Arms dealers set to cash in as defense spending rockets with £ 180bn windfall

 Arms dealers set to cash in as defense spending rockets with £ 180bn windfall

If there is an epicenter to Britain’s military contribution towards repelling Russia’s invasion of Ukraine, it is to be found in a gray warehouse-like box sandwiched between a sports equipment supplier and a tire fitting shop on a Belfast industrial estate.

The highly secure but otherwise non-descript building is the production site for the two weapon systems – the NLAW anti-tank bazooka and the Starstreak surface to air missile – which are being used to considerable effect against Moscow’s forces after being provided in their thousands to Kyiv by the British government.

The precise details of how many of either state-of-the-art armaments have rolled off the production line in recent times is something that neither the manufacturer, Thales UK, nor the Ministry of Defense (MoD) are keen to discuss for fear of disclosing information that is useful to the Kremlin’s military planners.

But with Britain sending or having sent some 10,000 missiles of one form or another as lethal aid to Ukraine, the factory employing some 650 people in Castlereagh, south east Belfast, is just one example of how the domestic and global defense industry, currently worth nearly $ 2tn (£ 1.5tn) a year, is about to get busier as the West embarks on what experts believe will be a decade of increased weaponry procurement to counter the enhanced threat posed by an emboldened Russia and a watching China.

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One industry source told i that the resulting boon in military technology – from hypersonic missiles to rocketing orders for advanced fighters such as America’s F-35 – could be worth as much as $ 240bn (£ 183bn) in annual extra spending as countries plan for both long-term needs and an immediate push to supply Ukraine, or “back-fill” depleted inventories.

The i understands from industry sources that manufacturing capacity for the weapons built at Thales UK’s Belfast site remains available in the wake of the British military shipping some 4,200 NLAWs – worth some £ 80m – to Ukraine from existing stock, with more to follow.

Such has been the success of the Next Generation Light Anti-Tank Weapon, designed by Sweden’s Saab and assembled in Belfast using components from Britain and elsewhere, that Ukrainian soldiers have supposedly taken to shouting “God save the Queen” as they aim at Russian tank columns and supply trucks.

The UK’s Starstreak HVM (High Velocity Missile) surface-to-air missile system is designed to destroy moving aircraft by releasing three tungsten darts as it approaches a target. An unspecified number have been supplied to the Ukrainian military. (Photo: UK MOD Crown copyright / PA Wire)

According to one Ukrainian military official, the British-supplied missile, costing £ 20,000 per unit, has been responsible for 30 to 40 per cent of successful attacks on Russian tanks. Starstreak, a three-pronged interceptor which was designed and built in Belfast, reportedly scored its first hit in Ukraine last week when its warhead split a Russian helicopter in two in mid-air.

Defense manufacturers on both sides of the Atlantic are saying little about the strike rates of the weapons that have helped nimble Ukrainian forces to hobble Russia’s supposedly mighty military machine, for fear of being seen to profit from Ukraine’s agony and out of a desire to emphasize that no single armament or system is going to neutralize the Kremlin threat.

But, one way or another, the consensus is that profit they will.

The epochal shift in global geo-politics which took place when Vladimir Putin ordered his invasion force across Ukraine’s borders on 24 February has sent a shiver down the spine of the West’s defensive posture and has convinced the world’s biggest arms producers anew that their services are going to be heavily in demand.

On one level, the boon for the defense industry is not an overnight phenomenon. An analysis published last month by the Stockholm Peace Research Institute (SIPRI), which tracks trends in the arms trade, found that while global sales of major weapons systems fell slightly in the five years to 2021, European countries increased their purchases by 19 percent .

The escalation is directly attributed to a decline in relations with Russia following the Kremlin’s annexation of Crimea in 2014, as well as pressure from Washington on NATO allies to extend their defense budgets to at least 2 percent of GDP. Pieter Wezeman, one of the authors of the SIPRI study, said: “The marked deterioration in relations between most European states and Russia was an important driver in European arms imports, especially among states that cannot fully meet their needs through their own defense industries. ”

Interviews conducted by i with defense industry sources strongly suggest that this boost in spending will continue as a result of the Ukraine war, most likely at an accelerated rate. Germany has already announced it will spend an extra 100 billion euros (£ 83bn) on defense.

Senior executives at the world’s largest arms companies and their investors are thereby girding their loins for considerable growth in demand. In the month before the Ukraine invasion, James Taiclet, chief executive of American giant Lockheed Martin, the world’s largest defense corporation, noted to shareholders that “renewed great power competition” would inflate defense budgets and generate additional sales.

On the same day, Raytheon, the boss of the world’s second largest arms maker, told investors that he saw “opportunities for international sales” in Europe and Asia. Greg Hayes said: “The tensions in Eastern Europe, the tensions in the South China Sea, all of those things are putting pressure on some of the defense spending over there. So I fully expect we’re going to see some benefit from it. ”

It is a new reality being reflected in the share prices of the industry’s most significant players. Lockheed Martin, which makes the 1,700 Javelin anti-tank missiles – costing £ 120,000 a piece – being sent to Ukraine, has seen its share price increase by 13 per cent since the start of the invasion.

A F-35 A Lightning II fighter jet is displayed on the tarmac at Emmen Air Base, central Switzerland. The Swiss government has been joined by Germany and Finland in recently selected the F-35, made by US giant Lockheed-Martin. (Photo by Fabrice COFFRINI / AFP)

Raytheon, which makes Stinger missiles also being sent in bulk to Kyiv, has increased by four cent and Britain’s BAE Systems, which is part of the Lockheed Martin-led coalition making the F-35 fighter jet widely regarded as the best in the world, went up by 16 percent. Thales, the French parent company of Thales UK, has risen by an extraordinary 36 per cent.

A senior industry source told i: “We foresee European defense budgets increasing by between five and 12 per cent per annum in the next few years as a response to this. This is a procurement cycle that will take a decade to unwind. ”

An intriguing measure of a shift in attitudes is to be found in the pensions industry, which in recent years had begun to significantly divest from the arms sector in much the same way as ethical investment funds increasingly shun oil and gas companies.

A major Swedish financial group, SEB, last week announced that it had cleared some of its funds to invest in arms makers on the basis that they are “of key importance to uphold and defend democracy, freedom, stability and human rights.” A similar phenomenon is seemingly under way in the world of private equity, where the potential for hitherto non-military producers to meet demand in areas such as cyber defense is exciting interest.

It is not a view that is universally shared. Campaigners argue that NATO is already dwarfing Russia in terms of its defense budget, with European members spending $ 302bn (£ 230bn) in 2020 – five times that of Moscow, and yet has little to show for it.

Dr. Sam Perlo-Freeman, research co-ordinator at Campaign Against Arms Trade, told i: “The West’s much greater military power didn’t stop Russia invading Ukraine, and it wouldn’t have stopped Russia invading Ukraine even if the West spent a lot more because a direct confrontation between the nuclear powers is unthinkable.

“The West’s military capabilities are more than enough to stop Russia from thinking about attacking NATO members directly. The best way to reduce Russia’s ability to wage war is the sort of thing that the West is already doing in terms of sanctions and cutting off corrupt financial flows, though much more could still be done in this area. ”

Other experts argue that popular pressure due to the cost of living crisis and the potential resurrection of an international disarmament movement could still undermine the political will and the budgetary capacity for a sustained period of rearmament.

Pointing out that the UK government had resisted an immediate increase in defense spending in the last month’s Spring Statement, Peter Bloom, a professor of management at Essex University, said: spending. In the long run, this scenario can also be avoided if popular movements for peace were to join together across borders. ”

The question remains of just where the West will eventually place its defense chips in this game of geo-political roulette. After Washington last month pledged an additional $ 3.5bn (£ 2.7bn) in weapons for Ukraine, it seems certain that an increasing, but carefully calibrated flow of systems from NLAWS to Soviet-era tanks will continue to Kyiv from the West for the foreseeable future. .

But other longer term needs are being identified, including the desire by the West to match Russia’s Kinzhal hypersonic missile and a quick assessment of what needs to be done to prevent NATO’s armored columns from suffering the same fate as those of the Kremlin when confronted with an agile, missile-carrying infantry.

Arjun Sreekumar, a defense specialist at consultancy Frost & Sullivan, said he foresaw a range of priorities, including a split between heavily-armed militaries seeking systems to defeat anti-tank missiles and weaponised drones and countries with less resources seeking to emulate Ukraine’s success with tactical missiles and “off-the-shelf” armed drones such as the Turkish Bayraktar TB-2. He said: “My personal assessment is that the Ukrainian conflict will strongly influence how defense budgets are going to be spent.”

Either way, it seems highly likely that production lines from Belfast to Fort Worth, Texas, where the F-35 is assembled, are going to be working overtime. Lockheed Martin, which last month received an order for 35 of the £ 90m jets from Germany hot on the heels of a down payment for 64 more from Finland, is reportedly looking at having to ramp up production to meet demand from international customers.

As one industry source put it: “The uncomfortable truth is that war is good for business. No-one wants it that way but this is the world we have built. And I’d rather it’s us and our allies than Vladimir Putin who have the better weapons. ”

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