The bellicose environment of the past year continues as the war rages on in Ukraine and saber rattling gets louder over Taiwan. As nations look to improve security and bolster defenses that have depreciated over the quiet years, defense contractors such as BAE Systems are moving quickly to support their international customers, especially in the U.S. and other NATO countries.
For 2022, BAE Systems posted sales of GBP23.33 billion, up 9 percent from GBP21.3 billion in 2021. The company reported that backlog jumped to a record GBP58.9 billion for the year, compared to GBP44 billion at year-end 2021.
Steady growth is going to continue as the company meets not only the immediate needs related to the Ukraine conflict but the longer-term requirements of recapitalizing militaries throughout Europe. Currently the company is forecasting sales increases in the 3 to 5 percent range for 2023. The ongoing war in Ukraine will likely help push sales to the higher end of the projection. Russia’s invasion of Ukraine has motivated many NATO nations to ramp up defense spending in response. Currently, many nations are looking to rebuild stockpiles of systems and munitions to replace inventory that was transferred to Kyiv to bolster Ukraine’s defenses. As a result, BAE Systems will find new opportunities for its services and products throughout the continent and in its primary “home” markets.
In addition, Australia, another major market for the company, is also moving to strengthen its defenses in the wake of China’s growing influence in the region. The country has finalized the AUKUS trilateral agreement between Australia, the United Kingdom and the United States, which will lead to production of a new nuclear-powered submarine fleet for the country. BAE Systems will be a key part of this effort, developing a variant of its Astute Submarine Ship Nuclear Replacement to fulfill the requirement.
Thanks to its earlier expansions into the U.S., Australia, and Saudi Arabia, the company’s sales are well diversified geographically. Moves such as these will help strengthen the company for the long term. Future program wins abroad will nearly all require site production in customer countries. By continuing to increase its geographic diversity, BAE Systems is well positioned for the “new Cold War” of global defense spending.
A key future program is the U.K.’s next-generation fighter, the Tempest. The twin-engine fighter is intended as a future replacement for Eurofighter Typhoons in British Royal Air Force service. Once again following the company’s strategy of growing internationally, partners from Japan, including IHI, MHI, and Mitsubishi Electric, have joined the U.K. and Italy in development of the aircraft under the auspices of the Global Combat Air Program. The GCAP builds on the progress already made in developing a new fighter through the Team Tempest partnership. Initial Operational Capability of the new aircraft is planned for 2035.
While defense is moving into a boom period, there will at some point come a downturn. This is perhaps the company’s biggest vulnerability, as it lacks commercial applications for its products. Its does have some investment in the civil cybersecurity sector, which helps diversify things a bit, but nonetheless the firm is first and foremost a defense contractor. Nevertheless, the company does possess a strong measure of diversity here, as it is well positioned to support changing program priorities in the air, on land, at sea, and in military security markets, which are expected to be intense for years to come thanks to the current state of the world.
Forecast International’s Defense & Aerospace Companies, Volume II – International service includes coverage of over 90 top companies and subsidiaries outside North America, with a focus on key players in Europe and Asia. Each of the volume’s 50+ reports contains data on recent programs, mergers, and joint ventures. Among the notable corporations covered are OEMs such as Airbus, Aviation Industry Corporation of China (AVIC), BAE Systems, and Embraer. Also featured are Tier I and Tier II contractors such as Rolls-Royce, Hanwha, Rafael, RUAG, and Mitsubishi Heavy Industries. Click here to learn more.