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By Nick Wakeman

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Nick Wakeman

Britain's EU vote raises contractor questions

The United Kingdom is probably our closest ally. Militarily, they’ve put boots on the ground nearly everywhere the U.S. military has gone.

They are a major trading partner, and often serve as the European home base for many U.S. companies.

The recent referendum for the U.K. to exit the European Union has sent markets reeling and is creating all sorts of questions about the role the U.K. will play in Europe and on the global stage.

Many U.S. companies including government contractors are watching the developments closely amid many reports of widespread remorse over the results of the referendum. No one apparently thought the exit vote would come out on top.

Many U.S. contractors do significant business in the U.K., starting with Lockheed Martin.

While the company doesn’t break out revenue specific to that country, the U.K. is Lockheed’s biggest international customer.

The F-35 is probably the biggest example. The U.K. is purchasing 138 of the fifth generation fighter and 15 percent of the value of every F-35 is manufactured by a U.K. company, a Lockheed spokesman told me.

The company is the prime contractor on the Warrior Capability Sustainment Program, which is upgrading the British Army’s Warrior vehicle fleet. Lockheed also is designing and delivering the Scout turret for the AJAX vehicle being built by General Dynamics UK.

The spokesman said it is too early to comment on the impact of the EU vote, but said that they are tracking it to understand what the potential impact would be.

I heard similar comments from other companies. They say it is just too early to tell.

The impact could be minimal as far as the actual work that gets done. The bigger question might be how a weaker pound impacts profit margins and returns.

And of course, if the U.K. economy falls into a deep recession will they have the resources to invest? Will the company enter an era of unprecedented austerity?

The U.K. will continue to be an important member of NATO, so opportunities on the defense side of the equation might have the most protection.

But the civilian side might not be as lucky. Computer Sciences Corp. has a $3.3 billion contract with the British National Health Service. The company declined to comment on the impact of the vote on that program. But I mention it to give a sense of the important market the U.K. is to American contractors.

The question of the impact will not be answered in the short term. It will be months if not longer to get a clearer picture. The U.K. still needs to develop the exit plans and extracting itself from the U.K. will be a herculean effort.

Meanwhile, as one company official told me, it is business as usual.

Posted by Nick Wakeman on Jun 29, 2016 at 11:22 AM


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