The number of orders from the world's largest defenсe companies is close to a record high after an increase of 10% over the past two years amid an aggravation of the geopolitical situation. This is reported by the Financial Times (FT).
The FT reports that the combined order backlogs of the 15 largest arms manufacturers in 2022 amounted to $777 billion, but the number of orders continues to grow, and in the first six months of 2023 this number reached $764 billion (taking into account that part of the orders accumulated by the end of 2022 portfolio were fulfilled). Amid the instability in the security sector, Governments continue to place orders for defence products. So, in Europe, military spending has increased in the most radical way over the past 30 years, as there was a need to replenish stocks of military equipment and ammunition. One of the largest beneficiaries of the situation was the German tank manufacturer Rheinmetall, whose order backlog amounted to $14.8 billion in 2020, $27.9 billion in 2022, and $32.5 billion in the first half of 2023.
The trend is typical not only for European manufacturers. Thus, according to the FT analysis, the largest growth occurred in South Korea's Hanwha Aerospace, the backlog of which increased from $2.4 billion in 2020 to $15.2 billion at the end of 2022. The current crisis has significantly strengthened South Korea's position in the global arms market, largely due to the significant volume of orders for defence products from Eastern Europe. Thus, according to the Stockholm International Peace Research Institute (SIPRI), according to the results of 2022, South Korea took the ninth place in the ranking of the largest arms manufacturing companies.
At the same time not all of the rising spending is related to the Russian-Ukrainian conflict – the FT concludes that some of the growth is related to orders placed under programs adopted before the conflict egan. For example, the order backlog of BAE Systems increased from $61.8 billion to $70.8 billion in 2022, mostly due to orders for current programs including the production of submarines, frigates and fighter aircraft. And in this case, its order backlog hit a record $84.2bn in the first six months of 2023.
The steady growth of the industry naturally provoked the interest of investors. The MSCI Global Index (a stock index reflecting the situation on the global stock market) for shares of companies in the defence industry sector has increased by 25% over the past year. The Stoxx European Aerospace and Defense stocks index has risen by more than 50% over the same period. The growth reflects investors' belief that the increase in government spending on defence will continue.
Conclusions in a similar vein were previously made at SIPRI, according to the results of a study which, although sales of the 100 largest companies in 2022 decreased by 3.5%, they will show growth in the near future – due to the fact that most orders were placed in the second half of 2022 and the results will be seen later, and also because that defense manufacturing companies are gradually adapting to the prevailing conditions, increasing production capacity and strengthening supply chains.
Source - Financial Times, SIPRI
