The Brexit effect on the defence sector

Olivier Martin, Corporate Secretary of MBDA

It was sheer coincidence that I interviewed Olivier Martin, Corporate Secretary of MBDA, about the potential problems created by Brexit for a pan-European group like his, on the very day when Britain notified the European Commission of its decision to leave the European Community (EC), the fateful 29 March 2017.

The Commission has since indicated that its first concern is for Europeans working and settled in Great Britain as well as for the millions of Britons living in another EC member state. But for MBDA, which has a very important set-up in England, this is not the main concern. “We have very few foreign staff in our branches. There are no more than 16 non-Britons in Britain and six Britons in total in France, Germany and Italy,” says Martin, notably because of the nature of MBDA’s products, missiles of all kinds, which are strategic for its client countries. On the other hand, he does fear a ricochet effect because aeronautical companies such as Airbus, Thales, Rolls-Royce etc. all recruit the same professional profiles, so may find themselves obliged to recruit only British engineers to work in Britain and thus “there might be recruitment problems for everyone.”

For Martin, and Marwan Lahoud, president of GIFAS and former director of Airbus strategy with whom I’d spoken a few days earlier, the main risk for pan-European companies is the re-introduction of customs barriers. “The flow of hardware can be affected, which would have an impact on current programmes,” says Martin, adding that these potential impacts are “being analysed” by all defence companies. For future programmes, customs barriers would lead to an increase in costs, which would be reflected in prices, and that is “not good for our competitiveness,” says Martin.

The second risk is linked to the evolution of technical standards. Today, for example, all EC member states must comply with REACH * regulations, a constraint that the United States, Israel and other MBDA competitors do not have to abide by. “Tomorrow Britain will no longer be bound to meet these standards,” he notes, which could create inconsistencies within the same company.

For Martin, the fact that the pound sterling had lost 10% of its value before March 29 and that this drop could continue “may be seen as an opportunity” because, of course, products sold in pounds become cheaper.

Another consideration: the government of Theresa May could no longer align the laws of the British labour market with those of the European Union. “But we plan to maintain a coherent overall social policy within the MBDA Group,” reassures Martin.

Apart from these concerns, the defence sector being “particular” not only in substance, but in form, as cooperation tends to be bilateral rather than multinational, Martin remains fairly serene. “The Lancaster House Treaties commit our two countries for a period of 50 years,” he muses, and that is longer than the 44 years during which Britain attempted the European adventure.

 

* REACH is a European Union regulation to better protect health