Farnborough Sketch: Fox fires first salvo in battle of spending cuts

The deafening engines and implausible physics of the Farnborough International Air Show yesterday were accompanied by the giddy air of the recently reprieved.

Last year was the worst in living memory for civil aviation. Now, with billions of pounds of orders flooding in and long-delayed aircraft such as the Boeing 787 and the Airbus A400M finally off the ground, the mood is almost buoyant. But even the roar of the A400M could not drown out the opening salvos of a looming battle over defence spending.

The Defence Secretary, Liam Fox, set the tone in his most explicit hints yet about the Strategic Defence Review. "Change is coming," he boomed. "We do not have the luxury of time, money or a benign threat environment."

This was naked deal-making. The carrot is government help with exports – everything from active political support to designing new equipment with one eye on export potential. "If you help us to reduce costs, if you all make difficult decisions now," Dr Fox wheedled. "I promise the rewards for you, for us and for our country will be worth it."

But there was no mistaking the stick. "That sets out what we can do for you. Now what can you do for us?" he asked. Put simply, the answer was "cut your prices".

In isolation, defence contractors are treading carefully. Boeing's chairman, Jim McNerney, was typically conciliatory yesterday. "They are our customer," he said. "We're going to have to tighten our belts and trim our costs."

But, together, key industry players are squaring up for the fight. The BAE chief executive Ian King, speaking as chairman of the Defence Industry Council, blamed "sub-optimal decisions" from the Government for delays and cost overruns. He also warned against the dangers of buying off-the-shelf kit (both for Britain's troops and her industrial capability) and stressed the need for a partnership between government and industry to improve efficiency and performance.

But the coup de grâce was the allusion to the coalition's desire to use the defence industry to cement links with emerging powers such as Brazil. To do so, the industry must be healthy and, for that, it must have orders. The Government may be the customer but it does not hold all the cards.

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