Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: With those growing tensions between Europe and Russia, Poland calling
Speaker 2: Russian drones in its airspace and act of aggression. Europe's
Speaker 2: defense industry is gathering here in London for a major event.
Speaker 2: Anticipated military spending has seen defense company shared prices surge
Speaker 2: across Europe, including for Italy's Leonardo. We are joined by
Speaker 2: chair and CEO of It's a UK subsidiary Leonardo UK.
Speaker 2: Clive Higgins, Good morning, Clive, Nice to see you.
Speaker 1: Great, great to be with you. Good morning.
Speaker 2: Now listen the tensions that we are seeing globally mounting
Speaker 2: military tensions not just between Poland and Russia, but also
Speaker 2: in the Middle East. In terms of that backdrop, how
Speaker 2: much more of a dangerous world do you think this is?
Speaker 2: As we know that Europe is trying to unleash more
Speaker 2: military spending.
Speaker 1: I think what we've seen yesterday and this morning demonstrates
Speaker 1: to populations that there is increasing tension, there's increasing instability,
Speaker 1: and that medium to and view around significant investment in
Speaker 1: defense is probably very well understood. Consequently, I think what
Speaker 1: you've seen in Poland over the not too distant pass
Speaker 1: is a significant investment in their own capabilities, looking to
Speaker 1: partner with the US but also the UK, and later
Speaker 1: on this month I expect there to be a reset
Speaker 1: of the UK Polish bilateral on security in defense. We've
Speaker 1: already seen very strong relationships building with some of their
Speaker 1: capability requirements. So all of that is leading to where
Speaker 1: we see ourselves today in the UK publishing the Defense
Speaker 1: Industrial Strategy and in the week sets out that level
Speaker 1: of ambition that the UK has not only to partner
Speaker 1: but also to ensure that we've got those sovereign capabilities
Speaker 1: back in the UK.
Speaker 2: How quickly do you think the UK defense spending is
Speaker 2: really going to be rolled out? There's talk of trying
Speaker 2: to boost jobs regionally in the UK, the Industry Association
Speaker 2: talking about the possibility of fifty thousand new jobs being created.
Speaker 2: How quickly really are those contracts on the mod coming
Speaker 2: for your business?
Speaker 1: I think it's worth just understanding the phasing of activities
Speaker 1: that this government set out is they came into power
Speaker 1: which was very much prevised around a complete reset, defense transformation,
Speaker 1: defense reform, but also then setting out that strategic ambition.
Speaker 1: So we've seen the Strategic Defense Review and of course
Speaker 1: we had the comprehensive spending Review, which was trying to
Speaker 1: align the fiscal challenges with that need to invest more
Speaker 1: in defense, which hasn't really seen much investment over many
Speaker 1: decades in the UK. Very early on this week we
Speaker 1: had the Defense Industrial Strategy was on the back of
Speaker 1: the other eight sector strategies, the key ones for this government,
Speaker 1: looking at advanced manufacturing, looking at the financial sector, and now
Speaker 1: we're moving towards the Defense Investment Plan, which we're led
Speaker 1: to understand will come later this month, which will then
Speaker 1: set out that funding strategy for all of those key
Speaker 1: programs going forward. So it's always the in year challenges
Speaker 1: are key though there's I think an overheated program overall,
Speaker 1: and some tough decisions will need to be made by
Speaker 1: the officials and government around what capabilities. But the demand
Speaker 1: signals clear, and also the stated intent is clear. So
Speaker 1: increases by twenty twenty seven and then three percent in
Speaker 1: the next parliament. But the reality is if you want
Speaker 1: to keep the resilience in the supply chain, we need
Speaker 1: to see some of that coming through now. So we
Speaker 1: need to see money flowing through the system into the primes,
Speaker 1: into the SMEs to allow us to employ those people
Speaker 1: keep that supply chain going and ensure that we're delivering
Speaker 1: against those requirements that are evidently needed from our opening.
Speaker 1: Part of the conversation around those increased tensions.
Speaker 3: And I'm sure that's a conversation you've been having with
Speaker 3: government as well. How are they responding to that because
Speaker 3: it's a very clear demand from the industry.
Speaker 1: Absolutely, and you've seen a reshuffle in the UK government
Speaker 1: over the weekend. There's been some small changes in the
Speaker 1: Defense team. All of them are very well versed on
Speaker 1: the requirements to get those contracts coming through and allow
Speaker 1: industries like ours, our business is like ours, to take
Speaker 1: that long term strategic view around investment in job, skills, capability,
Speaker 1: all the things that are needed, and they're very aware
Speaker 1: of the need to do that at pace.
Speaker 2: How many more jobs do you think that are going
Speaker 2: to be created here in the UK for Leonardo UK,
Speaker 2: Let's say over the next twelve months versus five years,
Speaker 2: Because that's the issue, isn't it. It's about speed. I
Speaker 2: mean we had the ten billion pound deal between the
Speaker 2: UK and Norway for shipbuilding twenty six frigates, which has
Speaker 2: gone to be a systems I mean that could see
Speaker 2: a significant revival in terms of industrial capacity, shipbuilding capacity
Speaker 2: in particular in Britain.
Speaker 1: Yeah, I think two elements to that. Clearly, absolutely fantastic
Speaker 1: news around the frigate contract with Norway. There's another element
Speaker 1: to come on the back of those figures. They will
Speaker 1: need some anti submarine warfare capability. Leonardo provides a very
Speaker 1: good rotary wing platform in the Merlin, the AW one
Speaker 1: and one, which can absolutely fulfill that requirement. And we
Speaker 1: already deliver search and rescue capability into Norway. So we
Speaker 1: need to work in lockstep with government to ensure that
Speaker 1: we deliver more and that export agenda because that is
Speaker 1: one element of delivering those sovereign capabilities for the UK,
Speaker 1: as we mentioned at the Start partnership with whether that
Speaker 1: be Norway or Poland or other countries such as Italy,
Speaker 1: absolutely critical and we're seeing that on the Global Combtair
Speaker 1: program as well. In terms of our trajectory of needing
Speaker 1: to hire a new staff. We've got nine hundred graduates
Speaker 1: and apprentices on our programs today, significant number ten percent
Speaker 1: of our working population, and as we see that investment
Speaker 1: in program such as the Global Combat Air Program that
Speaker 1: is driving requirements of four hundred five hundred new heads
Speaker 1: per annum. Now we have to offset that by in
Speaker 1: our other areas of the business, in our cybersecurity business
Speaker 1: and our rotary business. Actually we need that demand signal
Speaker 1: of contracts coming through. So whilst one line of business,
Speaker 1: one division's doing well, that sometimes is offset by some
Speaker 1: challenges and uncertainty in the contract from other areas. So
Speaker 1: I do see growth in somewhereas but I'm cautious in others.
Speaker 2: The last time that we spoke a few months ago,
Speaker 2: which does sort of feel like a long time, as
Speaker 2: we see the build up in military tensions globally really
Speaker 2: kind of ramp up. You were concerned about being able
Speaker 2: to get the right sorts of skills in the UK
Speaker 2: and also being able to speak to those apprentices and
Speaker 2: those young people that actually there was a real reluctance
Speaker 2: to engage with the defense sector. Has there been a
Speaker 2: real shift in that, you know, actually talking to schools
Speaker 2: and universities about getting that skill set there? Has that changed?
Speaker 1: So I think two elements. We really do welcome the
Speaker 1: additional funding that's coming through in terms of defense cities
Speaker 1: in technical places. We've also got Destination Defense, which is
Speaker 1: a ambitious program sponsored by our ADSR Sector Council and
Speaker 1: institutional partners around attracting people into defense. I think the
Speaker 1: reality on the ground is universe. Cities and academia are
Speaker 1: still challenged by that volume of anti defense sentiment that's
Speaker 1: out there. And if you'll got any time today to
Speaker 1: come across to the Defense Security Equipment Show, you'll see
Speaker 1: a significant protest outside supporting Palestine Action Group and those things.
Speaker 1: And I don't have a problem with that kind of
Speaker 1: peaceful protest. People have the right to do that, but
Speaker 1: of course that's part of the system now, and if
Speaker 1: more and more youngsters and people don't want to take
Speaker 1: up opportunities in defense, that's really going to impact our resilience.
Speaker 1: And we do need to see more action on some
Speaker 1: of that ESG agenda which has stopped SMEs accessing bank accounts,
Speaker 1: accessing finance, to ensure that we recognize defense is a
Speaker 1: force for good in society and protecting the values that
Speaker 1: we all hold.
Speaker 3: Dear, when does issues around that talent and training pipeline
Speaker 3: actually effect have a concrete effect on your ability to expand.
Speaker 1: Well, it absolutely does, because if we can attract the skills,
Speaker 1: the capability, the talent into the business at the time
Speaker 1: we do it. That delays programs. It's as simple as that.
Speaker 1: There's a correlation between having enough of the right skills
Speaker 1: to deliver the output we need.
Speaker 2: In terms of what is different for Leonardo UK now
Speaker 2: versus January the beginning of the year. How much more
Speaker 2: business are you getting from the British government in terms
Speaker 2: of concrete orders now what has actually changed?
Speaker 1: So we're seeing a pipeline, we're seeing the demand signal.
Speaker 1: We've now got to work on the execution of those
Speaker 1: requirements into actual contracts. I would say if you come
Speaker 1: into the export market in over fifty percent of our
Speaker 1: UK revenues is now export, so we're two point six
Speaker 1: two point seven billion revenue in the UK. We are
Speaker 1: seeing clarity of that demand signal contracts going through from
Speaker 1: the US and from European partners as well. And this
Speaker 1: plays to that point around Europe. The Safe Fund coming forward,
Speaker 1: the eight hundred billion has talked about absolutely need to
Speaker 1: be at the center of that and that's where I
Speaker 1: do welcome the government's work earlier in the year in
Speaker 1: May when we did the European reset. We've now got
Speaker 1: to do the detail behind that, which are the government's
Speaker 1: working on to ensure that UK companies and that's Leonardo
Speaker 1: back into Europe as well. From the UK position as
Speaker 1: well as our headquarters in Rome can partner with those
Speaker 1: European companies. The Polish arrangements can be really critical going
Speaker 1: forward to ensure that we're delivering our capabilities into export.
Speaker 1: So for me, the two come in lockstep. I'm sorry,
Speaker 1: I'm just wondering.
Speaker 3: Under safe program, what sort of potential do you see
Speaker 3: for funding from there.
Speaker 1: I think most of the funding six hundred and fifty
Speaker 1: billion is going to come from nation states. There's one
Speaker 1: hundred and fifty billion within the EU institutions itself. So
Speaker 1: that's about having a bilateral with a particular nation and
Speaker 1: then working together on whichever capability. So it might be
Speaker 1: misr defense, it could be more frigid programs, it could
Speaker 1: be land systems. So I think what we do with
Speaker 1: the Joint Expeditionary Force with countries such as Norway and Scandinavia,
Speaker 1: what we're doing with Poland on missile and air defense
Speaker 1: and frigates all very important.
Speaker 2: A last thought on waste there, it has been real
Speaker 2: concern about the processes in the Ministry of Defense in
Speaker 2: the UK, and that a rush to large orders will
Speaker 2: create more waste than we have seen in the past.
Speaker 2: What's your view or what's your response on the industry
Speaker 2: side of that.
Speaker 1: I think two elements we've seen through defense reform a
Speaker 1: significant change coming through the system. The National Armaments Director's
Speaker 1: Organization is being set up, which is going to look
Speaker 1: at improving the procurement cycle for kind of very tactical
Speaker 1: activities off the shelf three months, moving to more complex
Speaker 1: program reducing the time from sometimes five six years down
Speaker 1: to one year. That level of ambition is welcomed by
Speaker 1: everyone and it's starting to now manifest itself with the
Speaker 1: changes that are coming through. I then think what you're
Speaker 1: seeing in Europe is a better approach to partnership and
Speaker 1: consolidation across the defense sector, and the UK doesn't have
Speaker 1: much overlap itself, but it now needs to start putting
Speaker 1: those programs forward and placing those contracts