Political tension in Europe, stoked by the Russia-Ukraine war and Washington's push for European countries to spend more on protecting themselves, will boost growth for defence companies, the chief executive of Swedish conglomerate Saab has told The National.
“One thing that is absolutely dominating the discussion now is that Europe must step up and take more defence responsibility, which means that it will spend more on defence as part of GDP. That, of course, opens up opportunities for us,” Micael Johansson, who is also president of the Stockholm-based group, said on the sidelines of the International Defence Exhibition and Conference (Idex) in Abu Dhabi.
US President Donald Trump, critical of the low defence spending of Nato nations during his first presidential term, has begun his second stint in the White House with the same demand. He has urged Nato members to increase their defence spending to 5 per cent of gross domestic product, from the current target of 2 per cent.
Earlier this month, US Secretary of Defence Pete Hegseth toured Europe and said America would no longer tolerate an imbalance in its relationship with Europe over defence. He added that military spending of 5 per cent of economic output is a goal European nations must achieve to meet their own security requirements, and not depend on the US.
Saab, which manufactures Gripen fighter aircraft, air traffic control systems and radars among other products, had invested in boosting its production capacity even before the Russia's invasion of Ukraine, nearly three years ago. Those investments are expected to support the company in meeting the rising demand as European nations boost defence spending, Mr Johansson said.
“On our weapons side, we started this investment quite early, and now we've invested even more, of course, to quadruple output on our munitions side, which is something that will come into play more and more this year and next year,” he said.
European defence stocks including Germany’s Rheinmetall, Saab and UK’s BAE Systems surged last week in anticipation of companies winning more defence contracts.
Saab's shares, which closed 2.85 per cent higher on Wednesday, gained 1.67 per cent during early trade on Thursday.
Sweden is Saab’s biggest market, followed by the rest of Europe, with sales worth 26.1 billion Swedish kronor ($2.44 billion) and 15.8 billion kronor, respectively, by the end of last year. It also sells weapons to other markets including North America, Latin America, Asia and Africa.
The company recorded sales worth 63.7 billion kronor last year, up 23.5 per cent from the previous year. It expects 12 per cent to 16 per cent organic growth in sales this year.
A number of defence products offered by the company are expected to be in demand as geopolitical tensions continue to remain high in the region, Mr Johansson said.
“We have advanced weapon systems with support weapons and the tank weapons and also missile capability. Those two areas are the ones that are growing the most, but also training in simulation. So many defence forces need sort of increased training, because they're increasing the forces as such, and they need to be more prepared.”
In 2024, global defence spending reached $2.46 trillion, up from $2.24 trillion in the previous year, driven by Europe and the Middle East and North Africa amid continued security challenges, a recent report by the International Institute for Strategic Studies found.
Defence requirements have gone up in Europe amid Russia-Ukraine war. Europe and its allies, including the US, have been supporting Ukraine with billions in weapons and funding.
The UK's BAE Systems is also bullish about demand rising for its products.
“We have demand and we think that continues,” Brian Gathright, vice president of business development, platforms and services at BAE Systems, said.
“Certainly, the Ukraine conflict has kind of revalidated some of the importance of the role of armour in land combat, the importance of artillery and so we're seeing strength across our offerings in that space.”
The company is displaying its Amphibious Combat Vehicle at Idex, which has operational capabilities on water as well as on land, with demand continuing to rise. Currently, it is being manufactured for use by the US marine corps and BAE expects demand for the vehicle in GCC as well as other countries.
“Globally, the United States is our largest customer. We have significant home market customers and we have a host of international customers, with the orders we received in Czech Republic and Slovakia. The UK is a major customer for us, across all of our business,” Mr Gathright said.
Another European defence company MBDA said the context today is favourable to sell more weapons in Europe.
“We have increased defence spending in Europe, and MBDA is a major missile supplier of our domestic market,” Patrice Hajjar, MBDA’s Middle East vice president, Sales and Business Development Directorate, said.
The company's main markets comprise France, the UK, Germany, Italy and Spain, with plans to expand in the Middle East, Mr Hajjar added.
