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Defense and aerospace titans warn on Brexit impact

Major defense and aerospace companies are warning Britain must work quickly to arrange clear trading relationships or risk losing business.

The U.K. share of the global defense market was estimated by the country's government to be 16 percent in 2014, making it the world's second-largest exporter of new military hardware behind the U.S.

An F-15E Strike Eagle, based at Royal Air Force Lakenheath, United Kingdom, banks away after receiving fuel during a training mission.
Staff Sgt. Tony R. Tolley | U.S. Air Force
An F-15E Strike Eagle, based at Royal Air Force Lakenheath, United Kingdom, banks away after receiving fuel during a training mission.

Worth around £8.5 billion ($11.2 bn) annually, Britain's main export markets are the Middle East, North America and Asia.

Now, following an EU referendum result that sets Britain on an exit path from Europe, defense and aerospace groups are re-evaluating business plans.

Rolls-Royce employs around 23,000 people in the United Kingdom with a further 14,000 based across Europe.

The British firm says Europe accounts for a third of revenue and almost a quarter of its order book.

In a statement Rolls-Royce said it respected the result and would offer a commitment to U.K. operations but warned the longer impact of Brexit is as yet unclear.

"The medium and long-term effect will depend upon the relationships that are established between the U.K., the EU and the rest of the world over the coming years," it said on its website Friday.

Meanwhile, Airbus Group CEO Tom Enders has warned that his company won't be alone in reviewing its U.K. investment strategy.

"The world will not stand still, nor will Europe," Enders told Reuters in an emailed statement.

"I hope the divorce will proceed with a view to minimizing economic damage to all impacted by Brexit. Britain will suffer but I'm sure it will focus even more now on the competitiveness of its economy vis-a-vis the EU and the world at large."

The umbrella organization for British aerospace and defense industry is the ADS group. Prior to the referendum it reported 70 percent of members were keen on Britain staying a part of the European Union.

With that option defeated, Paul Everitt, CEO of ADS Group, says it is now time to iron out negative consequences.

"The aerospace, defense, security and space industries will work with government to minimize the negative impacts of the decision to leave the EU, creating an environment in which these strategically important sectors can continue to prosper."

Military cutbacks

On a domestic level, security analysts are warning that the British defense budget will now almost certainly be reduced.

In a note analysis firm IHS Janes now projects a £2.3 billion ($3 bn) cut in annual spending on British armed forces in the year 2020.

IHS predicts that the U.K.'s Ministry of Defense budget will continue to account for more than 2 percent of GDP (gross domestic product) as whoever is set to lead the Conservative government will want to commit to previous promises.

The analysts also forecast that foreign direct investment in U.K. defense assets could dry up. They estimate £5.7 billion was spent between 2011 and 2015, mainly from U.S. buyers.

In an analysis note, the firm said uncertainty concerning U.K.'s relationship with the EU will likely 'act as a brake' on future investment.