Defense Industry of Europe is Booming As Govt Stand By Ukraine

TECHNOLOGY:Following quite a while of taking off stock costs, Europe Defense organizations scarcely required another lift. However, a tentative €2 billion (2.1 billion) plan by the European Union to acquire ammunition for war-ravaged Ukraine may accomplish this.

This week, EU defense ministers concluded a two-day summit in Sweden. A provisional agreement was reached to jointly purchase 155-millimeter artillery shells, which Kiev desperately needs, and to send additional artillery rounds to Ukraine from the stockpiles of EU nations.

Oleksii Reznikov, Ukraine’s defense minister, said in a Stockholm speech on Wednesday that his country needed one million rounds of ammunition “as soon as possible” to stop Russian forces.

On March 20, when EU foreign and defense ministers meet in Brussels, a final decision is anticipated.

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The fact that the European Union has provided lethal weapons to a third country for the first time during the Russia-Ukraine conflict demonstrates how much of a threat it perceives Moscow to pose to its security.

Micael Johansson, the chief executive officer of Saab, a Swedish defense contractor, stated to CNN, “I think that many countries have had a wake-up call, and need to replenish and increase their stocks.”

“This will go on for various years to come.”

As Ukraine’s allies have increased their military support and some of its donors have sought to replenish their dwindling stocks, investors have spotted the opportunity and have piled into defense stocks in recent months.

Since the end of September, the STOXX Europe Total Market Aerospace and Defense index, which tracks 25 leading defense companies, has increased by 41%, outperforming the Stoxx Europe 600, the region’s broader benchmark index, by 18 percentage points.

Over the same time frame, the MSCI World Aerospace and Defense Index, a global benchmark, increased by nearly 26%.

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The European Union has reiterated its support for Ukraine alongside the United States and the United Kingdom, Kyiv’s other two main backers, as the conflict with Russia continues into its second year.

In recent weeks, additional commitments regarding military spending have been made as a result of this solidarity.

The bloc announced at the beginning of February that it would add 545 million euros to its €3.6 billion ($3.8 billion) fund for Ukraine’s military assistance.

In addition, Germany, France, Poland, and the UK agreed in January to provide modern battle tanks to Kyiv in response to a long-standing request from Ukrainian President Volodymyr Zelensky. This was done in spite of concerns that doing so might exacerbate tensions between the West and Russia.

Last year, BAE Systems (BAESF), Europe’s largest defense contractor by revenue, received record orders worth £37 billion ($44 billion), but the majority of those orders were for programs that were completed prior to World War II.

Additionally, more is on the way. Brad Greve, the UK organization’s CFO, told financial backers last week that he expected the effect of restocking “will come later as states convert interest into firm requests.”

He added, “It is a factor that could contribute to the industry’s longer growth cycle.”

Since Russia invaded Ukraine a little over a year ago, BAE shares have increased by 55%. Over the course of 2023, the company anticipates that its earnings-per-share, which is a measure of profitability, will rise by anywhere from 5% to 7%.

According to Johansson at Saab, orders directly connected to Ukraine began to increase in December.

He went on to say, “More is definitely coming,” pointing out that Western governments were spending more on defense and security as geopolitical tensions rose “quite dramatically.”

Even though Johansson stated that he hoped the war would soon end, he anticipates that Saab sales will increase by 15% this year.

The biggest arms manufacturer in Germany, Rheinmetall (RNMBF), told the Rheinische Post newspaper on Monday that it wanted to open a €200 million (211 million) battle tank factory in Ukraine that could produce about 400 tanks per year. This indicates that defense companies anticipate a strong demand for many years to come.

A halt in government orders is unlikely, at least in the immediate future.

In a statement issued last month, European Union foreign affairs and security chief Josep Borrell stated, “Ukraine should get all the necessary military equipment and training to defend its territory.”