Plus: Report of the day
IN TODAY’S EDITION
1️⃣ 5 trends now facing the defence industry |
2️⃣ Europe’s largest lithium mine? |
3️⃣ Report of the day |
Hi Intriguer. I once tagged along with a defence and aerospace industry delegation visiting California, and got to see inside some headline-grabbing companies – from big established players like Lockheed Martin, through to newer disruptors like SpaceX.
I signed the world’s most aggressive NDA, but suffice to say the difference in ‘vibe’ was striking: the newer startup assembly floors had rock music pumping, while PhD-educated hipsters in jorts were angle-grinding a jet engine. Some of the bigger, more traditional players had the opposite vibe, as technicians decked out in lab gear quietly inspected a screw.
This was a few years ago, but it was already apparent that these companies could feel the world was changing, and were adapting in their own way. Today’s briefing leads with an update on where the defence sector is today.
Putin arrives in North Korea.
Russian President Vladimir Putin has arrived in North Korea for his first visit to the country since 2000. He’s scheduled to meet his North Korean counterpart Kim Jong Un for talks after the two pledged last year to strengthen military ties. Putin will then travel to Vietnam.
EU leaders fail to agree on Commission President.
Negotiations have failed to produce a second term for Ursula von der Leyen, despite French and German assurances that the bloc was nearing a deal. Negotiations are still continuing for other top appointments, including European Council president, European Parliament leader, and the bloc’s foreign policy chief. EU leaders will reconvene later this month to continue their talks.
Record number of countries meet NATO spending target.
A record 23 out of 32 countries are now meeting NATO’s 2% spending target, according to the latest figures released yesterday (Monday). Meanwhile, Hungary has reportedly dropped its opposition to outgoing Dutch Prime Minister Mark Rutte becoming the next NATO chief, after Rutte pledged Hungary would be able to opt out of certain NATO activities.
EV startup Fisker files for bankruptcy.
US electric vehicle company Fisker has filed for bankruptcy after succumbing to rapid cash-burn. The company had started deliveries of its electric SUV just last year.
North Korean soldiers breach border, again.
South Korean soldiers fired warning shots after North Korean troops crossed over the military demarcation line for the second time this month. The soldiers were engaged in construction work along the border, amid reports Pyongyang is fortifying the area with anti-tank barriers and land mines.
TOP STORY
The world’s biggest arms expo kicks off as the defence industry enters a new era
What’s next for the West’s biggest defence industries?
The world’s biggest defence companies are in Paris this week for the world’s biggest land/air arms conference, Eurosatory.
And Eurosatory itself is bigger than ever this year, with 2,015 exhibitors hawking their wares to private contractors and governments, up from 1,726 in 2022.
Now, that’s all pretty intriguing to us, because the defence industry tends to be a barometer for lots of the broader issues we track closely. So let’s dive into five of the trends currently facing the sector:
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Governments are arming up
Global defence spending reached a record $2.4T last year and it’s showing no signs of slowing. Why? ‘Pax Americana’ is under strain and we’re back in a time of war (Europe, the Middle East) and rumours of war (East Asia).
So, spooked governments are not only arming up at conferences like Eurosatory, they’re also rebuilding their self-sufficiency, with export deals helping drive and sustain that process.
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Cash is flowing
Defence industry revenue is up, though that growth is now weighted towards Europe – this reflects fears of Russian aggression, and growing pressure to hit NATO’s defence spending targets. It also reflects some of the issues facing US companies, including inflation, supply chain, and labour-force retention issues.
Still, there are plenty of willing investors in the sector, which continues to perform strongly as an asset class: one industry index has been generating 15.9% annualised returns the last few years (double the benchmark).
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Companies are hiring
A new survey by the Financial Times suggests major European and US defence companies are now hiring at rates not seen since the Cold War. Ten of the largest companies are aiming to recruit 37,000 staff this year alone.
But they’re bumping up against some hard barriers: eg, university graduates often don't have the right skills, and to the extent the ‘right’ grads are emerging, they’re often being snapped up by other sectors. Meanwhile…
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Opportunities are shifting
Relying on government contracts can bring stability, but it also brings scrutiny, including around your customers: there’s tension between guarding your secrets and affirming your values, while supporting your allies and blunting your rivals.
Against that backdrop, South Korea is carpe-ing the diem, doubling its arms exports to $14B since 2021 – it often sells to countries that can’t access or afford US kit, but who don’t want the strings that Russia or China might attach.
Meanwhile, more nimble tech startups are also disrupting the sector, showing new ways to deliver new capabilities on budget and on time – like the new Ghost Shark underwater drone that Anduril developed for Australia. And…
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Defence is becoming mainstream again
We’ve just had very two public examples drop: several indie artists withdrew from this year’s SXSW festival in Austin due to the US Army’s sponsorship of the event (the Army runs its main modernisation program from Austin).
But the festival organisers stood firm, noting the military’s role in developing key tech, and that “the Army’s sponsorship is part of our commitment to bring forward ideas that shape our world.”
Then last month, Europe’s largest ammunition manufacturer (Rheinmetall) announced it’s sponsoring the nearby German football team, Borussia Dortmund. The move drew backlash from some fans, who said it breached the club’s commitment to a society without violence.
But the club’s chair pushed back, arguing “we see every day how freedom must be defended in Europe. We should deal with this new normality.”
INTRIGUE’S TAKE
Back in 1993, defence industry executives scored an invite to a secret dinner at the Pentagon with the defence secretary, Les Aspin. He basically told the executives that the Cold War was over, defence spending would collapse, and their companies would need to merge to survive.
And… that’s exactly what happened: procurement spending almost halved in a decade, while the number of big defence firms dropped by 90% to just five.
But the world has now changed so much since 1993 (heck, since 2022!). The US has gone from having a defence industry that was too big, to one that’s stretched across multiple commitments, spanning today’s strange mix of WWI (trenches), WWII (air and armour), and WWIII (drones) tech.
So no, we haven’t heard of any more secret dinners to reshape the defence sector again, but the signs are there: the first full review of the US defence industrial base since Eisenhower; $100B in VC funding into defence in the past three years; the EU’s first-ever common defence industry strategy.
We could go on. And okay, we will: the Pentagon’s first-ever defence industrial strategy; the US sharing its super-secret nuclear propulsion tech with another country (Australia) for the first time since 1958. And so on.
So all this to say that fear not, dear Intriguer, but our world is changing.
Also worth noting:
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A French court has barred 74 Israeli companies from participating in this year’s Eurosatory expo, citing the humanitarian toll in Gaza. Russia and Belarus have also been excluded.
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A US poll from earlier this year suggests Americans are evenly split on whether their country spends too much, the right amount, or too little on defence. 44% of respondents also believe the US military isn’t strong enough.
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MEANWHILE, ELSEWHERE…
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🇵🇰 Pakistan: There’s a rice export boom underway, with Pakistan’s sales up nearly 60% year on year. It has its rival/neighbour India to thank, after Delhi’s decision last year to impose rice export restrictions opened a gap for Pakistan, the world’s fourth-largest rice exporter.
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🇷🇸 Serbia: President Aleksandar Vucic has told FT that his government will shortly greenlight Europe’s largest lithium mine, highlighting the “strategic advantage” it could bring to Serbia. The government halted the Jadar project in 2022 after massive environmental protests, but Vucic now says the UK-Australian miner Rio Tinto has provided “new guarantees“.
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🇨🇳 China: Beijing has shot back at the US after reports emerged that the Pentagon had sought to discredit China’s Covid-19 vaccines (in response to China’s attempt to blame the US for the pandemic). The foreign ministry said Washington should “set its mind right, and shoulder its responsibilities as a great power”.
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🇨🇦 Canada: Opposition figures have criticised the government’s decision to conduct a naval visit to Cuba, particularly while Russian warships were there. In response, Canada’s defence minister has said the visit wasn’t to “celebrate“ ties with Cuba, but to deter Russia.
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🇧🇮 Burundi: The world’s largest bank (JPMorgan) has warned that some of Africa’s smaller development banks, like the Burundi-based Trade and Development Bank, could lose their ‘preferred credit’ status. The argument is that these banks aren’t providing enough concessional loans to justify the privilege.
EXTRA INTRIGUE
👀 Here’s what people around the world have been googling
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Workers in the 🇵🇭 Philippines were looking up ’holiday pay‘ after the president declared June 17th a public vacay for the Muslim holiday of Eid'l Adha (the Feast of Sacrifice).
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Folks in 🇮🇹 Italy looked up ‘Claudio Graziano’, the retired general and chair of the Italian state-backed shipbuilder Fincantieri, who passed away yesterday (Monday).
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And pundits in 🇿🇦 South Africa looked up ‘cabinet’ as the re-elected president, Cyril Ramaphosa, negotiates with his new coalition partners over key appointments.
REPORT OF THE DAY
Credits: Reuters Institute.
A new report by Oxford University’s Reuters Institute has found that more people worldwide are shunning the news. Nearly 40% of respondents say they often or sometimes avoid the news, up from 29% in 2017. Respondents also say they find the news repetitive, boring, or somewhat depressing.
Sheesh, if only there were some kind of product, maybe one written by ex-diplomats who’ve been in the room, and who are passionate about keeping folks informed and engaged rather than overwhelmed or bored 🤔.
DAILY POLL
How would you feel if a defence company sponsored your favourite sports team? |
Yesterday’s poll: What do you think about the decision not to invite Russia to the Ukraine peace summit?
🟩🟩🟩🟩🟩🟩 👍 Good – Russia must be isolated until it shows good faith (67%)
🟨🟨⬜️⬜️⬜️⬜️ 👎 Pointless – China and others were right to skip the summit (28%)
⬜️⬜️⬜️⬜️⬜️⬜️ ✍️ Other (write in!) (5%)
Your two cents:
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👍 W.B: “Russia is not a good faith actor and at this point it’s clear this is a modern war of attrition. Ukraine is smart to build up its alliances in the meantime and bet on isolation as their best weapon.”
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👎 M.A: “It isn't much of a peace summit if one of the parties isn't there, is it?”
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✍️ J.R.B: “It would have been appropriate to have Russia decline the invitation, or to accept and face the, for the most part, condemnation, face to face.”
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✍️ Editor’s corner
Thanks to John who wrote in from New Zealand, pointing out that while China’s premier Li Qiang announced visa-free travel for Kiwis last week, it’s unclear when exactly this will commence.