WEBVTT

00:00:00.160 --> 00:00:01.920
- The idea that we can just
continue what we're doing

00:00:01.920 --> 00:00:04.280
and adapt that, I don't
think that's going to work.

00:00:04.560 --> 00:00:06.960
- Sir Nick, welcome. Great to see you.
- Thank you.

00:00:06.960 --> 00:00:08.480
I'd love to get your perspective

00:00:08.480 --> 00:00:12.040
on what you think is reshaping
aerospace and defense today.

00:00:12.040 --> 00:00:13.080
- Diana, thanks for inviting me.

00:00:13.080 --> 00:00:15.960
Really great to be here
at Farnborough Airshow.

00:00:15.960 --> 00:00:18.800
And it's, you've just got to look around.

00:00:18.800 --> 00:00:20.720
You've got to walk around
Farnborough Airshow

00:00:20.720 --> 00:00:22.560
and say, what's shaping air defense?

00:00:22.560 --> 00:00:23.560
We've got everything here

00:00:23.560 --> 00:00:27.280
from, let's call them
traditional aircraft,

00:00:27.280 --> 00:00:29.040
the next-generation aircraft, like GCAP,

00:00:29.040 --> 00:00:31.440
and then you've got all
kinds of really cool drones

00:00:31.440 --> 00:00:33.000
and sophisticated technology.
- Yep.

00:00:33.000 --> 00:00:36.080
- So that is definitely changing the way

00:00:36.080 --> 00:00:38.760
that defense is doing its business.

00:00:38.760 --> 00:00:41.560
It's easy to sort of concentrate
on the equipment, though.

00:00:41.560 --> 00:00:44.920
And the one thing that
I think I would say is

00:00:44.920 --> 00:00:46.200
what's changing the nature of defense

00:00:46.200 --> 00:00:47.840
is the amount of money being spent.

00:00:47.840 --> 00:00:48.880
- OK. Yeah.
- So fundamentally, there's

00:00:48.880 --> 00:00:51.360
there's a new input function.

00:00:51.360 --> 00:00:52.440
The pace that's required

00:00:52.440 --> 00:00:56.280
to then turn the money into
things, that is different.

00:00:56.280 --> 00:00:57.760
And the other thing that I think,

00:00:57.760 --> 00:00:59.880
and I'm going to say
I would like to change

00:00:59.880 --> 00:01:01.480
but isn't quite there yet,

00:01:01.480 --> 00:01:04.440
is the way defense is procuring,

00:01:04.440 --> 00:01:05.680
going about procurement.
- OK.

00:01:05.680 --> 00:01:07.760
- We have to change the way
we think about procurement,

00:01:07.760 --> 00:01:10.760
because fundamentally, the
long pole in the tent currently

00:01:10.760 --> 00:01:12.560
is the commercial function.
- Yeah.

00:01:12.560 --> 00:01:15.360
- I think we've got to change
the way we do our business

00:01:15.360 --> 00:01:18.560
in order to get that increase of money

00:01:18.560 --> 00:01:20.960
into increased volumetric output.

00:01:20.960 --> 00:01:23.520
- And how do you think
organizations need to evolve?

00:01:23.520 --> 00:01:25.040
So one is the procurement side,

00:01:25.040 --> 00:01:26.640
but how do you think organizations,

00:01:26.640 --> 00:01:28.000
especially primes like Babcock,

00:01:28.000 --> 00:01:31.960
need to evolve to succeed
in this new environment?

00:01:31.960 --> 00:01:34.640
- So you'll hear all kinds
of wonderful adjectives

00:01:34.640 --> 00:01:36.360
and verbs thrown around like agility

00:01:36.360 --> 00:01:38.760
and flexibility and all that, tremendous.

00:01:38.760 --> 00:01:39.560
You know what?

00:01:39.560 --> 00:01:41.880
We've just got to do what
we say we're going to do.

00:01:41.880 --> 00:01:43.000
Let's start with that.

00:01:43.000 --> 00:01:44.120
Let's get a baseline that says,

00:01:44.120 --> 00:01:45.320
when you ask us to do something,

00:01:45.320 --> 00:01:47.400
we will deliver to time and cost.

00:01:47.400 --> 00:01:49.480
The second thing is then
we've actually got to be

00:01:49.480 --> 00:01:51.960
more responsive to the market.

00:01:51.960 --> 00:01:53.720
We've got to take more risk.

00:01:53.720 --> 00:01:56.960
This is a risk-based calculus now.
The world is different.

00:01:56.960 --> 00:02:00.240
We went from, let's say, very low risk

00:02:00.240 --> 00:02:03.920
to significantly greater risk,
but we haven't adapted.

00:02:03.920 --> 00:02:06.520
We haven't changed our risk appetite

00:02:06.520 --> 00:02:09.840
commensurate with the
geopolitical situation.

00:02:09.840 --> 00:02:11.880
- And do you think the introduction

00:02:11.880 --> 00:02:15.000
of what is in America now
being called “neo-primes”

00:02:15.000 --> 00:02:16.920
is starting to change that risk profile,

00:02:16.920 --> 00:02:19.480
the way that primes think about risk?

00:02:19.480 --> 00:02:20.640
- I absolutely do.

00:02:20.640 --> 00:02:22.320
I mean, we've got to
think about it differently

00:02:22.320 --> 00:02:26.880
because fundamentally
you can't compete with,

00:02:26.880 --> 00:02:33.160
let's call it a neo-prime,
that's got an enormous value

00:02:33.160 --> 00:02:37.600
and an enormous order
book and no manufacturing

00:02:37.600 --> 00:02:38.920
or very little manufacturing capability

00:02:38.920 --> 00:02:40.600
to date that supports that.

00:02:40.600 --> 00:02:43.040
So that's a different conversation.

00:02:43.040 --> 00:02:45.800
And I think, I've said this before,

00:02:45.800 --> 00:02:48.880
this sort of traditional transition

00:02:48.880 --> 00:02:51.000
from VC through private equity

00:02:51.000 --> 00:02:54.480
into then long-term
established businesses,

00:02:54.480 --> 00:02:55.560
there's a lot of these companies

00:02:55.560 --> 00:02:59.400
that are missing out on that
private equity growth phase

00:02:59.400 --> 00:03:01.560
and are going straight
from VC to neo-prime.

00:03:01.560 --> 00:03:03.480
- Yeah, understood.

00:03:03.480 --> 00:03:05.880
What do you think is going to define
the winners and the losers?

00:03:05.880 --> 00:03:10.800
More on the prime side,
but what will make a company

00:03:10.800 --> 00:03:12.960
ride this wave out successfully?

00:03:12.960 --> 00:03:15.040
- So I think we're
going to have to be more

00:03:15.040 --> 00:03:18.880
private equity-like and less PLC-like.

00:03:18.880 --> 00:03:21.000
I recognize that the
shareholder... I get all that.

00:03:21.000 --> 00:03:21.960
We're going to have to work out.

00:03:21.960 --> 00:03:23.320
The shareholders invest in companies

00:03:23.320 --> 00:03:25.400
because actually they want return.

00:03:25.400 --> 00:03:27.520
And therefore, we're
going to have to work out

00:03:27.520 --> 00:03:31.160
how we generate more value
in that return space,

00:03:31.160 --> 00:03:34.480
because otherwise we're
going to be outdone.

00:03:34.480 --> 00:03:35.120
- Yeah.

00:03:35.120 --> 00:03:36.600
- But then we're going to have to have
a long-term strategy

00:03:36.600 --> 00:03:38.040
that allows us to work back

00:03:38.040 --> 00:03:40.400
from where we want to
be five years from now,

00:03:40.400 --> 00:03:42.200
and then put in place what must be true.

00:03:42.200 --> 00:03:44.160
The idea that we can just
continue what we're doing

00:03:44.160 --> 00:03:47.240
and adapt that, I don't
think that's going to work.

00:03:47.240 --> 00:03:51.360
And you know, three sort of areas

00:03:51.360 --> 00:03:52.640
that we need to get involved in.

00:03:52.640 --> 00:03:55.000
We need to do what we currently do better.

00:03:55.000 --> 00:03:57.040
So that's a performance issue.

00:03:57.040 --> 00:03:58.520
We need to invest in those areas

00:03:58.520 --> 00:04:02.080
where we're not currently out,
and that's about new markets,

00:04:02.080 --> 00:04:04.880
but based on our credibility
in the first space.

00:04:04.880 --> 00:04:08.280
And then we need to have a much
more aggressive third space,

00:04:08.280 --> 00:04:11.520
which I think is that, sort of,
let's call it speculative,

00:04:11.520 --> 00:04:16.360
but the areas where we're not
traditionally comfortable,

00:04:16.360 --> 00:04:18.600
but we're going to have
to work with partners

00:04:18.600 --> 00:04:20.800
in order to think differently
about how we do it.

00:04:20.800 --> 00:04:22.440
- Sir Nick, thank you for your time today.

00:04:22.440 --> 00:04:23.880
- Thank you very much
for having me, Diana.