WEBVTT - Leonardo UK's CEO Clive Higgins Talks Europe's Defense Ramp Up

0:00:02.560 --> 0:00:07.400
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.680 --> 0:00:11.520
<v Speaker 2>With those growing tensions between Europe and Russia, Poland calling

0:00:11.640 --> 0:00:15.600
<v Speaker 2>Russian drones in its airspace and act of aggression. Europe's

0:00:15.600 --> 0:00:20.160
<v Speaker 2>defense industry is gathering here in London for a major event.

0:00:20.320 --> 0:00:24.960
<v Speaker 2>Anticipated military spending has seen defense company shared prices surge

0:00:25.000 --> 0:00:28.319
<v Speaker 2>across Europe, including for Italy's Leonardo. We are joined by

0:00:28.440 --> 0:00:32.000
<v Speaker 2>chair and CEO of It's a UK subsidiary Leonardo UK.

0:00:32.120 --> 0:00:35.280
<v Speaker 2>Clive Higgins, Good morning, Clive, Nice to see you.

0:00:35.159 --> 0:00:36.520
<v Speaker 1>Great, great to be with you. Good morning.

0:00:36.880 --> 0:00:40.839
<v Speaker 2>Now listen the tensions that we are seeing globally mounting

0:00:40.880 --> 0:00:44.520
<v Speaker 2>military tensions not just between Poland and Russia, but also

0:00:44.720 --> 0:00:48.560
<v Speaker 2>in the Middle East. In terms of that backdrop, how

0:00:48.640 --> 0:00:51.239
<v Speaker 2>much more of a dangerous world do you think this is?

0:00:51.400 --> 0:00:53.920
<v Speaker 2>As we know that Europe is trying to unleash more

0:00:53.920 --> 0:00:54.880
<v Speaker 2>military spending.

0:00:55.200 --> 0:00:59.160
<v Speaker 1>I think what we've seen yesterday and this morning demonstrates

0:00:59.200 --> 0:01:04.000
<v Speaker 1>to populations that there is increasing tension, there's increasing instability,

0:01:05.240 --> 0:01:08.840
<v Speaker 1>and that medium to and view around significant investment in

0:01:08.880 --> 0:01:13.760
<v Speaker 1>defense is probably very well understood. Consequently, I think what

0:01:13.760 --> 0:01:16.720
<v Speaker 1>you've seen in Poland over the not too distant pass

0:01:16.800 --> 0:01:20.399
<v Speaker 1>is a significant investment in their own capabilities, looking to

0:01:20.440 --> 0:01:23.360
<v Speaker 1>partner with the US but also the UK, and later

0:01:23.400 --> 0:01:26.759
<v Speaker 1>on this month I expect there to be a reset

0:01:26.800 --> 0:01:31.319
<v Speaker 1>of the UK Polish bilateral on security in defense. We've

0:01:31.360 --> 0:01:35.720
<v Speaker 1>already seen very strong relationships building with some of their

0:01:35.720 --> 0:01:40.240
<v Speaker 1>capability requirements. So all of that is leading to where

0:01:40.280 --> 0:01:43.600
<v Speaker 1>we see ourselves today in the UK publishing the Defense

0:01:43.800 --> 0:01:46.680
<v Speaker 1>Industrial Strategy and in the week sets out that level

0:01:46.720 --> 0:01:48.920
<v Speaker 1>of ambition that the UK has not only to partner

0:01:48.960 --> 0:01:51.520
<v Speaker 1>but also to ensure that we've got those sovereign capabilities

0:01:51.800 --> 0:01:52.440
<v Speaker 1>back in the UK.

0:01:53.080 --> 0:01:55.480
<v Speaker 2>How quickly do you think the UK defense spending is

0:01:55.520 --> 0:01:58.960
<v Speaker 2>really going to be rolled out? There's talk of trying

0:01:59.000 --> 0:02:02.960
<v Speaker 2>to boost jobs regionally in the UK, the Industry Association

0:02:03.040 --> 0:02:06.640
<v Speaker 2>talking about the possibility of fifty thousand new jobs being created.

0:02:06.680 --> 0:02:09.639
<v Speaker 2>How quickly really are those contracts on the mod coming

0:02:09.720 --> 0:02:10.519
<v Speaker 2>for your business?

0:02:10.880 --> 0:02:13.560
<v Speaker 1>I think it's worth just understanding the phasing of activities

0:02:13.600 --> 0:02:16.080
<v Speaker 1>that this government set out is they came into power

0:02:16.080 --> 0:02:20.440
<v Speaker 1>which was very much prevised around a complete reset, defense transformation,

0:02:20.520 --> 0:02:24.000
<v Speaker 1>defense reform, but also then setting out that strategic ambition.

0:02:24.080 --> 0:02:26.560
<v Speaker 1>So we've seen the Strategic Defense Review and of course

0:02:26.560 --> 0:02:28.919
<v Speaker 1>we had the comprehensive spending Review, which was trying to

0:02:28.960 --> 0:02:32.440
<v Speaker 1>align the fiscal challenges with that need to invest more

0:02:32.480 --> 0:02:36.400
<v Speaker 1>in defense, which hasn't really seen much investment over many

0:02:36.440 --> 0:02:40.280
<v Speaker 1>decades in the UK. Very early on this week we

0:02:40.360 --> 0:02:43.160
<v Speaker 1>had the Defense Industrial Strategy was on the back of

0:02:43.200 --> 0:02:46.240
<v Speaker 1>the other eight sector strategies, the key ones for this government,

0:02:46.440 --> 0:02:50.200
<v Speaker 1>looking at advanced manufacturing, looking at the financial sector, and now

0:02:50.200 --> 0:02:53.720
<v Speaker 1>we're moving towards the Defense Investment Plan, which we're led

0:02:53.760 --> 0:02:56.200
<v Speaker 1>to understand will come later this month, which will then

0:02:56.240 --> 0:02:59.400
<v Speaker 1>set out that funding strategy for all of those key

0:02:59.440 --> 0:03:03.520
<v Speaker 1>programs going forward. So it's always the in year challenges

0:03:03.520 --> 0:03:06.519
<v Speaker 1>are key though there's I think an overheated program overall,

0:03:06.560 --> 0:03:08.359
<v Speaker 1>and some tough decisions will need to be made by

0:03:08.360 --> 0:03:12.120
<v Speaker 1>the officials and government around what capabilities. But the demand

0:03:12.200 --> 0:03:16.560
<v Speaker 1>signals clear, and also the stated intent is clear. So

0:03:16.720 --> 0:03:19.079
<v Speaker 1>increases by twenty twenty seven and then three percent in

0:03:19.120 --> 0:03:22.000
<v Speaker 1>the next parliament. But the reality is if you want

0:03:22.040 --> 0:03:23.680
<v Speaker 1>to keep the resilience in the supply chain, we need

0:03:23.720 --> 0:03:25.680
<v Speaker 1>to see some of that coming through now. So we

0:03:25.800 --> 0:03:29.840
<v Speaker 1>need to see money flowing through the system into the primes,

0:03:29.840 --> 0:03:32.720
<v Speaker 1>into the SMEs to allow us to employ those people

0:03:32.919 --> 0:03:35.920
<v Speaker 1>keep that supply chain going and ensure that we're delivering

0:03:35.960 --> 0:03:40.120
<v Speaker 1>against those requirements that are evidently needed from our opening.

0:03:40.160 --> 0:03:43.160
<v Speaker 1>Part of the conversation around those increased tensions.

0:03:43.280 --> 0:03:45.320
<v Speaker 3>And I'm sure that's a conversation you've been having with

0:03:45.400 --> 0:03:48.240
<v Speaker 3>government as well. How are they responding to that because

0:03:48.240 --> 0:03:50.119
<v Speaker 3>it's a very clear demand from the industry.

0:03:51.000 --> 0:03:55.560
<v Speaker 1>Absolutely, and you've seen a reshuffle in the UK government

0:03:55.600 --> 0:03:57.920
<v Speaker 1>over the weekend. There's been some small changes in the

0:03:57.920 --> 0:04:00.760
<v Speaker 1>Defense team. All of them are very well versed on

0:04:01.120 --> 0:04:05.560
<v Speaker 1>the requirements to get those contracts coming through and allow

0:04:05.720 --> 0:04:08.360
<v Speaker 1>industries like ours, our business is like ours, to take

0:04:08.400 --> 0:04:12.720
<v Speaker 1>that long term strategic view around investment in job, skills, capability,

0:04:12.760 --> 0:04:16.400
<v Speaker 1>all the things that are needed, and they're very aware

0:04:16.480 --> 0:04:18.479
<v Speaker 1>of the need to do that at pace.

0:04:19.360 --> 0:04:21.440
<v Speaker 2>How many more jobs do you think that are going

0:04:21.520 --> 0:04:23.640
<v Speaker 2>to be created here in the UK for Leonardo UK,

0:04:23.760 --> 0:04:26.520
<v Speaker 2>Let's say over the next twelve months versus five years,

0:04:26.560 --> 0:04:29.600
<v Speaker 2>Because that's the issue, isn't it. It's about speed. I

0:04:29.600 --> 0:04:32.279
<v Speaker 2>mean we had the ten billion pound deal between the

0:04:32.400 --> 0:04:35.400
<v Speaker 2>UK and Norway for shipbuilding twenty six frigates, which has

0:04:35.400 --> 0:04:37.440
<v Speaker 2>gone to be a systems I mean that could see

0:04:37.480 --> 0:04:41.600
<v Speaker 2>a significant revival in terms of industrial capacity, shipbuilding capacity

0:04:41.640 --> 0:04:42.680
<v Speaker 2>in particular in Britain.

0:04:42.760 --> 0:04:45.839
<v Speaker 1>Yeah, I think two elements to that. Clearly, absolutely fantastic

0:04:45.880 --> 0:04:49.920
<v Speaker 1>news around the frigate contract with Norway. There's another element

0:04:49.960 --> 0:04:51.680
<v Speaker 1>to come on the back of those figures. They will

0:04:51.720 --> 0:04:55.560
<v Speaker 1>need some anti submarine warfare capability. Leonardo provides a very

0:04:55.600 --> 0:04:59.040
<v Speaker 1>good rotary wing platform in the Merlin, the AW one

0:04:59.080 --> 0:05:01.440
<v Speaker 1>and one, which can absolutely fulfill that requirement. And we

0:05:01.480 --> 0:05:04.640
<v Speaker 1>already deliver search and rescue capability into Norway. So we

0:05:04.680 --> 0:05:07.840
<v Speaker 1>need to work in lockstep with government to ensure that

0:05:07.880 --> 0:05:10.120
<v Speaker 1>we deliver more and that export agenda because that is

0:05:10.160 --> 0:05:13.599
<v Speaker 1>one element of delivering those sovereign capabilities for the UK,

0:05:14.040 --> 0:05:16.200
<v Speaker 1>as we mentioned at the Start partnership with whether that

0:05:16.240 --> 0:05:19.560
<v Speaker 1>be Norway or Poland or other countries such as Italy,

0:05:19.640 --> 0:05:22.120
<v Speaker 1>absolutely critical and we're seeing that on the Global Combtair

0:05:22.120 --> 0:05:26.880
<v Speaker 1>program as well. In terms of our trajectory of needing

0:05:26.880 --> 0:05:29.120
<v Speaker 1>to hire a new staff. We've got nine hundred graduates

0:05:29.120 --> 0:05:33.680
<v Speaker 1>and apprentices on our programs today, significant number ten percent

0:05:33.720 --> 0:05:37.159
<v Speaker 1>of our working population, and as we see that investment

0:05:37.200 --> 0:05:39.680
<v Speaker 1>in program such as the Global Combat Air Program that

0:05:39.839 --> 0:05:43.320
<v Speaker 1>is driving requirements of four hundred five hundred new heads

0:05:43.360 --> 0:05:45.680
<v Speaker 1>per annum. Now we have to offset that by in

0:05:45.720 --> 0:05:48.520
<v Speaker 1>our other areas of the business, in our cybersecurity business

0:05:48.520 --> 0:05:51.280
<v Speaker 1>and our rotary business. Actually we need that demand signal

0:05:51.279 --> 0:05:54.279
<v Speaker 1>of contracts coming through. So whilst one line of business,

0:05:54.279 --> 0:05:57.720
<v Speaker 1>one division's doing well, that sometimes is offset by some

0:05:57.839 --> 0:06:01.200
<v Speaker 1>challenges and uncertainty in the contract from other areas. So

0:06:01.440 --> 0:06:04.000
<v Speaker 1>I do see growth in somewhereas but I'm cautious in others.

0:06:04.760 --> 0:06:06.720
<v Speaker 2>The last time that we spoke a few months ago,

0:06:07.880 --> 0:06:11.360
<v Speaker 2>which does sort of feel like a long time, as

0:06:11.360 --> 0:06:14.719
<v Speaker 2>we see the build up in military tensions globally really

0:06:14.800 --> 0:06:18.400
<v Speaker 2>kind of ramp up. You were concerned about being able

0:06:18.480 --> 0:06:20.360
<v Speaker 2>to get the right sorts of skills in the UK

0:06:20.520 --> 0:06:24.400
<v Speaker 2>and also being able to speak to those apprentices and

0:06:24.440 --> 0:06:27.160
<v Speaker 2>those young people that actually there was a real reluctance

0:06:27.200 --> 0:06:30.760
<v Speaker 2>to engage with the defense sector. Has there been a

0:06:30.800 --> 0:06:33.799
<v Speaker 2>real shift in that, you know, actually talking to schools

0:06:33.800 --> 0:06:38.440
<v Speaker 2>and universities about getting that skill set there? Has that changed?

0:06:39.680 --> 0:06:41.800
<v Speaker 1>So I think two elements. We really do welcome the

0:06:42.560 --> 0:06:45.120
<v Speaker 1>additional funding that's coming through in terms of defense cities

0:06:45.120 --> 0:06:48.760
<v Speaker 1>in technical places. We've also got Destination Defense, which is

0:06:48.800 --> 0:06:53.960
<v Speaker 1>a ambitious program sponsored by our ADSR Sector Council and

0:06:54.440 --> 0:06:58.599
<v Speaker 1>institutional partners around attracting people into defense. I think the

0:06:58.600 --> 0:07:01.160
<v Speaker 1>reality on the ground is universe. Cities and academia are

0:07:01.160 --> 0:07:06.760
<v Speaker 1>still challenged by that volume of anti defense sentiment that's

0:07:06.800 --> 0:07:09.160
<v Speaker 1>out there. And if you'll got any time today to

0:07:09.160 --> 0:07:12.600
<v Speaker 1>come across to the Defense Security Equipment Show, you'll see

0:07:12.600 --> 0:07:17.200
<v Speaker 1>a significant protest outside supporting Palestine Action Group and those things.

0:07:17.480 --> 0:07:19.640
<v Speaker 1>And I don't have a problem with that kind of

0:07:19.640 --> 0:07:22.720
<v Speaker 1>peaceful protest. People have the right to do that, but

0:07:22.760 --> 0:07:25.280
<v Speaker 1>of course that's part of the system now, and if

0:07:25.560 --> 0:07:28.000
<v Speaker 1>more and more youngsters and people don't want to take

0:07:28.080 --> 0:07:31.480
<v Speaker 1>up opportunities in defense, that's really going to impact our resilience.

0:07:31.600 --> 0:07:34.360
<v Speaker 1>And we do need to see more action on some

0:07:34.400 --> 0:07:39.320
<v Speaker 1>of that ESG agenda which has stopped SMEs accessing bank accounts,

0:07:39.880 --> 0:07:44.640
<v Speaker 1>accessing finance, to ensure that we recognize defense is a

0:07:44.640 --> 0:07:47.680
<v Speaker 1>force for good in society and protecting the values that

0:07:47.720 --> 0:07:48.800
<v Speaker 1>we all hold.

0:07:48.840 --> 0:07:53.720
<v Speaker 3>Dear, when does issues around that talent and training pipeline

0:07:53.720 --> 0:07:57.520
<v Speaker 3>actually effect have a concrete effect on your ability to expand.

0:07:58.240 --> 0:08:01.760
<v Speaker 1>Well, it absolutely does, because if we can attract the skills,

0:08:01.800 --> 0:08:04.280
<v Speaker 1>the capability, the talent into the business at the time

0:08:04.320 --> 0:08:07.120
<v Speaker 1>we do it. That delays programs. It's as simple as that.

0:08:07.120 --> 0:08:10.720
<v Speaker 1>There's a correlation between having enough of the right skills

0:08:10.720 --> 0:08:11.960
<v Speaker 1>to deliver the output we need.

0:08:12.360 --> 0:08:14.840
<v Speaker 2>In terms of what is different for Leonardo UK now

0:08:14.960 --> 0:08:19.240
<v Speaker 2>versus January the beginning of the year. How much more

0:08:19.280 --> 0:08:23.280
<v Speaker 2>business are you getting from the British government in terms

0:08:23.280 --> 0:08:27.040
<v Speaker 2>of concrete orders now what has actually changed?

0:08:27.400 --> 0:08:30.800
<v Speaker 1>So we're seeing a pipeline, we're seeing the demand signal.

0:08:31.640 --> 0:08:33.760
<v Speaker 1>We've now got to work on the execution of those

0:08:33.800 --> 0:08:37.000
<v Speaker 1>requirements into actual contracts. I would say if you come

0:08:37.040 --> 0:08:39.400
<v Speaker 1>into the export market in over fifty percent of our

0:08:39.480 --> 0:08:42.360
<v Speaker 1>UK revenues is now export, so we're two point six

0:08:42.440 --> 0:08:46.040
<v Speaker 1>two point seven billion revenue in the UK. We are

0:08:46.080 --> 0:08:49.920
<v Speaker 1>seeing clarity of that demand signal contracts going through from

0:08:49.920 --> 0:08:53.640
<v Speaker 1>the US and from European partners as well. And this

0:08:53.800 --> 0:08:57.400
<v Speaker 1>plays to that point around Europe. The Safe Fund coming forward,

0:08:57.400 --> 0:09:00.960
<v Speaker 1>the eight hundred billion has talked about absolutely need to

0:09:00.960 --> 0:09:02.840
<v Speaker 1>be at the center of that and that's where I

0:09:02.880 --> 0:09:04.960
<v Speaker 1>do welcome the government's work earlier in the year in

0:09:05.000 --> 0:09:07.640
<v Speaker 1>May when we did the European reset. We've now got

0:09:07.640 --> 0:09:09.400
<v Speaker 1>to do the detail behind that, which are the government's

0:09:09.400 --> 0:09:12.280
<v Speaker 1>working on to ensure that UK companies and that's Leonardo

0:09:12.280 --> 0:09:14.280
<v Speaker 1>back into Europe as well. From the UK position as

0:09:14.320 --> 0:09:18.120
<v Speaker 1>well as our headquarters in Rome can partner with those

0:09:18.200 --> 0:09:22.079
<v Speaker 1>European companies. The Polish arrangements can be really critical going

0:09:22.120 --> 0:09:25.040
<v Speaker 1>forward to ensure that we're delivering our capabilities into export.

0:09:25.160 --> 0:09:28.319
<v Speaker 1>So for me, the two come in lockstep. I'm sorry,

0:09:28.720 --> 0:09:29.280
<v Speaker 1>I'm just wondering.

0:09:29.480 --> 0:09:32.120
<v Speaker 3>Under safe program, what sort of potential do you see

0:09:32.120 --> 0:09:33.240
<v Speaker 3>for funding from there.

0:09:33.800 --> 0:09:37.080
<v Speaker 1>I think most of the funding six hundred and fifty

0:09:37.080 --> 0:09:38.600
<v Speaker 1>billion is going to come from nation states. There's one

0:09:38.679 --> 0:09:42.600
<v Speaker 1>hundred and fifty billion within the EU institutions itself. So

0:09:43.000 --> 0:09:46.040
<v Speaker 1>that's about having a bilateral with a particular nation and

0:09:46.080 --> 0:09:49.079
<v Speaker 1>then working together on whichever capability. So it might be

0:09:50.280 --> 0:09:53.240
<v Speaker 1>misr defense, it could be more frigid programs, it could

0:09:53.280 --> 0:09:55.960
<v Speaker 1>be land systems. So I think what we do with

0:09:56.080 --> 0:10:00.000
<v Speaker 1>the Joint Expeditionary Force with countries such as Norway and Scandinavia,

0:10:00.080 --> 0:10:02.400
<v Speaker 1>what we're doing with Poland on missile and air defense

0:10:02.440 --> 0:10:04.640
<v Speaker 1>and frigates all very important.

0:10:04.960 --> 0:10:07.960
<v Speaker 2>A last thought on waste there, it has been real

0:10:08.040 --> 0:10:11.120
<v Speaker 2>concern about the processes in the Ministry of Defense in

0:10:11.160 --> 0:10:14.920
<v Speaker 2>the UK, and that a rush to large orders will

0:10:14.960 --> 0:10:18.440
<v Speaker 2>create more waste than we have seen in the past.

0:10:19.080 --> 0:10:22.199
<v Speaker 2>What's your view or what's your response on the industry

0:10:22.240 --> 0:10:22.840
<v Speaker 2>side of that.

0:10:23.280 --> 0:10:26.560
<v Speaker 1>I think two elements we've seen through defense reform a

0:10:26.600 --> 0:10:29.439
<v Speaker 1>significant change coming through the system. The National Armaments Director's

0:10:29.480 --> 0:10:31.400
<v Speaker 1>Organization is being set up, which is going to look

0:10:31.440 --> 0:10:37.480
<v Speaker 1>at improving the procurement cycle for kind of very tactical

0:10:37.520 --> 0:10:40.160
<v Speaker 1>activities off the shelf three months, moving to more complex

0:10:40.200 --> 0:10:43.160
<v Speaker 1>program reducing the time from sometimes five six years down

0:10:43.200 --> 0:10:46.520
<v Speaker 1>to one year. That level of ambition is welcomed by

0:10:46.559 --> 0:10:49.280
<v Speaker 1>everyone and it's starting to now manifest itself with the

0:10:49.360 --> 0:10:52.079
<v Speaker 1>changes that are coming through. I then think what you're

0:10:52.080 --> 0:10:55.280
<v Speaker 1>seeing in Europe is a better approach to partnership and

0:10:55.280 --> 0:10:58.520
<v Speaker 1>consolidation across the defense sector, and the UK doesn't have

0:10:58.640 --> 0:11:01.120
<v Speaker 1>much overlap itself, but it now needs to start putting

0:11:01.160 --> 0:11:03.760
<v Speaker 1>those programs forward and placing those contracts