A PARTICULAR media story caught my eye last week. One that should come as no real surprise but is still worth highlighting because the devil is in the detail and many of you reading this might have missed it.
The timing of the story occurred just a few days after another story that made media coverage when five pro-Palestinian protesters were jailed at Glasgow Sheriff Court after they occupied the roof of a factory in Govan of the French firm Thales.
The company has often been targeted by activists because it has partnerships with Israeli companies, although Thales – as you might expect – denies it supplies the Israeli military.
In jailing the activists, much was made of the £1 million of damage reported to have been caused to the weapons equipment factory, including by the use of what the sentencing sheriff described as “pyrotechnics and smoke bombs”.
I’m not in the business of disputing the financial figure attributed to the damage but I thought it told us a lot about the often upside-down world and the value we ascribe to things when I read the Glasgow story and then a few days later another very different story.
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This second story was one in the Financial Times (FT) and led the paper’s front page barely six days after the jailing of the Glasgow activists. The FT story told in some considerable detail how the world’s largest “aerospace and defence” companies are set to make record levels of cash as they reap the financial rewards from a surge in government orders for new weapons in the increasingly volatile and unstable world in which we live.
To say the profits involved are eye-watering would be a gross understatement, and this is what I mean by the devil being in the detail.
So, to put these sums into some kind of perspective, just pause and consider that according to research carried out by Vertical Research Partners for the FT, the world’s 15 leading “defence” contractors are forecast to “log free cash flow of $52bn in 2026”. This is almost double their combined cash flow at the end of 2021.
And to give some idea of that devil in the detail, it means that in Europe alone the likes of BAE Systems, Rheinmetall and Sweden’s Saab, which have benefited from new contracts for ammunition and missiles, are expected to see combined cash flow jump by more than 40%.
Across the Atlantic in the US meanwhile, it will of course be America’s five biggest “defence groups” – Lockheed Martin, RTX, Northrop Grumman, Boeing and General Dynamics and their suppliers that serve to rake in something to the tune of $26 billion by the end of 2026, more than double the amount in 2021.
The FT says that Boeing is perhaps the only exclusion in this list given its recent woes with quality control issues and emphasis on aerospace.
But such are the near-record highs in terms of profit that some analysts are already asking questions as to how the industry will spend the money, with share buybacks being one option.
Much of this vast profit-making of course is being driven by government spending to fill order books as a sharp rise in military expenditure takes place against the backdrop of Russia’s war in Ukraine, Israel’s war in Gaza and rising tensions in Asia over China.
To give some idea of what is being spent here in the UK, the Ministry of Defence (MoD) has committed £7.6bn for military aid to Ukraine over the past three years, including for stockpile replenishment and none of this looks likely to tail off as Europe goes through a period of rearming itself.
Again to put this in some kind of context, in 2014 when Russia annexed Crimea, European Nato allies spent $235bn – or 1.47% – of GDP on defence.
In 2023, that figure rose to $347bn (both calculated in 2015 prices), equivalent to 1.85% of GDP. Now in 2024, defence expenditure is expected to reach $380bn and 2% of GDP, according to Nato’s own data.
BRITISH arms manufacturer BAE Systems posted record profits for the year 2023, the firm announced in its latest annual earnings report, published in February. It also reported pre-tax profits of £2.7bn ($3.4bn) on sales of £25.3bn for the year ending December 2023. It was, according to Charles Woodburn, BAE’s chief executive, a year that “brings into focus the vital role we play in protecting national security”.
Since then of course while the war in Ukraine remains the biggest driver for arms spending in recent decades, the war in Gaza is also likely to up the profits.
BAE as we know makes parts for some weapons used in Israeli attacks, including the F35 jet. In fact as the aviation news website Simple Flying, recently highlighted, Britain is the F-35’s only Level 1 partner, significantly contributing to the production of every F-35 fighter jet.
As the website says, “while Lockheed Martin is the prime contractor for the F-35, BAE is a significant subcontractor”.
In fact, BAE on its own website confirms that it holds a 13-15% workshare of each aircraft (excluding propulsion) and there are at least six other British contractors on the F-35. But while companies and contractors are one thing, government is something else again.
Sure, UK arms sales to Israel are dwarfed by US arms supplies. But that said, it’s a well-established fact that Britain has issued more than 100 arms export licences to Israel between the Hamas attack on October 7 last year and May 31 this year according to the Government’s own figures.
And yet since Labour came to power, debate around the issue still continues and Sir Keir Starmer’s government still dithers over banning arms sales to Israel. And all this vast profiteering also comes precisely at the moment when the Prime Minister tells us the UK economy is in a “bad state”.
As I said earlier, I’m not in the business of disputing the financial figure attributed to the damage done by those activists found guilty in Glasgow. Neither am I in the position to condone what has been ruled by the courts as an act of criminality.
But I will say this – what a perversity it is that as the real killing continues in Gaza, a killing of a very different kind is being made in the near-record profits of arms firms. A killing only enabled and perpetuated by some politicians who themselves so need to be held to legal account.
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