Global Defense and Aerospace Companies Deliver Strong Returns to Investors in H1 2024

Strong Performance Driven by Increased Military Spending and Strategic Partnerships

Global defense and aerospace companies delivered impressive returns to investors in the first half of the year, buoyed by increased military spending and strategic partnerships. Following the Russia-Ukraine war, European companies have particularly focused on the defense sector, with analysts highlighting the war’s role in making defense industries more critical in Europe. Companies have adjusted their investment plans accordingly.

Germany’s Chancellor Olaf Scholz announced that his country would adhere to NATO’s goal of spending 2% of GDP on defense following the war’s onset. Scholz described the conflict as a “turning point” and introduced an additional €100 billion fund to equip the Bundeswehr with modern weapons.

Increased military spending by European governments aims to enhance supply and mobility capabilities. The EU has launched new organizations, decisions, and funds to boost the defense capacity of both the Union and member states.

Noteworthy Performances by Asian and European Companies

Asian companies stood out, with Japan’s Mitsubishi Heavy delivering a 109.1% return to investors, South Korea’s Hanwha Aerospace yielding 100.4%, and Germany’s Rheinmetall AG increasing by 65.7%. Italy’s Leonardo rose by 45.1%, the UK’s BAE Systems by 19.9%, and the US’s RTX Corporation by 19.3%.

In the US, General Dynamics saw an 11.7% increase, France’s Thales grew by 11.6%, US-based L3 Harris Technologies rose by 6.6%, and Lockheed Martin by 3%. China’s China Aerospace International Holdings Limited also posted a 1.6% gain.

Strategic Developments and Projects

Japan’s parliament authorized the creation of a joint coordination committee with the UK and Italy for a fighter jet development project, aiming to form the “Global Combat Air Program (GCAP) International Government Organization” in 2025, with Japan initially leading. Mitsubishi Heavy, BAE Systems, and Leonardo S.p.A. experts will collaborate on the project, targeting completion of the jet’s design by 2027 and deployment by 2035.

Mitsubishi Heavy Industries benefited from news about completing the design of a new-generation nuclear reactor and starting construction of the production facility. Hanwha Aerospace gained prominence in the global defense market due to the Ukraine war and rising export demands.

Rheinmetall AG received an €8.5 billion artillery ammunition order from the German army, expecting annual sales to grow by one-fifth through 2026, targeting €13-14 billion in sales and over 15% operating profit. The company also signed sponsorship deals with Düsseldorfer EG hockey club and Borussia Dortmund football club.

BAE Systems began constructing the first Hunter-class heavy frigate for the Royal Australian Navy and delivered a new Amphibious Combat Vehicle to the US Marine Corps in February. RTX Corporation’s strong financial performance positively impacted its stock.

General Dynamics attracted institutional investors, enhancing its stock market credibility, and secured a $922 million contract to organize the IT infrastructure of the US Central Command (CENTCOM). Thales signed a contract to provide air defense systems to Ukraine, while Lockheed Martin agreed to purchase 25 rocket launch vehicles from Firefly Aerospace and signed deals with Saudi Arabia for localized production of THAAD system parts.

Mixed Results for Aerospace Giants

Conversely, French company Dassault Aviation saw a 5.4% decline, US-based Northrop Grumman fell by 6.9%, European multinational Airbus dropped by 8.2%, Germany’s Lufthansa declined by 29.1%, and US giant Boeing decreased by 30.2%.

The US National Transportation Safety Board (NTSB) imposed sanctions on Boeing for leaking non-public investigation information about an incident involving a Boeing 737 MAX 9. As a result, Boeing was barred from accessing unpublished investigation data and subpoenaed for an investigation hearing in Washington in August.

Airbus’s stock fell after reducing its annual commercial aircraft delivery target and earnings forecast due to aerospace division losses and ongoing supply chain issues. Lufthansa’s shares dropped despite reports of the company’s interest in entering the defense sector.

Source: AA / Prepared by Irem Yildiz

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