Following the onset of the Russia-Ukraine war, the importance of the defense industry in Europe has increased, and global defense and aviation companies have pleased their investors in the first half of the year.
Global Defense Industry and Investor Performance
Shares of the world’s leading defense and aviation companies performed well in the first half of the year, delighting their investors. With the growing importance of the defense industry in Europe after the Russia-Ukraine war, companies have shaped their investment plans accordingly.
Germany’s Defense Spending
German Chancellor Olaf Scholz announced that after the start of the war, his country would comply with NATO’s goal of spending “2% of GDP on defense expenditures.” Scholz also announced an additional fund of 100 billion euros to equip the Bundeswehr with modern weapons.
Performance of European and Asian-Based Companies
Analysts noted that the increase in defense spending in Europe and new agreements were supportive factors for the shares of defense and aviation companies. In the first half of the year, Japan’s Mitsubishi Heavy gained 109.1%, South Korea’s Hanwha Aerospace 100.4%, Germany’s Rheinmetall AG 65.7%, Italy’s Leonardo 45.1%, the UK’s BAE Systems 19.9%, and the US’s RTX Corporation 19.3%.
Japan and the Joint Fighter Jet Project
Japan has given its government the authority to coordinate the development of a joint fighter jet with the UK and Italy. Experts from Japan’s Mitsubishi Heavy, the UK’s BAE Systems, and Italy’s Leonardo S.p.A will participate in the coordination committee. The project, announced in December 2022, aims to complete the design of the fighter jet by 2027 and deploy it to military bases by 2035.
Status of American and European Companies
Among US-based companies, General Dynamics saw an 11.7% increase, French Thales 11.6%, L3 Harris Technologies 6.6%, and Lockheed Martin 3%. China’s China Aerospace International Holdings Limited also gained 1.6%. General Dynamics signed a $922 million contract to organize the IT infrastructure of the US Central Command. Thales signed a contract with Ukraine to provide an air defense system. Lockheed Martin made an agreement with the Saudi Arabian Ministry of Investment and the General Authority for Military Industries to localize parts of the Terminal High Altitude Area Defense (THAAD) system.
Poor Performing Companies
On the other hand, French company Dassault Aviation lost 5.4%, US-based Northrop Grumman 6.9%, Europe-based Airbus 8.2%, German Lufthansa 29.1%, and US-based Boeing 30.2%. Airbus announced that it expects lower operating profit in 2024 than previously stated due to losses in its aerospace division and supply chain issues. Boeing faced sanctions for violating NTSB regulations after a part of a Boeing 737 MAX 9 passenger aircraft’s fuselage detached.
Returns of Defense and Aviation Companies’ Shares in the First Half of the Year (%)
| Company | January-June 2024 Return |
|---|---|
| Mitsubishi Heavy | 109.1 |
| Hanwha Aerospace | 100.4 |
| Rheinmetall AG | 65.7 |
| Leonardo | 45.1 |
| BAE Systems | 19.9 |
| RTX Corporation | 19.3 |
| General Dynamics | 11.7 |
| Thales | 11.6 |
| L3 Harris Technologies | 6.6 |
| Lockheed Martin | 3 |
| China Aerospace International Holdings Ltd | 1.6 |
| Dassault Aviation | -5.4 |
| Northrop Grumman | -6.9 |
| Airbus | -8.2 |
| Lufthansa | -29.1 |
| Boeing | -30.2 |
Developments in the global defense and aviation sector present numerous opportunities and risks for investors. Increased defense spending in Europe and the performance of Asia-based companies continue to change the dynamics in the sector.
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