Join us at the Paris Air Show where we talk with Georgia Pickering from CMS Strategic and Steen Lynenskjold of Terma about how the UK and Denmark are responding to rising tensions, urgent rearming pressures, and what NATO and the EU are getting right – and wrong.
In this episode You’ll learn about the funding gaps, where skills and tech still fall short, and how politics, industry, and the military are actually working together to meet Europe’s 2030 defense goals.
Short, sharp, and brutally honest. Listen now.
In this episode, you'll learn about:
1. The impact of defense budget increases in Europe and NATO.
2. The UK's current stance and future on defense spending.
3. How the Danish defense industry is responding to new demands.
4. The role of SMEs in strengthening the defense sector.
5. Innovations and challenges in European defense investments.
6. How non-traditional companies are changing the defense landscape.
Episode Content
01:41 Discussion on Europe's rearming urgency
06:00 Addressing capability and skills gaps in defense
07:32 Perception shifts due to support for Ukraine
09:54 The importance of industry certainty and investment
10:55 Accelerating defense capabilities within the industry
15:52 The blurring lines between civil and defense industries
19:26 Non-traditional companies entering the defense sector
22:52 Launch of new technology during the air show
30:00 Closing remarks and listener engagement invitation
Production
This podcast is brought to you by Terma.
This podcast is produced by Montanus in coorporation with LoudColors.
Episode Transcript
Mikkel Svold (00:00):
Hello, and welcome to Allies in Innovation. My name is Mikkel Svold, and today you're joining us at a special edition from Paris Air Show here in Paris, obviously. And we are talking about new global defense with specific focus on the EU and the NATO contribution there. And with me, I have Georgia Pickering from CMS Strategic. You're the managing director there. Welcome to you.
Georgia Pickering (00:35):
Thank you.
Mikkel Svold (00:36):
And you'll be leading in with, of course, the UK perspective on a lot of this that we are talking about today. And with me also, I have Steen Lynenskjold from Terma, who is the executive vice president. Welcome to you as well.
Steen Lynenskjold (00:47):
Thank you so much.
Mikkel Svold (00:48):
So I want to just ask you first. You've been here for a couple of hours now. What's the feeling? Georgia?
Georgia Pickering (00:57):
Well, I think we're very firmly in a trade show season in the defense sector, which is my area of specialism. So it's great to be here. It's really busy. I've seen lots of international uniforms, been to a busy media center with the world's defense press here. So all the markings of a great trade show.
Mikkel Svold (01:19):
What about you?
Steen Lynenskjold (01:20):
Well, a little the same. I can't count how many trade shows in terms of air shows I've been at, but this is busy. You can see that the attention is high, both from the exhibitors but also from a Monday. It gets started now and it will peak up during Tuesday and Wednesday as well. So...
Mikkel Svold (01:41):
Yeah. I think we're off for quite a good start. Today, we want to talk about what's happening in Europe right now, what's happening in NATO, what's happening with UK and from a Danish perspective. And I think just from talking to different people here, the talk of the town at the trade show, at least what I observe, is this rearming of Europe, it's the budget increase, all of this. Is that what you hear as well?
Steen Lynenskjold (02:11):
Definitely from a Danish perspective. I mean, the sense of urgency is very high and you also see that the political commitment and the political willingness to step up and do things are extraordinary. We know that Denmark just recently got confirmed what the NATO strength goals are from the recent meeting in Brussels. But coming up to the Hague Summit in next week, I feel quite confident that Denmark will step up and commit to the 5% of GDP, which is like 3.5% for defense and 1.5% for more protection of domestic things.
Mikkel Svold (02:57):
Georgia, from the talks that you've with, well, both of your clients, but also just from people here at the trade show, how do you experience this... The shift in policy? We can call it a shift in policy, right? Big shift.
Georgia Pickering (03:13):
Well, yes, certainly. So talking from the UK perspective, we've certainly seen in the last couple of years the government of the day shifting defense spending, defense focus and their narrative towards the real trouble and challenging and volatile times that we're seeing in the world. But certainly at the moment in the UK, defense and defense spending seems to be dominant in both our budgetary investment, which is the first time in my career pretty much that we're now spending money on defense and more money in defense. I think it was 5 billion boosted just this year from the new Labour government.
(03:55):
We've had a strategic defense review week before last, which again set out in the context of this very dangerous world that we're living in what the landscape is for the UK, and actually now is the time to really get on the war footing, which is not something in my generation that we've experienced before and very much echo what you say in terms of our commitment to GDP. Defense spending. We know that there's sort of a pressure to get to 3.5%. The UK's not quite got there yet. We're promising 3% by the end of this Parliament, but perhaps events will overtake that. Who knows?
Mikkel Svold (04:36):
Do you see the same pattern?
Steen Lynenskjold (04:40):
Yeah. Definitely. But I think especially the real sense of urgency is unique at these times. We had a very unique situation where our chief of defense was giving much more appropriation to spend money also here in '25 and '26, and sorry a little about speaking in Danish Kroner, but they were committed to get 50 billion Danish Krone for spending in '25, '26 for something that has to be operationally effective by end of '26. So it shows a little... It's not like the seven year, 10 year acquisition plans. It's something that gives you real capability within a very short timeframe. And that whole line of thinking is fairly unprecedented as I see it.
Mikkel Svold (05:29):
I talked to Christina Nissen from the Think Tank Europe and some of the things that we talked about is whether the rearming, all the initiatives and the developments that we see right now, are we going to make it until 2030, these goals? Are we going to meet the goals? And next question, are they... I don't know if ambitions is the right word, but are they strong enough, the goals?
Georgia Pickering (06:00):
I would say, and I think it's probably different in Denmark, tell me if I'm wrong, is that we do have this change in posture here and the government is really the driving force of this, of course with the MOD and industry full square behind them. But that's a step change. We've got a Labour government in power and it is a bit of a step change for them to be selling defense spending over international aid cuts, for example. So we don't have an endless pit of money. We're having to make really difficult decisions, and we're having to make them sooner than we perhaps hoped.
(06:39):
The second half of our defense review was setting out the whole of society approach that's needed. And that's where I think we may differ from some of our allied nations where you have conscription or you've got a more sort of an early introduction to the importance of defense in the armed forces in your countries. We don't have that in the same way. So that whole of society approach that our defense review is talking about and the Prime Minister is talking about, I think there does need to be some more work done there to be able to get to where we need to be to have this sort of growing workforce, growing skills, people. We've got a real problem with retention and recruitment in the armed forces. Having the actual public behind that and wanting to embed in the same way as other countries do.
Mikkel Svold (07:32):
Actually, Christine Nissen mentioned something that was quite striking, I think. So she said right now we're in a situation where we have to rearm as if we were at war, but we're not at war. So the shift in mentality is harder. Is that-
Georgia Pickering (07:49):
Yeah. People don't feel under threat in the UK, whereas in many ways we are.
Mikkel Svold (07:58):
Do you see the same problem, Steen?
Steen Lynenskjold (08:01):
To some extent, but I think one thing that really changed the Danish perception has also been the support that Denmark has been given to Ukraine. And from that perspective, I think people have seen the war being closer, not far away from where we are. And therefore I think the understanding has been growing and has been growing because of that. But that doesn't change that we are seeing some of the same issues that you just mentioned, Georgia, that we also need to find out how do we get people enough into the defense and what are we going to do about conscription. We are changing the conscription model in Denmark to include females, which is unique, and that's going to be introduced over the next couple of years. So I think we are seeing also some big changes in the underlying mechanisms and bringing the defense up to speed also in terms of the people side.
Mikkel Svold (09:05):
What would it take for the defense industry? Because it's not just people in the armed forces. It's also engineers at, well, companies like Terma, companies like your clients.
Steen Lynenskjold (09:18):
Well, if I could just give one answer to that, I would say that there's broadly in society a better understanding of the need of defense companies. And that also means that in terms of attractiveness, in terms of getting people to want to work with a company like ours has been going up and we're seeing an interest in participating or joining on that vision and that mission. So in that respect, I see that that is helping in finding and getting the people to step in, but it's going to be a big change to industry as well to step up.
Georgia Pickering (09:54):
I think in the UK what industry have needed is some kind of certainty and, as I've said, we've had our budget spending review, defense review. We've got a defense industrial plan about to come out, a defense investment plan about to come out. So that is giving the certainty and the detail the industry need. But I do agree that not only do we have capability gaps that we're working hard to plug with industry, there's the skills gap is a major one and something that I know the government is looking to address, but it doesn't happen quickly.
Mikkel Svold (10:42):
Yeah. I want to try and dive into this capability gap. What capabilities are we currently not having in Europe?
Georgia Pickering (10:55):
Well, I think there's certainly a recognition that we can't be over-reliant on overseas partners that we traditionally have been. We have to replenish our own capabilities. I mean, you mentioned Ukraine, the huge amount of defense capability the UK is sending to Ukraine. We really do need to replenish our stockpiles. And a lot of money, a lot of the 5 billion that I've mentioned, is going into that replenishing of munitions, stockpiles, long-range weapons, drones, autonomous capabilities in the rounds, talk of a new hybrid Navy where... An ambition to roll out a submarine every 18 months. There's some real across-the-board capabilities that we've set out, which I think speaks to the gaps that you're talking about.
Steen Lynenskjold (11:52):
And some of the capabilities that we are stepping up in Denmark as well is also something that we haven't had for some time. If you take the ground-based air defense, that's a huge investment for Denmark and something that we thought we didn't need anymore after the wall came down and we were more in a peaceful situation. It's now rebalancing and we're stepping up now and making huge investments into the ground-based air defense. And at the same time, we also will be looking into covering more of the North Atlantic and the area around Greenland, which also is going to require additional capabilities beyond what we have today.
Mikkel Svold (12:30):
I think actually that was one of our first interviews where you and I, we talked for the first time. So that's the whole Arctic situation. That's three years ago now. Let's just briefly touch on that. Of course how has that changed? Well, the ice is melting and that means it's more accessible. But how is Europe going to, well, deal with that?
Steen Lynenskjold (12:54):
Well, there's continuously, as you said, the need for the kind of knowing what's going on. So kind of the surveillance is still a big part of that, and that's both airborne and ground-based and other ways to do surveillance. But on top of that, it's also... I mean, if you look into some of the things that are needed, it's also more like traditional defense equipment like air defense frigates we are expecting to see requirements for and the submarine warfare conditions. So we're seeing also some of what is more the heart defense kind of things picking up in momentum again and needing to be established just to make sure we have the capabilities at time.
Mikkel Svold (13:40):
Coming back to the gaps, the capability gap, Georgia, in your experience, what would it take to accelerate this development of capabilities, but also skills actually both in the actual armed forces, but also on the building equipment side?
Georgia Pickering (14:00):
Investment. Investment.
Mikkel Svold (14:02):
Yeah. But does it... Will investment do it solely? I mean, things also take time, right?
Georgia Pickering (14:08):
Yes. I mean, we're already sort of behind where we should be because we've had a peace dividend for so many years. But certainly from our perspective, we see defense as one of the key levers to growth, economic growth, which is number one priority of our government is economic growth. Defense has been identified as a lever for that growth. So therefore that reflects the focus that it is being given because of the job skills. How else we go about accelerating that? We have know MOD accelerators within MOD. We're doing some significant... I say we when I mean the UK. Significant restructuring of the MOD to ensure that it works more efficiently and a lot of those efficiencies are going back, therefore cycling back into investment because by cutting our inefficient procurement systems, which are notoriously difficult to navigate and can take years to bring contracts on board, surely that efficiency, while be it not the most exciting thing, help bring our defense up to speed as it should be.
Steen Lynenskjold (15:32):
I also think you'll see a broader diversification of the industrial base. I mean, if you take the Industrial Association of Defense Companies in Denmark, it has been growing with I think more than 60 or 70 companies have joined just this year. And we're seeing a lot of non-traditional-
Mikkel Svold (15:51):
New companies?
Steen Lynenskjold (15:51):
New companies.
Mikkel Svold (15:52):
Okay.
Steen Lynenskjold (15:52):
Non-traditional defense companies moving into the sector. Addressing also some of the more hybrid threats and the critical infrastructure protection, but also someone coming in with lessons learned from Ukraine. So we're seeing innovation happening at the same time. So one way to look at the broadening and addressing the needed gaps is obviously to depend upon the existing industrial base, but also opening up and allowing a lot of new innovation coming into the group.
Georgia Pickering (16:29):
You're right. Of course, AI is revolutionizing defense as it is many other sectors. Another-
Mikkel Svold (16:34):
But it's also revolutionizing threat.
Georgia Pickering (16:37):
Yes. Yes. True. Yes.
Mikkel Svold (16:39):
Right?
Georgia Pickering (16:40):
Yep. Quite right. On the point of investment, something, a theme that is emerging and gaining traction in the UK at the moment is not just the investment of the state, but the private investment and venture capitalist interest in defense. We have got some issues. Again, the way the UK has been set up to... The bank's been set up to view defense as unethical. So if you're a startup business or a non-traditional defense business looking to get into developing of drones or whatever, then you can be de-banked or you can't get a bank account. Now that is slowly changing and there's a lot of work being done in Parliament at the moment by a group of MPs to unlock those barriers to financing. There's also a debate about a multilateral defense and resilience bank for which multiple nations are involved in and to mutual benefit.
Mikkel Svold (17:47):
Yeah. We talked about it just turning on the mics. So in Denmark, yeah, you maybe repeat. Yeah?
Steen Lynenskjold (17:54):
No, no. That is true. And the whole... I would say the understanding of our industry has changed in response to the situation, external situation so that today, banks, pension funds, other kind of investments are much more eager to participate and join the investments into our industry. And that's not only in Denmark. We're also seeing this at the EU level. So if you take the whole rearm Europe and the recognition how much money is needed to step up in the total of the EU, it's at the same time also opening up for venture capital, but also European Investment Bank and the financial institutions to be able to finance that.
(18:45):
So I think the industry to some extent is ready to scale up. And I think the financing not only taxpayers' monies, but also the access to the pension funds and other instruments will be able to finance that. So what we really need is firm orders and stable orders. What is most harmful is if we can't depend upon orders, if they come like one month, we get a high order and then we get nothing and then you have to balance it out. So the more we can get a steady demand, then I'm sure that the industry can get access to the needed investment capital and scale up.
Georgia Pickering (19:26):
And small businesses as well. The SMEs is the ongoing buzz phrase, which I think represents 99% of businesses in the UK are SMEs-
Mikkel Svold (19:37):
I think similar numbers in Denmark.
Georgia Pickering (19:39):
In one shape or form. But those SMEs can go out of business if you get a contract, win a contract, and then it takes 18 months for the money to start coming on stream, et cetera. So that recognition that actually of how these businesses operate and you need to keep them operational by, as you say, providing that certainty and orders and payment.
Mikkel Svold (20:00):
But you talk to a lot of politicians, and do they know this? And I'm sure they know, but can they meet that?
Steen Lynenskjold (20:09):
I'm optimistic. And if you look into what has happened just over the last three years in the EU, and it's quite remarkable how many decisions that have been made and how many different types of instruments have been established over the last three years. And basically that's going to impact the regulations in all of the European countries. So I think from that perspective, I think it's positive that the EU goes in and does what they're just good at in terms of industrial alignment and support. But it's not sufficient because all the spending comes from the nations and is at the end of the day, the nations will have to step in and provide that money flowing.
Mikkel Svold (20:53):
And at some point it'll also take re-prioritization of the money. When is that point, do you think?
Steen Lynenskjold (21:04):
Well, if the decision is made to step up for the 5%, and that's going to be like on a continuous basis, not just one year, it's going to be for at least the next 10 years every year. You can say Denmark comes from a good starting positions. We have a very healthy economy. We even have had a surplus. And that means we haven't... I don't think the society has seen any downsides at this point in time, but it will need to happen. So reforms will be required and maybe not in the next one, two, three years, but in year five, six, seven, we need to see reforms to make sure what are the trade-offs and how you're going to finance this. So I think every country will be getting into that dilemma and needing to figure out how to get that financing done. And that's not going to be easy. That's where the hard discussions will come.
Mikkel Svold (22:05):
Georgia, how is it in the UK?
Georgia Pickering (22:08):
I wouldn't say we're... I go back to the whole of society approach that they're sort of leaning towards or the recommendations are leaning towards for our defense review. And I don't think we're anywhere near that yet.
Mikkel Svold (22:22):
Okay.
Georgia Pickering (22:22):
I don't speak from any inside knowledge, but I don't expect that. I think the Prime Minister would have a difficult job to convince the Cabinet in the UK to increase defense spending further. Over and above taking away from the welfare state, it's just a difficult conversation to have.
Mikkel Svold (22:43):
Absolutely.
Georgia Pickering (22:43):
And I think that conversation needs to happen and needs to be a national conversation and the Prime Minister needs to be bold with that and find the right line between not scaring people, but making sure that there is this understanding that this isn't just funding warfare. It's deterrence and it's shoring up our nation against the threats that we don't necessarily have any control over but nevertheless are growing in many ways around the world at the moment and converging, these threats.
Mikkel Svold (23:17):
Yeah. I'm thinking the threat scenario that we have right now is I would say at the doorstep of EU. So it's not an eminent threat right now, but that is only if you consider that you have an actual frontline where you can't cross borders without anyone knowing. And what I'm aiming for now is of course the what about cyber security, what about all of these different new domains of warfare. That makes every one a goal. You don't need to be next to the threat. Is that threat already there? And what do you as an industry do? I think that's probably the...
Steen Lynenskjold (24:06):
I would say that the threat is there. It is in different levels of threats, but we are seeing different types of cyber attacks and also in terms of some level of sabotage, again, our critical infrastructure. We've seen that in several occasions. And so to some extent you can say that our societies are being tested, seeing how do we behave, how are we going to act against that knowing that that is there. So all of us, I mean, need to respond to that and at least know what's going on and also have measures of countering that. So it's going to be an increasing... I think there's going to be more blurred lines between what was traditionally civil and what is defense. And we will see that as a gray zone where there's no hard evidence of whether you are in one or the other side of that line.
Mikkel Svold (25:19):
Now being here at the Paris Air Show, I want to ask. You mentioned more and more blurry lines between civil and defense. How do you see this walking around? Do you see that that line is becoming less significant already?
Steen Lynenskjold (25:38):
Well... Could you please explain what you mean by less significant? I need to understand your question a little better.
Mikkel Svold (25:48):
Yeah. I mean the blurriness. So before, it was more you have civic infrastructure. You have private companies.
Steen Lynenskjold (25:55):
Okay. Okay. I get it.
Mikkel Svold (25:56):
And then you have defense. Whereas these, when the threat goes across that border.
Steen Lynenskjold (26:01):
Yeah. Well, we see that in several areas. If you, for instance, making a huge investment setting up a windmill farm or something like that, which is a huge investment. I've seen it going from that the developer or the ones who want to construct that were expecting that the society would tell them what they need to do in terms of monitoring and stuff like that. But I'm seeing a different trend now where the ones who are investing also want to say, "Well, if we're going to put that much money into your system, what have you done to prevent it from being sabotaged?" So that means that we're seeing also now an interest to protect the investment into that piece of critical infrastructure that has bearings into the security side of it. And that's new. That's new that that now is a driver for investment and monitoring and protecting.
Mikkel Svold (27:06):
Is that what you see as well, Georgia, from your look inside of the UK industry?
Georgia Pickering (27:11):
Yes. Yes. Similar. That critical national infrastructure, the resilience element, again, is a strong theme in the recommendations of this very recent review that we've had. So yeah. My views don't differ from what Steen set out and certainly wind farms, as we are building more of a focus on that, that is becoming... There is an increasing demand, for example, radar capabilities around our new wind farms, et cetera.
Steen Lynenskjold (27:46):
I would also say also as a company, we have refocused a lot of our attention into that domain.
Mikkel Svold (27:52):
Okay.
Steen Lynenskjold (27:52):
Because if you take Terma as a company, we've traditionally have like 70% of our business in defense and 30% in civil. But that's also more difficult to make that distancing right now. And we are putting more focus into that area. And actually, I wouldn't say that we are refocusing the full company, but we're putting a lot of attention into what we can do and how we can help in that area.
Georgia Pickering (28:22):
I know this is the Paris edition, but I work with DSEI, the major defense event in the UK, and have done for many, many years, and the biggest driver of growth in the exhibitor base at the moment for this edition, which is this September in London, is the non-traditional defense companies.
Mikkel Svold (28:43):
Brilliant.
Georgia Pickering (28:43):
Now that isn't necessarily critical national infrastructure companies, but it's the technology companies. It's those that hadn't previously worked or even considered defense as a market before now. And they are the fastest growing area of this major international defense show in London.
Mikkel Svold (29:02):
And speaking of the show, our time is nearly up, but what do you hope to achieve from participating here at the Paris Air Show? What do you hope your takeaways are? Georgia?
Georgia Pickering (29:13):
Well, for me, it's always developing contacts, relationships, the face-to-face, in-person relationships that you can build at events like this. And DSEI, as I mentioned, is second to none and hugely important for my business, CMS, to meet and greet the journalists that are here, the defense journalists, and make sure that we're getting across the stories that our clients have here. So that's our priority.
Mikkel Svold (29:40):
What about you?
Steen Lynenskjold (29:42):
Well, I really am happy to be back at an air show, I mean, and especially the Paris and the Farnborough Air Shows are unique in the sense of the level of attendance, not only at the working levels, but also at the executive levels. So it means we get... And a lot of our business is B2B. So we get a lot of chance of engaging, coordinating with that group and have a lot of good dialogues during just a few days. We also are pleased to launch some of our new technology. We have new equipment on our pylons, but we also just recently introduced a new radar to the market. So we have a lot of stuff to talk about and to discuss.
Mikkel Svold (30:29):
Yeah. Steen Lynenskjold and Georgia Pickering, thank you so much for joining this little talk today, and have a really great trade show.
Steen Lynenskjold (30:37):
Thank you.
Georgia Pickering (30:37):
Thank you.
Mikkel Svold (30:38):
And of course, to the listeners out there, thank you so much for listening. And if you have any questions or anything that you would like us to discuss further on in another podcast episode, do reach out to us on podcast@terma.com. And that was podcast@terma.com. And I think all I need to say now is just thank you so much for listening.