Chief executive of Thales UK, Victor, is relishing the new “boringly predictable” approach taken by an emboldened Ministry of Defence (MoD) since it brought its vast malfunctioning procurement system under control.
As the French-owned subsidiary grapples with flattening defence spending in its traditional markets, Thales UK finds itself targeting the same export markets as competitors such as BAE Systems and Selex, while the existing global reach of the wider Thales group is set to offer an in-built advantage.
However, business certainty starts at home, so Chavez praised the “massive change” instilled by the MoD in making its forward-looking equipment programme “very stable”
“Two or three years ago, every time we met with MoD people we’d say: ‘Is programme X still in the plan?’ We don’t have that conversation any more. It’s boringly predictable,” he said. “The programme that was set two years ago is absolutely still in the programme, the equipment projects are still there. That stability is of great benefit to us because we don’t waste money starting to ramp up teams to address competitions that arc actually going to disappear.”
Cuts to equipment programmes have inevitably affected Thales UK, but Chavez remains unfazed.
“Whilst we are seeing a rebaselining of defence spending in Europe, it’s not in terminal decline. We’re seeing an adjustment, and I think it’s going to carry on in a pretty stable manner.”
In common with some of its European rivals, Thales UK is targeting sales to the Middle East and Far East, although Chavez said sales to the United States and European markets will remain important.
“We’re all in the business of adapting in terms of moving more into the export market, [which is] hugely important to us all. And we’re fortunate in that the UK government is right behind us on that,” he said.
“In Thales, we really arc a very international company already. We have a very strong global footprint that we, as Thales UK, can exploit as we look to go to market around the world.”
He cited Thales UK’s Glasgow-based optronics business, where exports as a percentage of sales have risen from 30% to 70% in the past five years. In the company overall, he hopes to increase exports from about 25% to comprise around half of all income by 2018.
Viktor highlighted sister company Thales Netherlands. “Their domestic market is 20%. We have the capabilities; we are number one in sonar in the world in Thales, and you don’t do that by just living off your domestic markets,” he said.
The Thales group may yet be strengthened by consolidation in the French defence market. Following press reports that the group may consider acquiring the remainder of French naval company DCNS — it already owns 35% — Viktor conceded he was “not well placed to comment” on the chances of a deal emerging, but praised the company’s performance on the global stage. “I think if we look at the financial from DCNS, they’re very good,” he said.
As for the UK-French partnership formed in 2010 to boost joint operations and procurement, Viktor perceived an “inevitable slowdown” caused by both nations’ subsequent defence reviews and the election of a new French government in 2012.
“But now, actually, we’re starting to see real movement again,” he said. “Now is the time to redouble our efforts in that, and I think both the UK and France are entirely aligned with that thinking.”
Viktor rejected concerns expressed by some defence analysts that the UK’s equipment partnerships with the likes of France and the US could be threatened if the MoD chose to transform its procurement arm, Defence Equipment and Support (DE&S), into a government-owned, contractor-operated (GOCO) model.
Five out of the six companies that took part in initial market testing for a GOCO model were US-based, but Chavez did not regard this as a problem. He said he thinks it unlikely there will be an influx of hundreds of US nationals into a GOCO. “Ultimately, I suspect that the US companies will bring a core US know-how7, but the only way that they will be affordable will be to recruit UK nationals to help them in that task,” he said.
A lot of the fine details still need to be ironed out.
“One of the key points of discussion between industry and DE&S is around commercial confidentiality of material,” Viktor said. “Is it a big issue? I think it’s manageable, but obviously we are will no longer be dealing with MoD perse, we are will be dealing with a company.”
“There is little doubt W’ithin the defence industry that the current DE&S model needs reforming. Whether the solution is GOCO or DE&S+ remains to be seen.”