The United Kingdom is preparing to host the world's largest airshow just weeks after a June 23 referendum to leave the European Union that shocked observers and caused the British pound to plunge.
With the U.K. expected to announce several key aviation defense contracts at Farnborough International Airshow, many are wondering if the impact of the "Brexit" vote will be felt at the show.
It's possible a weakened pound could prompt the U.K. Ministry of Defence to delay or alter near-term major aircraft buys.
Dan Darling, a senior analyst covering European military markets for the analysis firm Forecast International, said he's paying attention to a $3.2 billion U.K. order for nine Boeing P-8A Poseidon aircraft that is expected to be announced at Farnborough.
The plan to obtain the submarine-hunting planes was announced late last year as the British government rolled out its Strategic Defense and Security Review, a five-year strategy document that called for a reconstitution of the nation's maritime reconnaissance arm.
"Some of these contracts may weigh a little heavily on other planning," Darling told Military.com. "Do you sacrifice other things to get all nine of these Poseidons?"
Another reportedly upcoming U.K. deal with Boeing is for 50 AH-64E Apaches at $2.6 billion to refresh its aging Apache fleet.
Darling said the impact of Brexit on these contracts might depend on current British currency reserves of U.S. dollars. If the pound's plunge does result in a defense budget squeeze in the short- or long-term, he said, U.K. officials have multiple options at their disposal.
"One thing the British did in the past when the Labour government was in power is what they call salami slice: spread out contracts and payments, push stuff back, shrink the size of the order, renegotiate," he said.
In the longer term, the British plan to buy 138 Lockheed Martin F-35B Joint Strike Fighters for use by the Royal Air Force and Royal Navy. Farnborough, and the Royal International Air Tattoo that took place in England last week, represent the first visit of the F-35 to the U.K.
"That is going to be a project to watch going forward," Darling said. "While the estimates are that the production costs will continue to fall as the program ramps up production, how far they are going to fall is commensurate with decline in the pound against the dollar. I imagine in the MoD there's a lot of scrambling and frustration."
Not all analysts predict a dramatic near-term impact on U.K. defense spending in the wake of Brexit. Philip Finnegan, the director of corporate analysis for the Teal Group Corp., said he anticipated minimal impact, if any, from Brexit on Farnborough.
"There's just too much uncertainty about how this is going to play out," he said. "There's going to be pressure on overall accounts. It could translate into overall pressure on defense spending. It remains to be seen how willing the U.K. is to focus on international cooperation."
There were too many unknowns, including the final terms of exit from the EU and the possibility of a second referendum for Scottish independence, to draw any firm conclusions in the present, Finnegan said, but the impact of Brexit on defense was more likely to be felt over a span of years.
"There could be an impact at the margin in coming years if there is pressure on the U.K. defense budget for purchases of military items," he said. "What we do know is the depreciation of the pound will make imports of defense more expensive."
Both Finnegan and Darling agreed that the Brexit vote was unlikely to diminish the standing and significance of the Farnborough Airshow in the international community, as it was understood that a number of major European nations would continue to do business with the U.K. For this year, Darling said, there may even be a fringe benefit associated with Brexit.
"For visitors and exhibitors, if the pound is dropping it's that much cheaper to attend," he said.
-- Hope Hodge Seck can be reached at hope.seck@military.com. Follow her on Twitter at @HopeSeck.
