The sixteenth edition of International Defence Exhibition and Conference and the seventh edition of the Naval Defence and Maritime Security Exhibition in Abu Dhabi, United Arab Emirates, on Feb. 21, 2023.
Mohammed Zarandah | Anadolu Agency | Getty Images
Few things illustrate the health of the arms industry like a large defense fair.
During the last week, Abu Dhabi’s biennial international defense exhibition, often called IDEX, showcased a sector brimming with business. Decorated military personnel, government officials and weapons company executives mingled against the backdrop of giant missile and drone displays, while young men in terminator-like “smart armor” conducted battle simulations as fake explosions lit up massive LED screens.
Sprawling across enough land for a small town and drawing some 130,000 visitors from 65 countries, this 12 months’s IDEX was the most important and most well attended in years.
It’s no secret as to why. Russia’s full-scale invasion of Ukraine one 12 months ago jolted much of the industrialized world out of its comfortable establishment, through which a Western-led security order prevented major military invasions that Western powers didn’t want. Since that violent turning point in late February 2022, governments inside NATO and out of doors of it have pledged to spend more on defense than ever.
“From our perspective, Putin is the most effective weapons salesman there may be,” one American defense contractor at IDEX told CNBC, speaking anonymously as he lacked authorization to comment to the press.
“If Putin hadn’t picked a fight, then nobody could be buying all these things.”
Indeed, many countries are ramping up their defense spending to unprecedented levels.
“With Russia’s invasion of Ukraine, many European nations have now committed to meeting or exceeding the NATO goal — in some cases, years before they originally planned to achieve this,” an aerospace and defense report by McKinsey & Co. from December read. The crisis prompted “a review of long-standing assumptions that large-scale conflict on the continent was unlikely within the twenty first century.”
Historic changes in military spending
Just have a look at Germany: It announced just days after Russia’s invasion that it might spend a further 100 billion euros ($106 billion) on defense, an enormous shift for a rustic that has skimped on military investment because the end of World War II.
Poland now goals to extend its defense budget to three% of its gross domestic product in 2023. And French President Emmanuel Macron in early January announced his government’s plan to ramp up military spending by greater than 30% in the approaching years and prepare its armed forces for high-intensity conflicts. On top of that, U.S. military spending on Ukraine alone hit nearly $50 billion within the last 12 months.
The massive spending is not limited to the West. Russia in November announced a defense budget of roughly $84 billion for 2023 — that is over 40% greater than the originally planned figure for that 12 months, which was announced in 2021.
And NATO ally Japan goals to double its defense spending to 2% of GDP by 2027, as regional threats from North Korea and China increase. China and Saudi Arabia also set respective records for their very own governments’ defense spending in 2022, despite inflation, giving no indications of slowing down.
“Business is excellent, unfortunately,” said an worker of a French drone manufacturer displaying at IDEX.
American arms firms seeing record orders
The U.S. arms industry is having fun with a windfall. U.S. military equipment sales to foreign countries shot up 49% to $205.6 billion within the last fiscal 12 months, the State Department said in January.
America’s largest defense contractors, Lockheed Martin and Raytheon, received record orders. Lockheed’s net sales for the fourth quarter hit $19 billion, roughly 3% above its internal planning and up from $17.7 billion in 2021.
Ukraine was already stocking up on U.S.-made Javelins before Russia invaded. Pictured here a gaggle of Ukrainian servicemen taking a shipment of Javelins as Russia positioned troops on Ukraine’s border.
Sergei Supinsky | AFP | Getty Images
Raytheon’s order backlog exceeded $150 billion last 12 months and its fourth-quarter sales for its missiles and defense unit were up 6.2% to $4.1 billion. But the businesses say they’re hampered by supply chain issues and labor shortages, and that they’d be seeing far higher sales numbers if it weren’t for those.
‘Depleted’ weapons stocks in Europe
For Europe, nonetheless, there may be a real sense of urgency — after years of under-investment within the sector, reliance on the U.S. and now many months of sending their arms and ammunition to Ukraine, European nations need to stop their very own weapons stocks from being depleted entirely.
“The military stocks of most [European NATO] member states have been … depleted in a high proportion, because now we have been providing a whole lot of capability to the Ukrainians,” Josep Borrell, the EU’s high representative for foreign affairs and security policy, said in September.
“It’s becoming an increasing number of urgent. There’s quite a bit more discussion, quite a bit more requests,” a manager at a British drone company said, requesting anonymity due to skilled restrictions. When asked if demand for his company’s unmanned aerial vehicles was growing, he replied, “Astronomically.”
French multinational defense firm Thales is considered one of those within the private sector working to fulfill the needs of French and allied militaries whose supplies are running low.
“Obviously the Ukrainian conflict forced us to extend our capacities,” Christophe Salomon, executive vice chairman for Land and Air Systems at Thales, told CNBC. His division focuses on radars, missiles, rockets, vehicles and other land systems.
“You might have to extend your industrial footprint. You might have to amass your stocks. And we’re talking about products where the lead time is around two years,” he said, describing the challenge of ramping up production when the availability chain for a single weapons system involves a whole lot of various suppliers.
Ukrainian servicemen fire with a French self-propelled 155 mm/52-calibre gun Caesar toward Russian positions on a front line within the eastern Ukrainian region of Donbas on June 15, 2022.
Aris Messinis | AFP | Getty Images
Firms need government help to hurry up the production process, Salomon said. France’s government has outlined measures on this direction, including simplifying military contracts and administrative procedures, pursuing import substitution for more French-made products, improving private-public partnerships and providing several billion euros value of funding to replenish ammunition stocks.
France’s Caesar self-propelled guns, which have been highly effective in battle for the Ukrainian military, normally take two years to make; the federal government goals to chop that point in half.
Thales in May is delivering Ukraine its advanced GM200 radar system, which normally takes two years to make. Due to increased investment in its supply chain within the last 12 months and advance buying of complex radar subsystems, Thales says, it could actually assemble Ukraine’s GM200 in 4 months.
“We speed up because our team works 24 hours a day,” Salomon said. “We took the responsibility to speculate, we invest and we buy every subsystem before we all know who will buy it.”
A Leopard 2 A6 heavy battle tank.
Sean Gallup | Getty Images News | Getty Images
Many within the Western defense sector complain that Europe’s largest economy, Germany, continues to be dragging its feet. Expanding its military footprint stays controversial and divisive in German politics, and Berlin has been clear that it desires to help Ukraine but avoid scary Russia.
One German private sector attendee at IDEX described frustration on the pace of his government, but admitted that “due to history, it’s kind of problematic.” He requested anonymity to talk freely.
Germany’s major policy changes last 12 months — most notably allowing its weapons to be utilized in foreign combat zones for the primary time since World War II — make a significant difference, the attendee said. “But,” he stressed, “we want to vary our processes and move faster now.”