Defense and aviation giant
is one of the companies that will benefit from the UK’s new military spending plan, which will make the largest investment since the end of the Cold War.
BAE stock rose 3% in London trading on Friday, after rising nearly 2% on Thursday when the plan was announced. Shares in the Thales Group, a French defense company that has long been a supplier to the British military, rose around 2% in Parisian trade.
The backstory. BAE, a FTSE 100 component, is one of the world’s largest defense and aerospace companies. The UK-based company manufactures key parts of the F35 jet fighter and includes a consortium, among other things
manufactures the Eurofighter Typhoon, a front-end fighter for the Royal Air Force.
BAE traces its history back to the massive consolidation of British aircraft manufacturers after World War II. It has a long history of providing the British military with the fingerprints of its predecessors on the iconic Supermarine Spitfire and Harrier Jump Jet. BAE recently played a key role in the manufacture of the two aircraft carriers for the Royal Navy’s fleet.
What’s new On Thursday, UK Prime Minister Boris Johnson pledged £ 16.5 billion (US $ 22 billion) of additional military spending over the next four years – the biggest boost in decades. The plan provides for the creation of an armed space force, a military artificial intelligence service and a national cyber force. The incentive comes on top of the existing defense budget of around £ 42 billion as well as the government’s commitment to increase the budget by 0.5% above inflation each year.
Johnson also pledged to “restore Britain’s position as the leading maritime power in Europe” and develop the next generation of warships. In addition to the Royal Navy aircraft carriers, BAE has manufactured parts of the Type 45 destroyer, builds the Type 26 frigate, and provides upgrades and maintenance for a number of Navy ships.
“The era of cutting our defense budget must end, and it ends now,” Johnson said on Thursday via video link to Parliament. “I did this in the face of the pandemic, amid all the other demands on our resources, for the defense of the Empire and the security of the British people must come first.”
Looking ahead. The new commitment to military spending is excellent news for BAE, the crown jewel of the UK defense industry and long-time supplier to the military. A focus on a stronger navy and future air combat systems will strengthen BAE, which has a history of maritime and aerospace orders from the UK.
It should be noted, however, that next week, Rishi Sunak, the Chancellor of the Exchequer, will present a “spending review” that will reveal budget deficits in excess of 5% of GDP in the coming years.
Although his boss has made a solid promise, it’s unclear where those extra billions in military spending will come from, and it’s worth keeping them on your radar before making any investment.