Defense Business Brief: Dispatch from Farnborough

LONDON—Private capital is becoming a key part of the defense industrial bases on both sides of the Atlantic, but distinct “cultural differences” in the UK may stymie progress, finance experts say. Asked what the UK could learn from how private capital has rallied behind defense tech in the U.S. in recent years, Fiona Walters, CEO of Serco’s UK and Europe business, cited a sense of enthusiasm to move quickly—and to persist even when things get hard. “There's optimism on the part of the government, there's optimism on the part of business, and there is this, kind of, leaning in to [say] ‘OK, we're going to solve this problem together,’” Walters said Tuesday during a panel discussion on the future of defense investment as part of a finance summit at the Farnborough International Airshow. “The sense of still being able to achieve anything is really profoundly different.” But that doesn’t mean UK investors and entrepreneurs need to emulate their American counterparts. “We're not going to become the U.S., and nor should we necessarily want to be. I think the issue is about how do you harness that optimism around actually being able to create and do something, to evidence it, and do it quickly,” said Walters, whose company is a major government contractor managing services and facilities across multiple sectors, including health, IT, transport, justice and defense. Walters’ comments come as NATO leaders are calling for expansion in Europe’s industrial base, in part over concerns that U.S. companies will be unable to produce enough weapons to restock Pentagon arsenals depleted by the Iran war to build up European militaries looking to deter Russia.An enthusiasm gap isn’t the only hurdle facing the UK defense industry. Another panelist, Joe Cassidy, KPMG UK’s head of technology, media, and telecoms, said the UK has been working on reforms to overcome some regulatory challenges, but many companies and investors are still risk-averse, and may not understand where defense fits into the broader industrial strategy. “There is no shortage of capital in the UK, first of all. So let's not kind of convince ourselves that's the case. The problems that we've had with the Valley of Death, so call it Series C capital, broadly speaking—those are true in every sector. There isn't a risk appetite for that investment. We've been trying to unlock some of the—through the Mansion House reforms and the Edinburgh reforms—some of the pension fund capital to be allocated into scale up sector, and that's true for defense as well. But that's been a slow, very slow-moving beam,” Cassidy said.“So, some of the culture is, again, around that regulatory constraint historically, our risk appetite in and around Series C, but…I think we haven't told the story, the investor story, as well as we might about the industrial strategy, how important defense is in regard to that, how resilience links to it, and what the spillover effects are for the broader economy and growth.” And a third panelist suggested that the UK had the enthusiasm it would take. Across multiple sectors, such as AI, cyber, and advanced manufacturing, “there's a real willingness to pivot their business models to defense,” said Stuart Foster, Barclays’ head of Coverage, UK Corporate Bank. “So if we have the universities, we have the talent, we have the people, we have the will…it just feels that there's an enthusiasm backed by capability and talent should we create the right framework and environment to unleash that.”WelcomeYou’ve reached the Defense Business Brief, where we dig into what the Pentagon buys, who they’re buying from, and why. Send along your tips, feedback, and song recommendations to lwilliams@defenseone.com. Check out the Defense Business Brief archive here, and tell your friends to subscribe!A bit of Farnborough chatSpotted! In addition to a Congressional delegation that included Sen. Jeanne Shaheen, D-N.H., Defense One spotted William Kimmitt, the Commerce Department’s undersecretary for international trade, ahead of a meeting with Boeing executives on Monday. State and local governments traversed the Atlantic to woo new business into their districts. There were booths for California, West Virginia, Missouri, Mississippi, Illinois, Alabama, Arkansas, Texas and Ohio, to name a few.

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