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| Defence industry's stock rises as state budgets bid to meet terror threat | Defence industry's stock rises as state budgets bid to meet terror threat |
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| The yellow flare from an RAF Tornado jet lit up Akrotiri base in Cyprus as it hurtled down the runway and roared into the night sky. | The yellow flare from an RAF Tornado jet lit up Akrotiri base in Cyprus as it hurtled down the runway and roared into the night sky. |
| It was one of four British jets that joined a mission to destroy an oilfield in eastern Syria just hours after MPs had voted in favour of Britain joining a 15-month bombing campaign last Wednesday night. | It was one of four British jets that joined a mission to destroy an oilfield in eastern Syria just hours after MPs had voted in favour of Britain joining a 15-month bombing campaign last Wednesday night. |
| When the stock market opened that Thursday morning, shares in British defence companies leapt. BAE Systems, the £16bn company that is Europe’s biggest weapons manufacturer, rose by four percentage points in early trading. The shares have risen by 13% since the Islamic State terror attacks in Paris on 13 November, which killed 130 people. | When the stock market opened that Thursday morning, shares in British defence companies leapt. BAE Systems, the £16bn company that is Europe’s biggest weapons manufacturer, rose by four percentage points in early trading. The shares have risen by 13% since the Islamic State terror attacks in Paris on 13 November, which killed 130 people. |
| The escalation of US-led military action in Syria, however controversial, will nevertheless be a shot in the arm for a defence industry that has been in survival mode since operations in Iraq and Afghanistan were wound down. | The escalation of US-led military action in Syria, however controversial, will nevertheless be a shot in the arm for a defence industry that has been in survival mode since operations in Iraq and Afghanistan were wound down. |
| Zafar Khan, defence analyst at Société Générale, noted. “What it does [the Paris attacks] is reassure people there is a need.” | Zafar Khan, defence analyst at Société Générale, noted. “What it does [the Paris attacks] is reassure people there is a need.” |
| “[It brings] home the proximity of all the problems and so it was clear that Europe would not be cutting budgets any more.” | “[It brings] home the proximity of all the problems and so it was clear that Europe would not be cutting budgets any more.” |
| British companies such as BAE, Chemring and Cobham are viewed as likely to gain financially from a prolonged aerial campaign. BAE, which employs more than 88,000 people around the world, notched up profits of £508m in the first six months of this year. | British companies such as BAE, Chemring and Cobham are viewed as likely to gain financially from a prolonged aerial campaign. BAE, which employs more than 88,000 people around the world, notched up profits of £508m in the first six months of this year. |
| According to figures from ADS, the industry body, the defence sector employs 146,000 people in Britain and makes £22bn in sales a year. It accounts for exports worth £7.4bn each year, making Britain the world’s second-biggest arms exporter after the US. | According to figures from ADS, the industry body, the defence sector employs 146,000 people in Britain and makes £22bn in sales a year. It accounts for exports worth £7.4bn each year, making Britain the world’s second-biggest arms exporter after the US. |
| Allied to this, the security industry – which covers everything from policing cyber-attacks to controlling large events such as the Olympics – employs a further 71,000 people, earns £8.5bn in annual sales and exports £2.4bn worth of goods and services. | Allied to this, the security industry – which covers everything from policing cyber-attacks to controlling large events such as the Olympics – employs a further 71,000 people, earns £8.5bn in annual sales and exports £2.4bn worth of goods and services. |
| Even before the Paris attacks, analysts had begun upgrading defence stocks on signs that military spending was about to rise. | Even before the Paris attacks, analysts had begun upgrading defence stocks on signs that military spending was about to rise. |
| This was particularly evident in the US, which is by far the biggest defence market and accounts for 40% of BAE’s annual sales. A strengthening domestic economy and heightened tensions in the Middle East have shifted White House priorities. | |
| Khan said: “Even before the Paris attacks there was a feeling that defence budgets had bottomed out.” | Khan said: “Even before the Paris attacks there was a feeling that defence budgets had bottomed out.” |
| Next year will herald the first rise in US defence spending since 2010. The current two-year spending deal gave the Pentagon an additional $32bn (£21bn) war fund for operations against Islamic State; the next deal, starting in 2016, will hand the US defence department around an extra $56bn over two years. | Next year will herald the first rise in US defence spending since 2010. The current two-year spending deal gave the Pentagon an additional $32bn (£21bn) war fund for operations against Islamic State; the next deal, starting in 2016, will hand the US defence department around an extra $56bn over two years. |
| Europe also looks likely to loosen its purse-strings following the atrocities in Paris. | Europe also looks likely to loosen its purse-strings following the atrocities in Paris. |
| According to Nato figures, from 2009 to 2014 member countries excluding the US cut defence spending by $45bn, a 15% reduction over the five years. | According to Nato figures, from 2009 to 2014 member countries excluding the US cut defence spending by $45bn, a 15% reduction over the five years. |
| This downward trend is now expected to reverse. Analysts at IHS Jane’s, the military sector specialist, reckon Europe’s defence industry is set to reap a $50bn windfall as governments stock up on military hardware and tighten up security. | This downward trend is now expected to reverse. Analysts at IHS Jane’s, the military sector specialist, reckon Europe’s defence industry is set to reap a $50bn windfall as governments stock up on military hardware and tighten up security. |
| Edmund Shing, global head of equity derivative strategy at BNP Paribas, said: “In the UK, the key company to invest in is BAE Systems. BAE is a huge defence supplier to the UK and US in particular, so it is well-placed to see a pick-up in orders and sales from this change in trend in Nato defence spending.” | Edmund Shing, global head of equity derivative strategy at BNP Paribas, said: “In the UK, the key company to invest in is BAE Systems. BAE is a huge defence supplier to the UK and US in particular, so it is well-placed to see a pick-up in orders and sales from this change in trend in Nato defence spending.” |
| The aerial campaign in Syria plays to BAE’s strengths. The British company builds the RAF’s Tornado and Eurofighter Typhoon jets, planes which cost around £64m each. It is also a key industrial partner on the F-35 Joint Strike Fighter built by the US firm Lockheed Martin. | |
| A less obvious, but hugely influential, contribution could come from its Brimstone missiles. A key plank of David Cameron’s pitch to parliament ahead of last week’s vote to back bombing targets in Syria was the Brimstone’s capability for “surgical strikes”. | |
| The prime minister claimed the missile allowed opponents of Islamic State to “strike accurately with minimal collateral damage”. | The prime minister claimed the missile allowed opponents of Islamic State to “strike accurately with minimal collateral damage”. |
| Brimstone is British-designed and made by MBDA, a specialist missile manufacturer owned jointly by BAE, France-based Airbus Group and Finmeccanica of Italy. | Brimstone is British-designed and made by MBDA, a specialist missile manufacturer owned jointly by BAE, France-based Airbus Group and Finmeccanica of Italy. |
| It uses a combined radar and laser guidance system to hit targets, including vehicles travelling at up to 70mph, while deploying a relatively small warhead to limit the blast zone. | It uses a combined radar and laser guidance system to hit targets, including vehicles travelling at up to 70mph, while deploying a relatively small warhead to limit the blast zone. |
| These 1.8m-long hi-tech missiles weigh just 49kg but cost £175,000 apiece. They can be fired from seven miles away and are able to switch direction to another target even after launch due to their steerable fins. Britain’s Tornado jets can each carry 12 Brimstone missiles. | These 1.8m-long hi-tech missiles weigh just 49kg but cost £175,000 apiece. They can be fired from seven miles away and are able to switch direction to another target even after launch due to their steerable fins. Britain’s Tornado jets can each carry 12 Brimstone missiles. |
| Britain’s latest five-year strategic defence and security review (SDSR), released last month, has also laid fertile ground for Britain’s defence industry to thrive. | |
| In the review, David Cameron outlined plans to boost military spending by £12bn. | |
| This huge injection of cash will triple the pace at which Britain buys F-35 jets from Lockheed Martin. It means the Royal Navy will have 24 of the jets to fly off its new Queen Elizabeth-class aircraft carriers, instead of eight, when the first ship launches in 2020. | This huge injection of cash will triple the pace at which Britain buys F-35 jets from Lockheed Martin. It means the Royal Navy will have 24 of the jets to fly off its new Queen Elizabeth-class aircraft carriers, instead of eight, when the first ship launches in 2020. |
| Britain also plans to buy more US-built Reaper drones, nine submarine hunting aircraft from Boeing, and create two new 5,000-strong “strike brigades” that will address threats around the world. | Britain also plans to buy more US-built Reaper drones, nine submarine hunting aircraft from Boeing, and create two new 5,000-strong “strike brigades” that will address threats around the world. |
| The prime minister’s trolley dash around the military bazaars of the west is in stark contrast to the penny-pinching that characterised the government’s previous defence review in 2010. | |
| Back then, Britain was out of Iraq and operations in Afghanistan were winding down. The former coalition government responded by cutting aircraft, ships and personnel (around 17,000 uniformed personnel were given their marching orders). | Back then, Britain was out of Iraq and operations in Afghanistan were winding down. The former coalition government responded by cutting aircraft, ships and personnel (around 17,000 uniformed personnel were given their marching orders). |
| Post-Afghanistan, the increasingly meagre rations served up by lawmakers in Britain and America pummelled defence stocks. The rout led to failed merger talks in 2012 between BAE and Airbus Group, as Europe’s two biggest aerospace and defence firms huddled together to ride out the storm. | Post-Afghanistan, the increasingly meagre rations served up by lawmakers in Britain and America pummelled defence stocks. The rout led to failed merger talks in 2012 between BAE and Airbus Group, as Europe’s two biggest aerospace and defence firms huddled together to ride out the storm. |
| The future for Britain’s biggest military manufacturer looks more rosy now. | The future for Britain’s biggest military manufacturer looks more rosy now. |
| Chemring is another British arms manufacturer that views the hostilities as a potential opportunity. | Chemring is another British arms manufacturer that views the hostilities as a potential opportunity. |
| In its latest annual report, the producer of teargas grenades and guided missile decoys said: “Chemring is well-positioned to benefit from any sustained increase in demand as a result of the conflict in the Middle East.” |