1 00:00:02,560 --> 00:00:07,400 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,680 --> 00:00:11,520 Speaker 2: With those growing tensions between Europe and Russia, Poland calling 3 00:00:11,640 --> 00:00:15,600 Speaker 2: Russian drones in its airspace and act of aggression. Europe's 4 00:00:15,600 --> 00:00:20,160 Speaker 2: defense industry is gathering here in London for a major event. 5 00:00:20,320 --> 00:00:24,960 Speaker 2: Anticipated military spending has seen defense company shared prices surge 6 00:00:25,000 --> 00:00:28,319 Speaker 2: across Europe, including for Italy's Leonardo. We are joined by 7 00:00:28,440 --> 00:00:32,000 Speaker 2: chair and CEO of It's a UK subsidiary Leonardo UK. 8 00:00:32,120 --> 00:00:35,280 Speaker 2: Clive Higgins, Good morning, Clive, Nice to see you. 9 00:00:35,159 --> 00:00:36,520 Speaker 1: Great, great to be with you. Good morning. 10 00:00:36,880 --> 00:00:40,839 Speaker 2: Now listen the tensions that we are seeing globally mounting 11 00:00:40,880 --> 00:00:44,520 Speaker 2: military tensions not just between Poland and Russia, but also 12 00:00:44,720 --> 00:00:48,560 Speaker 2: in the Middle East. In terms of that backdrop, how 13 00:00:48,640 --> 00:00:51,239 Speaker 2: much more of a dangerous world do you think this is? 14 00:00:51,400 --> 00:00:53,920 Speaker 2: As we know that Europe is trying to unleash more 15 00:00:53,920 --> 00:00:54,880 Speaker 2: military spending. 16 00:00:55,200 --> 00:00:59,160 Speaker 1: I think what we've seen yesterday and this morning demonstrates 17 00:00:59,200 --> 00:01:04,000 Speaker 1: to populations that there is increasing tension, there's increasing instability, 18 00:01:05,240 --> 00:01:08,840 Speaker 1: and that medium to and view around significant investment in 19 00:01:08,880 --> 00:01:13,760 Speaker 1: defense is probably very well understood. Consequently, I think what 20 00:01:13,760 --> 00:01:16,720 Speaker 1: you've seen in Poland over the not too distant pass 21 00:01:16,800 --> 00:01:20,399 Speaker 1: is a significant investment in their own capabilities, looking to 22 00:01:20,440 --> 00:01:23,360 Speaker 1: partner with the US but also the UK, and later 23 00:01:23,400 --> 00:01:26,759 Speaker 1: on this month I expect there to be a reset 24 00:01:26,800 --> 00:01:31,319 Speaker 1: of the UK Polish bilateral on security in defense. We've 25 00:01:31,360 --> 00:01:35,720 Speaker 1: already seen very strong relationships building with some of their 26 00:01:35,720 --> 00:01:40,240 Speaker 1: capability requirements. So all of that is leading to where 27 00:01:40,280 --> 00:01:43,600 Speaker 1: we see ourselves today in the UK publishing the Defense 28 00:01:43,800 --> 00:01:46,680 Speaker 1: Industrial Strategy and in the week sets out that level 29 00:01:46,720 --> 00:01:48,920 Speaker 1: of ambition that the UK has not only to partner 30 00:01:48,960 --> 00:01:51,520 Speaker 1: but also to ensure that we've got those sovereign capabilities 31 00:01:51,800 --> 00:01:52,440 Speaker 1: back in the UK. 32 00:01:53,080 --> 00:01:55,480 Speaker 2: How quickly do you think the UK defense spending is 33 00:01:55,520 --> 00:01:58,960 Speaker 2: really going to be rolled out? There's talk of trying 34 00:01:59,000 --> 00:02:02,960 Speaker 2: to boost jobs regionally in the UK, the Industry Association 35 00:02:03,040 --> 00:02:06,640 Speaker 2: talking about the possibility of fifty thousand new jobs being created. 36 00:02:06,680 --> 00:02:09,639 Speaker 2: How quickly really are those contracts on the mod coming 37 00:02:09,720 --> 00:02:10,519 Speaker 2: for your business? 38 00:02:10,880 --> 00:02:13,560 Speaker 1: I think it's worth just understanding the phasing of activities 39 00:02:13,600 --> 00:02:16,080 Speaker 1: that this government set out is they came into power 40 00:02:16,080 --> 00:02:20,440 Speaker 1: which was very much prevised around a complete reset, defense transformation, 41 00:02:20,520 --> 00:02:24,000 Speaker 1: defense reform, but also then setting out that strategic ambition. 42 00:02:24,080 --> 00:02:26,560 Speaker 1: So we've seen the Strategic Defense Review and of course 43 00:02:26,560 --> 00:02:28,919 Speaker 1: we had the comprehensive spending Review, which was trying to 44 00:02:28,960 --> 00:02:32,440 Speaker 1: align the fiscal challenges with that need to invest more 45 00:02:32,480 --> 00:02:36,400 Speaker 1: in defense, which hasn't really seen much investment over many 46 00:02:36,440 --> 00:02:40,280 Speaker 1: decades in the UK. Very early on this week we 47 00:02:40,360 --> 00:02:43,160 Speaker 1: had the Defense Industrial Strategy was on the back of 48 00:02:43,200 --> 00:02:46,240 Speaker 1: the other eight sector strategies, the key ones for this government, 49 00:02:46,440 --> 00:02:50,200 Speaker 1: looking at advanced manufacturing, looking at the financial sector, and now 50 00:02:50,200 --> 00:02:53,720 Speaker 1: we're moving towards the Defense Investment Plan, which we're led 51 00:02:53,760 --> 00:02:56,200 Speaker 1: to understand will come later this month, which will then 52 00:02:56,240 --> 00:02:59,400 Speaker 1: set out that funding strategy for all of those key 53 00:02:59,440 --> 00:03:03,520 Speaker 1: programs going forward. So it's always the in year challenges 54 00:03:03,520 --> 00:03:06,519 Speaker 1: are key though there's I think an overheated program overall, 55 00:03:06,560 --> 00:03:08,359 Speaker 1: and some tough decisions will need to be made by 56 00:03:08,360 --> 00:03:12,120 Speaker 1: the officials and government around what capabilities. But the demand 57 00:03:12,200 --> 00:03:16,560 Speaker 1: signals clear, and also the stated intent is clear. So 58 00:03:16,720 --> 00:03:19,079 Speaker 1: increases by twenty twenty seven and then three percent in 59 00:03:19,120 --> 00:03:22,000 Speaker 1: the next parliament. But the reality is if you want 60 00:03:22,040 --> 00:03:23,680 Speaker 1: to keep the resilience in the supply chain, we need 61 00:03:23,720 --> 00:03:25,680 Speaker 1: to see some of that coming through now. So we 62 00:03:25,800 --> 00:03:29,840 Speaker 1: need to see money flowing through the system into the primes, 63 00:03:29,840 --> 00:03:32,720 Speaker 1: into the SMEs to allow us to employ those people 64 00:03:32,919 --> 00:03:35,920 Speaker 1: keep that supply chain going and ensure that we're delivering 65 00:03:35,960 --> 00:03:40,120 Speaker 1: against those requirements that are evidently needed from our opening. 66 00:03:40,160 --> 00:03:43,160 Speaker 1: Part of the conversation around those increased tensions. 67 00:03:43,280 --> 00:03:45,320 Speaker 3: And I'm sure that's a conversation you've been having with 68 00:03:45,400 --> 00:03:48,240 Speaker 3: government as well. How are they responding to that because 69 00:03:48,240 --> 00:03:50,119 Speaker 3: it's a very clear demand from the industry. 70 00:03:51,000 --> 00:03:55,560 Speaker 1: Absolutely, and you've seen a reshuffle in the UK government 71 00:03:55,600 --> 00:03:57,920 Speaker 1: over the weekend. There's been some small changes in the 72 00:03:57,920 --> 00:04:00,760 Speaker 1: Defense team. All of them are very well versed on 73 00:04:01,120 --> 00:04:05,560 Speaker 1: the requirements to get those contracts coming through and allow 74 00:04:05,720 --> 00:04:08,360 Speaker 1: industries like ours, our business is like ours, to take 75 00:04:08,400 --> 00:04:12,720 Speaker 1: that long term strategic view around investment in job, skills, capability, 76 00:04:12,760 --> 00:04:16,400 Speaker 1: all the things that are needed, and they're very aware 77 00:04:16,480 --> 00:04:18,479 Speaker 1: of the need to do that at pace. 78 00:04:19,360 --> 00:04:21,440 Speaker 2: How many more jobs do you think that are going 79 00:04:21,520 --> 00:04:23,640 Speaker 2: to be created here in the UK for Leonardo UK, 80 00:04:23,760 --> 00:04:26,520 Speaker 2: Let's say over the next twelve months versus five years, 81 00:04:26,560 --> 00:04:29,600 Speaker 2: Because that's the issue, isn't it. It's about speed. I 82 00:04:29,600 --> 00:04:32,279 Speaker 2: mean we had the ten billion pound deal between the 83 00:04:32,400 --> 00:04:35,400 Speaker 2: UK and Norway for shipbuilding twenty six frigates, which has 84 00:04:35,400 --> 00:04:37,440 Speaker 2: gone to be a systems I mean that could see 85 00:04:37,480 --> 00:04:41,600 Speaker 2: a significant revival in terms of industrial capacity, shipbuilding capacity 86 00:04:41,640 --> 00:04:42,680 Speaker 2: in particular in Britain. 87 00:04:42,760 --> 00:04:45,839 Speaker 1: Yeah, I think two elements to that. Clearly, absolutely fantastic 88 00:04:45,880 --> 00:04:49,920 Speaker 1: news around the frigate contract with Norway. There's another element 89 00:04:49,960 --> 00:04:51,680 Speaker 1: to come on the back of those figures. They will 90 00:04:51,720 --> 00:04:55,560 Speaker 1: need some anti submarine warfare capability. Leonardo provides a very 91 00:04:55,600 --> 00:04:59,040 Speaker 1: good rotary wing platform in the Merlin, the AW one 92 00:04:59,080 --> 00:05:01,440 Speaker 1: and one, which can absolutely fulfill that requirement. And we 93 00:05:01,480 --> 00:05:04,640 Speaker 1: already deliver search and rescue capability into Norway. So we 94 00:05:04,680 --> 00:05:07,840 Speaker 1: need to work in lockstep with government to ensure that 95 00:05:07,880 --> 00:05:10,120 Speaker 1: we deliver more and that export agenda because that is 96 00:05:10,160 --> 00:05:13,599 Speaker 1: one element of delivering those sovereign capabilities for the UK, 97 00:05:14,040 --> 00:05:16,200 Speaker 1: as we mentioned at the Start partnership with whether that 98 00:05:16,240 --> 00:05:19,560 Speaker 1: be Norway or Poland or other countries such as Italy, 99 00:05:19,640 --> 00:05:22,120 Speaker 1: absolutely critical and we're seeing that on the Global Combtair 100 00:05:22,120 --> 00:05:26,880 Speaker 1: program as well. In terms of our trajectory of needing 101 00:05:26,880 --> 00:05:29,120 Speaker 1: to hire a new staff. We've got nine hundred graduates 102 00:05:29,120 --> 00:05:33,680 Speaker 1: and apprentices on our programs today, significant number ten percent 103 00:05:33,720 --> 00:05:37,159 Speaker 1: of our working population, and as we see that investment 104 00:05:37,200 --> 00:05:39,680 Speaker 1: in program such as the Global Combat Air Program that 105 00:05:39,839 --> 00:05:43,320 Speaker 1: is driving requirements of four hundred five hundred new heads 106 00:05:43,360 --> 00:05:45,680 Speaker 1: per annum. Now we have to offset that by in 107 00:05:45,720 --> 00:05:48,520 Speaker 1: our other areas of the business, in our cybersecurity business 108 00:05:48,520 --> 00:05:51,280 Speaker 1: and our rotary business. Actually we need that demand signal 109 00:05:51,279 --> 00:05:54,279 Speaker 1: of contracts coming through. So whilst one line of business, 110 00:05:54,279 --> 00:05:57,720 Speaker 1: one division's doing well, that sometimes is offset by some 111 00:05:57,839 --> 00:06:01,200 Speaker 1: challenges and uncertainty in the contract from other areas. So 112 00:06:01,440 --> 00:06:04,000 Speaker 1: I do see growth in somewhereas but I'm cautious in others. 113 00:06:04,760 --> 00:06:06,720 Speaker 2: The last time that we spoke a few months ago, 114 00:06:07,880 --> 00:06:11,360 Speaker 2: which does sort of feel like a long time, as 115 00:06:11,360 --> 00:06:14,719 Speaker 2: we see the build up in military tensions globally really 116 00:06:14,800 --> 00:06:18,400 Speaker 2: kind of ramp up. You were concerned about being able 117 00:06:18,480 --> 00:06:20,360 Speaker 2: to get the right sorts of skills in the UK 118 00:06:20,520 --> 00:06:24,400 Speaker 2: and also being able to speak to those apprentices and 119 00:06:24,440 --> 00:06:27,160 Speaker 2: those young people that actually there was a real reluctance 120 00:06:27,200 --> 00:06:30,760 Speaker 2: to engage with the defense sector. Has there been a 121 00:06:30,800 --> 00:06:33,799 Speaker 2: real shift in that, you know, actually talking to schools 122 00:06:33,800 --> 00:06:38,440 Speaker 2: and universities about getting that skill set there? Has that changed? 123 00:06:39,680 --> 00:06:41,800 Speaker 1: So I think two elements. We really do welcome the 124 00:06:42,560 --> 00:06:45,120 Speaker 1: additional funding that's coming through in terms of defense cities 125 00:06:45,120 --> 00:06:48,760 Speaker 1: in technical places. We've also got Destination Defense, which is 126 00:06:48,800 --> 00:06:53,960 Speaker 1: a ambitious program sponsored by our ADSR Sector Council and 127 00:06:54,440 --> 00:06:58,599 Speaker 1: institutional partners around attracting people into defense. I think the 128 00:06:58,600 --> 00:07:01,160 Speaker 1: reality on the ground is universe. Cities and academia are 129 00:07:01,160 --> 00:07:06,760 Speaker 1: still challenged by that volume of anti defense sentiment that's 130 00:07:06,800 --> 00:07:09,160 Speaker 1: out there. And if you'll got any time today to 131 00:07:09,160 --> 00:07:12,600 Speaker 1: come across to the Defense Security Equipment Show, you'll see 132 00:07:12,600 --> 00:07:17,200 Speaker 1: a significant protest outside supporting Palestine Action Group and those things. 133 00:07:17,480 --> 00:07:19,640 Speaker 1: And I don't have a problem with that kind of 134 00:07:19,640 --> 00:07:22,720 Speaker 1: peaceful protest. People have the right to do that, but 135 00:07:22,760 --> 00:07:25,280 Speaker 1: of course that's part of the system now, and if 136 00:07:25,560 --> 00:07:28,000 Speaker 1: more and more youngsters and people don't want to take 137 00:07:28,080 --> 00:07:31,480 Speaker 1: up opportunities in defense, that's really going to impact our resilience. 138 00:07:31,600 --> 00:07:34,360 Speaker 1: And we do need to see more action on some 139 00:07:34,400 --> 00:07:39,320 Speaker 1: of that ESG agenda which has stopped SMEs accessing bank accounts, 140 00:07:39,880 --> 00:07:44,640 Speaker 1: accessing finance, to ensure that we recognize defense is a 141 00:07:44,640 --> 00:07:47,680 Speaker 1: force for good in society and protecting the values that 142 00:07:47,720 --> 00:07:48,800 Speaker 1: we all hold. 143 00:07:48,840 --> 00:07:53,720 Speaker 3: Dear, when does issues around that talent and training pipeline 144 00:07:53,720 --> 00:07:57,520 Speaker 3: actually effect have a concrete effect on your ability to expand. 145 00:07:58,240 --> 00:08:01,760 Speaker 1: Well, it absolutely does, because if we can attract the skills, 146 00:08:01,800 --> 00:08:04,280 Speaker 1: the capability, the talent into the business at the time 147 00:08:04,320 --> 00:08:07,120 Speaker 1: we do it. That delays programs. It's as simple as that. 148 00:08:07,120 --> 00:08:10,720 Speaker 1: There's a correlation between having enough of the right skills 149 00:08:10,720 --> 00:08:11,960 Speaker 1: to deliver the output we need. 150 00:08:12,360 --> 00:08:14,840 Speaker 2: In terms of what is different for Leonardo UK now 151 00:08:14,960 --> 00:08:19,240 Speaker 2: versus January the beginning of the year. How much more 152 00:08:19,280 --> 00:08:23,280 Speaker 2: business are you getting from the British government in terms 153 00:08:23,280 --> 00:08:27,040 Speaker 2: of concrete orders now what has actually changed? 154 00:08:27,400 --> 00:08:30,800 Speaker 1: So we're seeing a pipeline, we're seeing the demand signal. 155 00:08:31,640 --> 00:08:33,760 Speaker 1: We've now got to work on the execution of those 156 00:08:33,800 --> 00:08:37,000 Speaker 1: requirements into actual contracts. I would say if you come 157 00:08:37,040 --> 00:08:39,400 Speaker 1: into the export market in over fifty percent of our 158 00:08:39,480 --> 00:08:42,360 Speaker 1: UK revenues is now export, so we're two point six 159 00:08:42,440 --> 00:08:46,040 Speaker 1: two point seven billion revenue in the UK. We are 160 00:08:46,080 --> 00:08:49,920 Speaker 1: seeing clarity of that demand signal contracts going through from 161 00:08:49,920 --> 00:08:53,640 Speaker 1: the US and from European partners as well. And this 162 00:08:53,800 --> 00:08:57,400 Speaker 1: plays to that point around Europe. The Safe Fund coming forward, 163 00:08:57,400 --> 00:09:00,960 Speaker 1: the eight hundred billion has talked about absolutely need to 164 00:09:00,960 --> 00:09:02,840 Speaker 1: be at the center of that and that's where I 165 00:09:02,880 --> 00:09:04,960 Speaker 1: do welcome the government's work earlier in the year in 166 00:09:05,000 --> 00:09:07,640 Speaker 1: May when we did the European reset. We've now got 167 00:09:07,640 --> 00:09:09,400 Speaker 1: to do the detail behind that, which are the government's 168 00:09:09,400 --> 00:09:12,280 Speaker 1: working on to ensure that UK companies and that's Leonardo 169 00:09:12,280 --> 00:09:14,280 Speaker 1: back into Europe as well. From the UK position as 170 00:09:14,320 --> 00:09:18,120 Speaker 1: well as our headquarters in Rome can partner with those 171 00:09:18,200 --> 00:09:22,079 Speaker 1: European companies. The Polish arrangements can be really critical going 172 00:09:22,120 --> 00:09:25,040 Speaker 1: forward to ensure that we're delivering our capabilities into export. 173 00:09:25,160 --> 00:09:28,319 Speaker 1: So for me, the two come in lockstep. I'm sorry, 174 00:09:28,720 --> 00:09:29,280 Speaker 1: I'm just wondering. 175 00:09:29,480 --> 00:09:32,120 Speaker 3: Under safe program, what sort of potential do you see 176 00:09:32,120 --> 00:09:33,240 Speaker 3: for funding from there. 177 00:09:33,800 --> 00:09:37,080 Speaker 1: I think most of the funding six hundred and fifty 178 00:09:37,080 --> 00:09:38,600 Speaker 1: billion is going to come from nation states. There's one 179 00:09:38,679 --> 00:09:42,600 Speaker 1: hundred and fifty billion within the EU institutions itself. So 180 00:09:43,000 --> 00:09:46,040 Speaker 1: that's about having a bilateral with a particular nation and 181 00:09:46,080 --> 00:09:49,079 Speaker 1: then working together on whichever capability. So it might be 182 00:09:50,280 --> 00:09:53,240 Speaker 1: misr defense, it could be more frigid programs, it could 183 00:09:53,280 --> 00:09:55,960 Speaker 1: be land systems. So I think what we do with 184 00:09:56,080 --> 00:10:00,000 Speaker 1: the Joint Expeditionary Force with countries such as Norway and Scandinavia, 185 00:10:00,080 --> 00:10:02,400 Speaker 1: what we're doing with Poland on missile and air defense 186 00:10:02,440 --> 00:10:04,640 Speaker 1: and frigates all very important. 187 00:10:04,960 --> 00:10:07,960 Speaker 2: A last thought on waste there, it has been real 188 00:10:08,040 --> 00:10:11,120 Speaker 2: concern about the processes in the Ministry of Defense in 189 00:10:11,160 --> 00:10:14,920 Speaker 2: the UK, and that a rush to large orders will 190 00:10:14,960 --> 00:10:18,440 Speaker 2: create more waste than we have seen in the past. 191 00:10:19,080 --> 00:10:22,199 Speaker 2: What's your view or what's your response on the industry 192 00:10:22,240 --> 00:10:22,840 Speaker 2: side of that. 193 00:10:23,280 --> 00:10:26,560 Speaker 1: I think two elements we've seen through defense reform a 194 00:10:26,600 --> 00:10:29,439 Speaker 1: significant change coming through the system. The National Armaments Director's 195 00:10:29,480 --> 00:10:31,400 Speaker 1: Organization is being set up, which is going to look 196 00:10:31,440 --> 00:10:37,480 Speaker 1: at improving the procurement cycle for kind of very tactical 197 00:10:37,520 --> 00:10:40,160 Speaker 1: activities off the shelf three months, moving to more complex 198 00:10:40,200 --> 00:10:43,160 Speaker 1: program reducing the time from sometimes five six years down 199 00:10:43,200 --> 00:10:46,520 Speaker 1: to one year. That level of ambition is welcomed by 200 00:10:46,559 --> 00:10:49,280 Speaker 1: everyone and it's starting to now manifest itself with the 201 00:10:49,360 --> 00:10:52,079 Speaker 1: changes that are coming through. I then think what you're 202 00:10:52,080 --> 00:10:55,280 Speaker 1: seeing in Europe is a better approach to partnership and 203 00:10:55,280 --> 00:10:58,520 Speaker 1: consolidation across the defense sector, and the UK doesn't have 204 00:10:58,640 --> 00:11:01,120 Speaker 1: much overlap itself, but it now needs to start putting 205 00:11:01,160 --> 00:11:03,760 Speaker 1: those programs forward and placing those contracts