As we start 2025 there are more conflicts around the world than there have been at any time since World War II. Added to that, there are international tensions resulting in a dynamic geo-political picture that is now, and has further potential to, cause destabilisation and fear about what the future holds. What does this mean for the defence sector at the intersection of this volatility?
Resolution is complex and involves political leaders, strategists and decision-makers far beyond the remit of business. However, those sectors who work within the defence industries still need to plan, predict and manage their own operational and growth plans for the coming year, meaning an insight into the Armed Forces’ strategies is vital. With the emphasis on the procurement of technologically advanced hardware and systems which gain an advantage in either a deterrent or defence capacity, being innovative and agile to meet these needs becomes paramount.
Already we see the defence industry pushing its large OEM (Original Equipment Manufacturer) supply base hard to innovate and develop new and improved products both quickly and within a manageable cost base. This means the large number of industry SMEs (Small Medium Enterprises) are seeing a clear path to contribute their niche capabilities to high-value projects.
Opportunities Around the World
The example of 6th generation fighters (flying with enhanced capability, potentially unmanned, AI enabled and supported by drones using a new range of systems and weaponry) being developed by various nations shows the growing interest of aerial dominance on the battlefield.
In December 2024 China flew two aircraft claimed to be 6th generation, one fighter and one bomber, suggesting they are currently ahead in the race with the West to deliver production aircraft. Reports suggest the Chinese aircraft will act as a command centre for drones redefining the interaction of manned and unmanned systems in the theatre of war. With their relentless push on innovation and dominance, as has been seen in the EV (electric vehicle) market, Western SMEs need to watch and learn where the successes and trends lead in order to remain creative and competitive.
America’s defence budget is projected to remain flat in 2025. With various initiatives trying to get their share of the available money the NGAD (Next Generation Air Dominance) 6th generation aircraft programme has been under review for its financial and technical feasibility in its original form. Alternative options to distribute the capabilities across multiple assets would make this aircraft more of a command centre, mimicking the Chinese programme, though procrastination regarding this decision puts the US further behind China. It will be interesting to see if the arrival of President Trump drives the programme in a specific way to match a wider vision of integrated capabilities. In the meantime, NATO projects will continue to provide opportunities for European and UK SMEs.
Closer to Home: Regulatory Opportunity or Threat
As the next generation fighters evolve so boundaries are pushed by novel concepts, innovative approaches and new technologies. Those SMEs well positioned to adapt and meet increasing complexities, either through cross-sector expertise or an innovative approach to design and delivery, will stand out.
To support the early adoption of novel concepts and technologies and to encourage the advancements the industry needs, regulatory authorities will need to keep pace. This includes the MAA (Military Aviation Authority) and also the CAA (Civil Aviation Authority) as they support the MAA in a number of key areas. This comes at a time when the regulators are being pushed due to a stagnant headcount while the industry sees innovation related to greener aircraft technologies and a surge in AAM (Advance Air Mobility) products coming to market. To do more with the same capacity, the opportunities for increased efficiency will need to be embraced. So far, as we see from this article in the CleanTechnica newsletter by Michael Barnard, the difficult path to certification is resulting in casualties in the AAM industry, with rotocraft company Volocopter ceasing business and Airbus dropping its rotocopter programme.
In the UK, the Tempest project is the programme to create a European 6th Generation Fighter alternative. Prototype systems are in test to ensure viability before further funds are released to develop the aircraft, though the present government have said they are committed to continuing the programme. We remain a long way off seeing a flying prototype, but the steady progress should result in a capability that can compete in the global market when it does arrive bringing opportunities for UK-based SMEs. Those with matched capability and capacity should be welcomed on preferred supplier lists as SMEs and contractors are required to work together on transformational projects.
For SMEs to realise their potential, governments will need to:
- Facilitate their involvement in major programmes
- Distribute resources wisely to unlock innovation
- Ensure training and education establishments are in place and ready to nurture talent and create value beyond immediate deliverables
Light in the Dark Times
Within the context of the environment described above, SMEs have the opportunity to offer the defence industry what they need from their supply chain. The agility to adapt to change and disruption will be critical to maintaining schedule and budget without compromising quality. Emerging technologies will get opportunities for funding that smaller businesses need to develop products quickly. Additionally, SMEs have the opportunity to collaborate with larger businesses developing the relationships that foster repeat business and stability.
By embracing the opportunity global instability creates we can build on our strengths to help move in a more positive direction.