By Joe Brock and Joanna Ploczynska
FARNBOROUGH, England (Reuters) – Defence companies are confident that Western governments will continue to boost arms spending to counter Russia and China, shrugging off concerns that political turmoil in the United States and Europe could curb military budgets.
Global defence spending hit a record $2.4 trillion last year, driven by the war in Ukraine and rising tensions between China and the West, according to the Stockholm International Peace Research Institute (SIPRI).
NATO member states agreed to further increase spending at a summit in Washington this month.
But recent major political shifts in the UK, US and France – all major military spenders – have worried some investors who believe support for the war in Ukraine could wane in the coming years.
Even if aid to Ukraine is cut, Western governments will spend significant amounts to bolster defences for potential future conflicts with Russia and China, executives at the Farnborough Airshow, one of the world’s largest gatherings of aerospace and defence companies, told Reuters.
“Ukraine has learned an important lesson: if you don’t prepare, you lose,” said Lorenzo Mariani, co-chief executive of Italian defense company Leonardo.
Visual evidence of geopolitical tensions has emerged across the southern England airport, which doubles as a jet showroom and arms bazaar every two years, with everything from model armed drones to American and European fighter jets.
Even the Air India Airbus A350 passenger jet parked on the tarmac in front of the exhibitors’ chalets bore the scars of the conflict on Europe’s borders, having originally been built by Airbus for Russia’s Aeroflot before changing hands due to sanctions.
The arms rush since Russia’s full-scale invasion of Ukraine in 2022 has boosted the profits and stock prices of US defense giants like Lockheed Martin (NYSE:) and Raytheon (NYSE:), as well as European companies including Leonardo and Britain’s BAE Systems (LON:).
For example, shares of German company Rheinmetall have risen 390% since Russia’s invasion of Ukraine, while shares of Swedish defense contractor Saab have risen more than 340%.
Trump on Ukraine
Former US President Donald Trump has hinted that he might cut off funding to Ukraine if elected in November, which could curb sales of everything from missiles and drones to armoured vehicles and artillery shells.
But Trump remains hawkish toward China, the world’s second-largest military power. The United States is boosting defense spending in the Asia-Pacific region on everything from submarines to air and missile defense systems to counter Beijing’s aggressive tactics toward Taiwan and the Philippines.
Tom Laliberte, president of Raytheon’s air and ground defense systems, said he looks at long-term trends, not the political rhetoric of individual politicians during election campaigns.
“I’ve been in this business for 38 years, and in general there’s not much difference between one (US) administration and another when it comes to strengthening defence,” Laliberte said.
US Under Secretary of Defense for Acquisition and Sustainment William LaPlante echoed that sentiment, saying military spending and partnerships with European allies have bipartisan support.
“Production, jobs and security are here regardless of your political leanings,” Laplante said at a seminar during the air show.
Britain’s new Labour government has ordered a defence review, raising fears that programmes – including a fighter jet project worth tens of billions of dollars – could be scrapped.
In an effort to ease these concerns, Prime Minister Keir Starmer underlined his commitment to the defence industry at the Farnborough Air Show, touring weapons displays from companies such as BAE and European aerospace giant Airbus.
“For the UK, it is a very stable ship,” said Trevor Taylor, director of the defence programme at the Royal United Services Institute.
“I am confident that defence spending will increase in the coming years.”
Britain could also serve as a bridge between the United States and Europe to ease any tensions over defense spending, said Greg Sanders, a defense fellow at the Center for Strategic and International Studies, a think tank.
“Whatever happens in the US election, the UK is likely to try to play a mediating role, sometimes balancing some of the conflicting impulses.”
French policy
Industry executives and analysts expressed greater concerns about the political situation in France, where legislative elections this month resulted in a hung parliament, raising concerns that budget deadlock could slow defense spending.
European aerospace and defense stocks fell more than 2% the day after the election.
“There is still concern about the very unstable political system (in France),” said Sash Tusa, a defense analyst at Agency Partners, a London-based research firm.
Matt Melas, president of Honeywell Aerospace’s defense and space division, said the near-term outlook for defense companies is strong, regardless of the future, given increased demand from Western governments looking to supply weapons to Ukraine.
“The war in Ukraine has obviously created a huge increase in demand. (We have) all this demand sitting on top of the supply,” Melas said at the air show.