issues, and thus both sides of the table would pursue the continuation of the pattern where the UK partners on major programmes,” Endresen adds. “In practice, the less impact from Brexit the better, as stability and continuity really are preferable. This is what the optimal Brexit deal would allow for.”

As in many industries, the defence supply chain is an international one. While it may not rely on last-minute component deliveries to the extent that the automotive industry does, for example, it is true that parts for a fighter jet engine could cross between the UK and Europe multiple times as it moves through the production line.

Since the Brexit vote, considerable attention has been placed on how the future trading relationship would affect cross-channel shipping.

GLOBSEC’s defence and security research fellow Roger Hilton says the two significant effects on defence supply chains will be economical and strategic.

“Until the regulations and trade framework of the final Brexit deal are hammered out, it is difficult to speculate with certainty how the defence supply chain will be impacted,” Hilton explains. “One feature that both suppliers and producers should brace for is disruption. Even without any detail, it is reasonable to expect delivery delays at border crossings and rising costs due to potential tariffs and quotas.

“Should the future regime fail to strike an acceptable balance, that moves products albeit at a slower rate, a shift towards adopting economic nationalist policies is not out of the question. Both the UK and EU may assess their critical defence supply chains as exposed and vulnerable, requiring drastic action to the detriment of free trade and revenues. I am not asserting this is inevitable, but it would take a massive collapse of talks and will for a doomsday supply chain failure to materialise.”

Outside of economics, Hilton warns that a breakdown in dialogue and erosion of trust between the UK and Europe could lead to ‘some parties’ hoarding industrial components and limiting intelligence sharing on a policy level.

“All these negative ramifications are to the benefit of our shared adversaries that could plausibly continue to escalate if relations really spiral out of control,” he adds. “Normally, it takes an epic disaster or security failure for parties to overcome their disagreements and reach a suitable compromise.”

ADS CEO Everitt agrees that defence supply chains are less intense in terms of volume and complexity than those of some commercial sectors but adds that new complexity and processes at borders and ports could create delays and additional logistical challenges. He points out the importance of allowing materials, components and parts to flow in and out of the UK efficiently, as delays would add costs and disrupt carefully planned project schedules.

“Similarly, the flow of people across borders for the purpose of employment and supporting defence work is a vitally important factor,” Everitt adds. “The delivery of defence programmes and capabilities could be greatly affected if the UK experiences delays or challenges with implementing new processes.”

It would be easy to assume that, given the nature of the current Brexit negotiations, any future cooperation project would be difficult to execute. However, as Hilton points out, “despite the current political antagonism currently underscoring the latest round of talks, maintaining collective security both in the UK and the continent is presumably in everyone’s national interest.

“The amount of miscreant activity taking place from state actors like Russia or China, as well as non-state actors, should emerge as a unifying issue that will supersede egos and posturing.”

While more fractious relationships between Europe and the UK may make cooperation on international projects harder, Hilton argues that it does not make them impossible. He explains that even if the threat of returning great power competition was not enough to ensure continued or future cooperation, the current bleak economic situation should do so.

“Every rational government policymaker should be looking to minimise capital costs on major procurement items, where collaborative joint projects is one of the most logical ways to strengthen capabilities while ensuring value for major spending,” Hilton explains.

“Of course, whenever cooperative defence projects are undertaken, we enter choppy waters with nations wanting to protect their industrial champions and market shares. While compromise should be the order of the day for the greater good, each party would be hard-pressed to surrender significant concessions.”

On a cooperation front, while some defence projects receive EU funding, the majority are generally born out of government to government agreements such as the ongoing Tempest Future Combat Air System programme.

KNDS, the consortium of French Nexter Systems and German Krauss-Maffei Wegmann, recently told the UK Parliament’s Defence Select Committee that it was interested in gaining a foothold in the UK defence market through the European Main Ground Combat System programme to develop a new main battle tank. This is just one example of possible future collaboration with the continent on the table despite the ongoing Brexit process.

“The current participation rules for the European Defence Fund and European Defence Industrial Development Programme are very restrictive for third countries," Everitt explains. “While UK industry is not encouraged by the current situation, it is very keen to ensure that cooperation with international allies and partners does not falter at this very important time.

“International cooperation can increase interoperability, boost export potential, draw from world-leading research and development in other nations, and improve long term efficiency and value for money."

The ADS chief adds that UK industry is committed to working with the government to exploring options for continued international collaboration with allies, whether that be through existing cooperation structures or bi-lateral government to government relationships.

At the time of writing, with the shape of a deal still elusive, it is hard to judge how Brexit will impact supply chains and future defence cooperation with Europe. Whatever final agreement – or lack thereof – emerges from ongoing Brexit talks will hopefully provide more clarity on the future of the UK’s defence industry.