In response to Russia’s Invasion of Ukraine, The European Union has taken the step of funding the supply of arms to a non-member nation at war. This is unprecedented in the history of the institution, with European Commission president Ursula von der Leyen describing it as a ‘watershed’ moment for an organization that typically avoids influencing foreign armed conflict. The €50m announced for non-combat supplies was dwarfed by the €450m announced for ‘lethal assistance’. This, in concert with defence spending rises from Germany and the wider shock to the security of EU states will likely bring large benefits to defence companies whose stocks have already risen substantially.
When trading opened on Monday 28 February, BAE Systems saw a 14% increase in share price. Numerous other companies across Europe also saw share rises: Rheinmetall was up by 29%, and other companies such as Thales and Leonardo also had jumps. This effect is not limited to the continent either: US defence companies Northrop Grumman, Lockheed Martin and Raytheon have all seen substantial share increases since the invasion began on the 24th. The latter two are significant as the manufacturers of both the Javelin and Stinger missiles which have been sent to Ukrainian forces in large quantities by many European countries. EU defence spending had been steadily increasing in recent years due to tensions with Russia, but the invasion has dramatically altered attitudes to defence policy in a short span of time. Germany has almost tripled its spending and will itself send 1,000 anti-tank weapons and 500 Stingers to Ukraine. It is exposure to Germany, in particular, that should give EU companies the most confidence for providing solid pledges on spending.
In the longer term, it is difficult to predict how the invasion of Ukraine will influence future spending in the EU – if the conflict drags on, the bloc seems determined enough to continue supplying Ukrainian resistance for as long as is feasible, generating further business for companies whose products are in high demand. Even if the conflict is somehow brought to an abrupt end, however unlikely, it has probably already affected a sea change in attitudes towards defence spending in the EU that will endure beyond the end of the crisis. The newfound urgency for military matters will be a boost to the instruments of defence coordination and cooperation that the bloc uses. The European Defence Fund (EDF) may see a further investment beyond the €1.9bn already planned for the end of 2022.
Now that the ‘taboo’ of using the main EU budget for defence has been broken, European companies that already manufacture products widely used across Europe such as the Leopard 2 and CV90 can expect to see an uptick in business, as nations will likely be compelled to prepare themselves better for the threat of conventional, peer-to-peer conflict. GlobalData analysis reveals that Europe already constitutes 41.1% of the global military land vehicles market, but war on the continent means that share will likely grow.