Defense firms are confident that Western governments will continue to increase arms spending to counter Russia and China, dismissing concerns that political turmoil in the US and Europe could constrain military budgets.
According to data from the think tank "Stockholm International Peace Research Institute" (SIPRI) global defense spending reached a record $2.4 trillion last year, boosted by the war in Ukraine and rising tensions between China and the West.
NATO members agreed to further increase spending at a summit in Washington this month.
But major political changes in the United Kingdom, the United States and France – and they have big military spending spooked some investors, who believe support for the war in Ukraine could wane in the coming years.
Industry executives at the Farnborough Air Show, one of the world's largest gatherings of aerospace and defense companies, told Reuters that even if aid to Ukraine were cut, Western governments would spend heavily on strengthening defenses for potential future conflicts with Russia and China.
"Ukraine taught an important lesson: if you don't prepare, you lose,” said Lorenzo Mariani, co-head of Italian defense firm Leonardo LDOF.MI.
Visible evidence of geopolitical tensions was on display at the airport in southern England, which serves as an annual aircraft showroom and arms bazaar – from armed drone prototypes to American and European fighter jets.
Even the Air India A350 passenger plane parked on the tarmac in front of the exhibitors' stands bore traces of the conflict on Europe's border, as it was originally built by "Airbus" for the Russian "Aeroflot", before it changed hands because of the sanctions.
A rush to acquire weapons after Russia's full-scale invasion of Ukraine in 2022 has boosted earnings and stock prices of U.S. defense giants such as Lockheed Martin (Lockheed Martin LMT.N) and Raytheon. (Raytheon RTX.N), as well as European companies, including Leonardo and Britain's BAE Systems BAES.L.
For example, the shares of the German "Rheinmetall" (Rheinmetall RHMG.DE) have risen by 390% since Russia's invasion of Ukraine, and those of the Swedish defense manufacturer "SAAB" (Saab SAABb.ST) – with over 340 percent.
TRUMP FOR UKRAINE
Former US President Donald Trump has hinted he may cut funding to Ukraine if elected in November, which could curb booming sales of everything – from missiles and drones to armored vehicles and artillery shells.
But Trump remains hawkish about China, the world's second largest military power. US increases defense spending in Asia-Pacific for everything – from submarines to air defense missile systems to counter Beijing's aggressive tactics toward Taiwan and the Philippines.
Tom Laliberty, President at "Raytheon" in the field of "Land and Air Defense Systems", said that he was looking at long-term trends, not the political rhetoric of individual politicians during the election campaign.
"I've been doing this for 38 years, generally there's not much of a difference between one (US) administration or another in terms of strengthening defenses,” Laliberty said.
US Undersecretary of Defense for Acquisition and Sustainment William LaPlante echoed that sentiment, saying military spending and partnerships with European allies enjoy bipartisan support.
"Production, jobs and security are very much with us, regardless of your politics,”, Laplante told a panel at the air show.
Britain's new Labor government has ordered a defense review, sparking fears that programs including the multi-billion-dollar fighter jet project could be cut.
To ease those concerns, Prime Minister Keir Starmer reaffirmed his commitment to the defense industry at the Farnborough Air Show, where he looked at weapons from companies such as BAE and European aerospace giant Airbus AIR.PA.
"As far as the UK is concerned, things are pretty stable there,” said Trevor Taylor, director of the defense program at the Royal United Services Institute.
"I am convinced that in the coming years defense spending will increase.“
Britain could also be a bridge between the US and Europe to limit potential tensions over defense spending, said Greg Sanders, a defense fellow at the Center for Strategic and International Studies think tank.
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"Regardless of what happens in the US election, the UK is likely to try to mediate and sometimes balance some of the conflicting impulses.“
FRENCH POLITICS
Industry executives and analysts expressed greater concern about the political situation in France, where parliamentary elections this month led to the election of a new parliament, raising concerns that the budget impasse could slow defense spending.
On the day after the election, shares of European aerospace and defense companies fell more than 2 percent.
"There continues to be concern about a very, very unstable political system (in France),” said Sache Tusa, a defense analyst at London-based equity research firm Agency Partners.
Whatever the future holds, the near-term outlook for defense firms is good given the glut of demand from Western governments looking to ship goods to Ukraine, said Matt Milas, president of defense and space at Honeywell Aerospace HON.O.
"Obviously, the war in Ukraine created a huge spike in demand. (We have) all this demand built up with no supply,”, Milas said at the air show.
Translated from English by Plamen Yotinski, BTA