It is still dogged by inefficiencies
In the decades after the end of the cold war Western defence budgets dwindled, procurement decisions were put on ice and the industry scaled back its production. The war in Ukraine has jolted it back into action. “Defence budgets move with the geopolitical threat,” says George Zhao of Bernstein, a broker. That threat is now all too clear to governments, leading to a deluge of demand for arms. Nowhere is that more true than in Europe.
Industry analysts expect order books to keep getting fatter as the continent upgrades its armies. If anything, European governments expect the security environment to become more threatening in the years ahead. “The upwards trend of defence expenditure will last,” predicts Lucie Béraud-Sudreau of the Stockholm International Peace Research Institute , a think-tank. Last year Rheinmetall added 2,000 staff to its almost 30,000 workers, and plans to continue hiring.
One problem is a lack of visibility. Michael Schöllhorn, head of the defence division of Airbus, a European aerospace giant, complains that many countries offer little guidance on their long-term spending plans, making it hard for companies to invest. Micael Johansson, boss of Saab, grumbles that his firm has so far taken on all the risk of increasing production.
A final problem is the lack of co-ordination among European allies. Many governments opt to buy tanks and other bits of their war apparatus either from national champions or American firms, limiting the potential for economies of scale among the continent’s defence contractors. While there is much talk of “European defence”, the reality is much more fragmented, says Airbus’s Mr Schöllhorn.
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