War is Good Business

Europe’s defense industry is set to reap a $50 billion windfall as the Nov. 13 terrorist attacks on Paris prompt governments to ramp up spending on military capabilities spanning cyber security to fighter jets, armored vehicles and drones in an effort to defeat Islamic State.

France, where Dassault Aviation SA’s Rafale fighter jet is made, has halted plans to cut almost 10,000 military personnel, while Germany will spend an extra 8 billion euros ($8.5 billion) on defense and Britain has earmarked a further 12 billion pounds ($18 billion), benefiting companies including BAE Systems Plc. Italy said Tuesday it would devote 1 billion euros more to security, after the draft budget called for 2 billion euros of reductions.

European governments are rethinking their defense policies after years of cuts tied to the draw down in Afghanistan and Iraq and austerity programs imposed after the global slump. The spending commitments will swell budgets that had already begun to revive amid heightened tensions with Russia following last year’s annexation of Crimea, with Britain committing in August to spending 2 percent of GDP on defense.

“Over the 2015-2019 period, an extra $50 billion will be added to Western European defense spending as a result of changes implemented this year,” said Fenella McGerty, senior analyst for defense budgets at IHS Jane’s. There’ll be an $11 billion annual uplift by the end of the period, she said, driven by adjustments in France, Germany and the U.K. that began with the Jan. 7 assault on the Paris offices of French satirical magazine Charlie Hebdo.

Cameron confirmed in Monday’s defense statement that Royal Air Force Eurofighters, built by BAE, will get enhanced ground-attack capability, allowing them to play a more active role, and a 10-year life extension that will effectively create two extra squadrons.

F-35 Acceleration

Britain will also take all 138 Lockheed Martin Corp. F-35 fighters initially ordered and triple the pace of deliveries to 2023, allowing deployment of two new aircraft carriers with a full roster of planes. BAE is an F-35 partner and Rolls-Royce Holdings Plc helps make the engines, as it does on Eurofighter.

Cameron also reiterated a commitment to an Anglo-French venture for the development of military drones. Under an agreement signed last year, BAE and Rolls-Royce are working with France’s Dassault, Selex ES Ltd., Thales SA and Safran SA on a model along the lines of General Atomics Aeronautical Systems Inc.’s Predator. Thales also has a 25 percent stake in the Rafale.

Airbus Group SE will offer surveillance and reconnaissance upgrades to its A400M military transport and A330 airborne tanker models, providing operators with a “cheap and simple” option for boosting intelligence gathering, according to Fernando Alonso, head of its military aircraft arm.

Germany’s Defense Ministry said in June it would purchase the proposed European-led air-defense system known as MEADS and opened bids for a new multi-purpose combat ships as part of a force modernization. Asymmetric military campaigns would require smaller caliber ammunition, with shares of German armaments specialist Rheinmetall AG up more than 8 percent since the Paris attacks. Sweden’s Saab AB won an order Tuesday to supply hand-held rocket-launchers to the Austrian armed forces starting next year.

Britain will devote 1.9 billion pounds over five years to countering Islamic State’s use of the Internet for planning, propaganda and online attacks, creating a specialist task force to track its communications. Shares of Qinetiq Group Plc rose 10 percent Nov. 19 after the former U.K. defense-research laboratory said it was experiencing higher demand for cyber, surveillance and security sensors. U.S. companies also stand to benefit from Europe’s rearmament, with two of three major new spending commitments announced by Cameron involving trans-Atlantic deals. Boeing Co. won a contract for nine P8 torpedo-fitted maritime patrol aircraft, and 600 Scout armored vehicles built by General Dynamics Corp. will form the core of new “Strike Brigades” due by 2025.

Somehow that 'peace dividend' never quite gets round to arriving, does it?...

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