As the pie shrinks

Yes, we all see it, we all notice it to some extent, but that is not a given that what we see is complete. As I personally see it, the stage is one one hand seen in ‘UK defence giant Ultra agrees to £2.6bn Cobham takeover’ (at https://www.bbc.com/news/business-58228657)

where we see it is not the first caper, Both Ultra Electronics and Meggitt are now US owned. So whilst we are sussed to sleep with ““safeguarding and supporting the UK’s national security” including national security clearance arrangements”, supported by “It has also pledged to protect existing and create new UK manufacturing and engineering jobs, and to increase investment in research and development (R&D) in the UK” some people will hope you ignore the larger picture, and a lot of you will. You see there is more to this and if someone did not notice the total invoice of £8.9B the American were happy to pay, consider that they need to get that money back and then some. They will keep to the letter of the agreement, which is anyones guess as it involves National security and no one (except for a really small few) will get to see it. 

What we see ignored is not what is done, but what it enables the US firms to do. You see products are phased out all the time, but now the Americans can phase out the low margin articles at their own speed, in more than a few cases 3-5 years sooner, giving the UK all kinds of headaches and the logistics of it as well as existing inventory will not be the shortest list there. There is an upside to the American setting, they get to call the needs and the make of a lot of articles to the largest degree. 

So, let’s create a fictive example. Consider that the UK Navy has all its operational and tactical stations record on a betamax tape, it gives the admiralty a good show of who and what is performing and what is not, it is standard operational practice. The Americans have a VHS alternative, but in the end it does the same thing. The UK took Betamax as it has the highest quality and they had no local alternative, the US took VHS because it is American. This is not new or unique, most nations have this. To give an example, the Dutch maker Tulip computers would not exist in the 90’s if that rule was not in place. So now consider that 3M buys the UK firm and now it can over 2-3 years phase out Betamax. Now we see a new stage, the UK admiralty will have to upgrade ALL the recorders and players in the ENTIRE Navy. 

The UK will over time face this. I personally see it as a given setting. Now consider these are not recorders and players, but Goalkeepers, Gatlings, and other parts. 

Now also (from the Ultra Group website) the optional stage of “Many nuclear facilities across the world are facing the rising challenge of replacing or refurbishing outdated and obsolete sensors and transmitters. Ultra’s advanced ageing and obsolescence technology transforms nuclear power plants and ensures economical long-term operation.” And consider the outdated (or soon to be) sensors in Nuclear submarines and other vessels, that is just the start, so over the next 10-15 years the UK will get an overhauled Navy, but on the time schedule and overspending of the USA. So in what universe was this allowed? I get it, there is a larger playing field, but now that field is decided on US needs and as their logistical stage changes, so much the UK or find another solution. Now, the UK budget cannot simply cut defence, it is adjusted for the American format and it will see large amounts of funds go to America. Or in another setting, we will see that a bullet normally costs 0.10, the making is 0.07, so the stage is 0.03 per bullets taxed. In the new setting we see 0.01 per bullet on paper, 70% of 0.09 goes to the USA as contribution (0.063) and the income per bullet is taxed at 0.027, which is now at a loss, so no taxation there. Moreover there would be a massive tax deduction, so that is one place to go I reckon and this is not a fictive setting, this has happened before and it gets to be better when the list is not ‘bullet’, but an amalgamation of all kinds of ‘perishable hardware’ a totalised invoice, which is much harder to tinker with. Yes as I see it for the Americans it is a very nice investment that will pay back well over 200% before year three is out. And as they are interacting with other players, the massive profits that usually serves the internal good of the UK will now go to America, so who approved all this?

Time for you to find out, have a great day!