WEBVTT - Leonardo UK CEO Clive Higgins Talks Re-Arming Britain

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<v Speaker 1>You've seen a lot of positive sentiment over the last months.

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<v Speaker 1>Clearly the backdrop to that is conflict globally, whether that's

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<v Speaker 1>in the Middle East or in Europe for the first

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<v Speaker 1>time in decades of course, So I think society has

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<v Speaker 1>seen a need to respond to some of these threats

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<v Speaker 1>and therefore governments are very attuned to that. We've seen

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<v Speaker 1>a lot of transformation coming through defense in the UK

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<v Speaker 1>in particular, so you're seeing the structures of defense in

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<v Speaker 1>government transforming.

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<v Speaker 2>Now.

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<v Speaker 1>They want more pace, they want more agility, the flow

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<v Speaker 1>of funding has to be improved, and also recognizing that

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<v Speaker 1>post COVID, where we recognize that supply chain resilience was

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<v Speaker 1>a key attribute, we need that in defense as well.

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<v Speaker 1>So I think the ambitions you've seen from the UK

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<v Speaker 1>government with announcements on significant increases of defense spending are

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<v Speaker 1>really positive, but that needs to translate in terms of

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<v Speaker 1>reality on the ground.

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<v Speaker 2>How much does the rest FIC then match the money

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<v Speaker 2>that's actually being committed.

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<v Speaker 1>In your view, I think it will flow, but it

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<v Speaker 1>takes time, as always, because some of those systemic changes

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<v Speaker 1>that I referenced are only starting to now come through

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<v Speaker 1>the system. And I think maybe the incoming labor administration

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<v Speaker 1>was a little bit surprised at what it found when

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<v Speaker 1>it came in. It will be then for them to

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<v Speaker 1>talk about that. But we've needed to increase defense spending

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<v Speaker 1>for some time. I would say the threat vector is increased,

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<v Speaker 1>so that's driven that need to change. So now increasing

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<v Speaker 1>to two point five potentially three percent in the next

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<v Speaker 1>parliament absolutely critical. And I think what's lost sometimes is

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<v Speaker 1>the UK does sustain a nuclear deterrent Many of our

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<v Speaker 1>peers don't do that, so that takes a significant amount

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<v Speaker 1>of defense budget. So when you're looking to recapitalize other programs,

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<v Speaker 1>you've got to be cognizant of a lot of expenditure

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<v Speaker 1>on that nuclear deterrent program.

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<v Speaker 2>Leonardo obviously is involved in it in a number of

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<v Speaker 2>important projects, I mean, including things like GCAP, which is

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<v Speaker 2>the Global Combat Air Program, a joint venture with a

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<v Speaker 2>whole host of other countries and companies. You know, that

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<v Speaker 2>is a long term project. We're thinking sort of twenty

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<v Speaker 2>thirty five for that. In terms of the here and now,

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<v Speaker 2>can you talk to the size and scope of expected

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<v Speaker 2>orders from Leonardo UK from the UK government. When do

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<v Speaker 2>you think those orders are going to come?

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<v Speaker 1>So gcap's a live program now, so we're actively supporting

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<v Speaker 1>the creation of the systems, the processes, the capabilities, and

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<v Speaker 1>I think from a Leonardo perspective, we're really pleased because

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<v Speaker 1>we're the industry lead from an Italian perspective, alongside BA

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<v Speaker 1>Systems and our Japanese partners. But in the UK we're

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<v Speaker 1>driving what's called i SANK, the Integrated Sensors in Non

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<v Speaker 1>Kinetic Effects Element, which is very high skilled jobs across

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<v Speaker 1>the length and breadth of the UK in Edinburgh and Luton,

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<v Speaker 1>so on and so forth. So there's funding already flowing

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<v Speaker 1>through for that program, and over the next period of

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<v Speaker 1>time we'll be setting up the headquarters in the UK

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<v Speaker 1>as well, in bringing together engineers from Japan, Italy and

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<v Speaker 1>in the UK to collaborate there. UK government programs that

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<v Speaker 1>are live today are many. We're doing some work with

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<v Speaker 1>them on the new medium helicopter program at the moment.

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<v Speaker 1>That will be a key one for our helicopter division

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<v Speaker 1>business down in the Southwest, and I think very recently

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<v Speaker 1>we announced that we just responded to the final kind

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<v Speaker 1>of position of the RFI and our best and final

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<v Speaker 1>offer had gone in so hopefully that program will continue

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<v Speaker 1>to progress in line with the mod's stated requirements. But

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<v Speaker 1>of course across the spectrum, whether it's support to Typhoon,

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<v Speaker 1>or whether it's gcap or it's maintaining the existing rotary

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<v Speaker 1>fleet we have in the Southwest, or even the work

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<v Speaker 1>we do in the Cyber Division, all of those programs

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<v Speaker 1>are continuing. And of course as we see more activity,

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<v Speaker 1>particularly support with the typhoon fleet for example, of our

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<v Speaker 1>partners in other organizations, you're seeing an uptick in requirements

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<v Speaker 1>and spare in having that capability back in the UK

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<v Speaker 1>to support them absolutely critical and that's why I'm really

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<v Speaker 1>pleased at some of that investments flowing through in terms

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<v Speaker 1>of jobs and skills. So we're going to take another

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<v Speaker 1>one thousand employees this year alone. Many of those are

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<v Speaker 1>very high skilled jobs, which is what the government wants

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<v Speaker 1>in terms of that growth agenda.

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<v Speaker 2>But is that any different than what you might have

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<v Speaker 2>taken on in terms of workers and young engineers, young

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<v Speaker 2>young employees.

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<v Speaker 1>I would say it's higher because we look to replace

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<v Speaker 1>turnover of course, and because of the sector we're in,

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<v Speaker 1>you have to have security clearance, so that does restrict

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<v Speaker 1>the type of demographic we can go for. Sometimes but

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<v Speaker 1>given that flow through of work in GCAP in particular,

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<v Speaker 1>on top of the continue to support for Typhoon, and

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<v Speaker 1>I would say thanks to the UK government for the

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<v Speaker 1>export support as well, because we're seeing a lot of

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<v Speaker 1>interest in international partners around the typhoon program. That's driving requirements,

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<v Speaker 1>so that means that we've got to get the skills

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<v Speaker 1>on board as quickly as possible. And in the regions

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<v Speaker 1>that we operate in, that's really important because a number

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<v Speaker 1>of our sites are located in areas which have challenging

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<v Speaker 1>social issues, so that investment that we can put into

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<v Speaker 1>that local community really does have a catalytical, catalytic effect

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<v Speaker 1>on what goes on there.

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<v Speaker 2>Okay, perhaps I'll come back to that. Is there some

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<v Speaker 2>frustration though with whether the rhetoric is going to match

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<v Speaker 2>the money and the action currently and the government is

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<v Speaker 2>talking about much more speed and yet Europe is talking

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<v Speaker 2>about huge sums to be invested in European defense spending. Yes,

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<v Speaker 2>they're coming from further back maybe nationally, but actually is

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<v Speaker 2>there some level of frustration that actually things are not

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<v Speaker 2>The rhetoric is there, but the orders and the investment

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<v Speaker 2>is still a long way off.

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<v Speaker 1>I think what will be interesting is we're awaiting a

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<v Speaker 1>number of significant reviews. So we know the Strategic Defense

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<v Speaker 1>Review is coming, We've got the Comprehensive Spending Review coming,

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<v Speaker 1>We've got the Industrial Strategy Defense industrial strategies. So I

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<v Speaker 1>think my plea would be, let's get those through quickly.

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<v Speaker 1>There are bound to be some tough decisions for government

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<v Speaker 1>in terms of spending priorities, whether that be CSR, Comprehensive

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<v Speaker 1>Spending Review, or defense itself. The ambitions there, but of

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<v Speaker 1>course the current funding twenty twenty seven is still a

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<v Speaker 1>few years away. The challenge will be to maintain and

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<v Speaker 1>ensure that we've got those capabilities that we need and

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<v Speaker 1>we're looking to the future quickly. People will talk a

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<v Speaker 1>lot about autonomy and autonomous capabilities coming through. Well, those

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<v Speaker 1>types of technologies need developing, they need funding. We need

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<v Speaker 1>to look at the R and D coming through. So

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<v Speaker 1>Leonardo alone last year invested over five hundred million in

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<v Speaker 1>R and D for example. That's the type of partnership

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<v Speaker 1>and government that Defense can deliver now through the primes

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<v Speaker 1>supporting SME. So how can we ensure that that funding

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<v Speaker 1>flow comes through. You mentioned Europe, and I think it's

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<v Speaker 1>really interesting because from a Leonardo perspective, we're seeing a

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<v Speaker 1>lot of collaboration now across the European domain and also

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<v Speaker 1>slightly outside with Baker in Turkey as well. But recapitalization

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<v Speaker 1>of land capabilities for sure, huge partnerships coming with Ryman

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<v Speaker 1>Tallin in Leonardo around land vehicles. But we're seeing states

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<v Speaker 1>like the German's invest significant amounts in defense and that

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<v Speaker 1>money starting to flow through. I would say, probably quicker

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<v Speaker 1>than we would have expected, but it's now starting to happen.

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<v Speaker 2>The government is insistent on its agenda for economic growth,

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<v Speaker 2>and almost everything that it does is seen through that lens,

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<v Speaker 2>including defense. Is it really possible to see it that

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<v Speaker 2>way or does the priority simply have to be on

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<v Speaker 2>rebuilding the military and defense capabilities and supply chains. You know,

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<v Speaker 2>if you've see everything through a lens of building local jobs,

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<v Speaker 2>that can you can't ride two horses at the same time.

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<v Speaker 1>I think it's always as a balance, for sure. I

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<v Speaker 1>think historically the approach to defense acquisition has been on

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<v Speaker 1>a kind of lowest cost approach, what's going to be

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<v Speaker 1>the least expensive to the taxpayer. I think that approach

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<v Speaker 1>has its merits, but then just takes away from the

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<v Speaker 1>social impact you can have through good defense jobs, and

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<v Speaker 1>we see it across the UK. Now where you've got

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<v Speaker 1>a anchor defense industry, you do see wealth generation, you

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<v Speaker 1>see that interaction with local communities. So we will undoubtedly

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<v Speaker 1>have to look at capabilities that don't exist on shoring

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<v Speaker 1>work with partners internationally, but I think we do have

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<v Speaker 1>to start prioritizing who are those national champions almost in

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<v Speaker 1>particular capability areas, what are the strategic assets we want

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<v Speaker 1>to maintain in the UK And through existing mechanisms we

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<v Speaker 1>have the single Source regulations for example, some great work

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<v Speaker 1>from the team they're working with SMBs, working with Primes

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<v Speaker 1>to ensure that we're flowing defense spending down into supply chains,

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<v Speaker 1>keeping that resilient. So there's a balance. But I think

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<v Speaker 1>this week as we testify, if you if the government

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<v Speaker 1>invests one pound in Leonardo, you get a two pounds

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<v Speaker 1>forty return, that's Oxford Economics data. So what that then

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<v Speaker 1>gives you the ability to export as well, because in

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<v Speaker 1>the UK you generate intellectual property, which means that you

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<v Speaker 1>can then export that to international partners.