The future of the defence firm: the case of the UK aerospace industry

Abstract

The focus of this paper is the future of the defence firm within the context of the UK aerospace industry and its supply chain. The analysis considers aerospace markets and the aerospace industry in the UK before assessing the future of the defence/aerospace firm as a case study. The paper concludes that its future in terms of the strategic and important aerospace industry is uncertain. The corporate governance of the defence firm will have to change to reflect the hollowing‐out of the firm as the industry experiences significantly less vertical integration. The emphasis of the future defence/aerospace firm will be on ‘buy’ and not necessarily ‘make’. There will also be fewer independent defence aerospace firms as horizontal integration will occur across air, land and sea platforms as well as civil and defence aerospace firms. Indeed, conglomerate integration may even occur with cost pressures and market forces ensuring that merger activity goes beyond defence and aerospace into wider manufacturing industries and, in some cases, service industries in global markets.

Keywords:

• Aerospace industry
• Supply chain
• Defence firm
• Aerospace markets
• Horizontal integration

ACKNOWLEDGEMENTS

The author would like to acknowledge the considerable guidance given by Professor Keith Hartley at the University of York and Professor Paul Downward at Staffordshire University.

Notes

This feat is usually attributed to the American aviators William and Orville Wright at Kitty Hawk, North Carolina in December 1903, although the pioneers of flight overall have an even longer history.

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The metaphor supply chain does not fully capture the complexity of the industrial connections between firms, although the convention is adopted here (Hartley and Hooper, 1995).

According to the latest SBAC figures (SBAC, 2003).

The definition is in the official UK National Statistics, Annual Business Inquiry (ABI) and Business Monitor number PA‐1002.

These are the issues that BAE Systems must have considered before the loss of 2200 jobs in June 1999. Namely, these costs are largely external to BAE Systems, except statutory redundancy payments, which force the company to internalize at least some of the human capital costs.

The nature of the make‐or‐buy decision is seen as central to the transaction costs approach.