Ritika Janiya
Defense companies are in the spotlight as the demand for military equipment has skyrocketed since the conflict in Ukraine began in 2022. This surge has led to massive orders and a significant increase in production for companies like BAE Systems and Thales. But while business is booming, these firms are anxious about whether this demand will be short-lived or here to stay.
For years, defense spending in many Western countries had been declining. But the war in Ukraine has changed everything. Even though NATO member states are not directly involved in the conflict, they are heavily supporting Ukraine. This has resulted in a sharp increase in the production of weapons and military equipment. NATO countries are also beefing up their own military stockpiles, driven by longer-term concerns about Russia and other potential threats.
BAE Systems, one of the UK’s biggest defense companies, has seen a massive increase in sales over the past three years. Just this month, the company announced that its revenue for the first half of the year reached £13.4 billion—an impressive 13% increase from the same period last year. The company’s order backlog now stands at a record £74.1 billion, signaling the immense demand they are facing. BAE’s chief executive, Charles Woodburn, emphasized the company’s commitment to investing in new technologies and facilities to meet this demand and help their government clients stay ahead in an uncertain world.
But the big question on everyone’s mind is: how easy is it for these defense firms to ramp up production? And how long will this demand boom last?
Boosting production isn’t as simple as flipping a switch. Many defense factories had been running at minimal capacity, or even been mothballed, due to years of low demand. For example, the Nlaw, a shoulder-fired anti-tank missile system designed by Saab and built by Thales in Belfast, hadn’t seen any new orders for years. The production line was nearly shut down. Then in 2022, the UK Ministry of Defence (MoD) placed a massive £223 million order for thousands of these missiles. Restarting and scaling up production to meet such a large order has been a huge challenge for Thales. The company has had to introduce new shift patterns and optimize processes to maximize production.
Thales has also secured a £176 million order from the MoD for a different type of weapon, showing the high demand across various military needs. Alex Cresswell, the chief executive of Thales in the UK, expressed pride in the Belfast workforce for rising to the challenge. He noted that factory output has doubled in the past two years, with plans to double it again in the near future.
Much of the West’s armed forces were not prepared for a major conflict since the end of the Cold War. Their stockpiles of weapons were minimal, with most of their ammunition used only for training purposes. However, the ongoing conflict in Ukraine has depleted these already low stockpiles, and now Western countries are rushing to replenish and expand them.
Andrew Kinniburgh, director general of Make UK Defence, an industry trade body, highlighted the need for significant investment in new production facilities and storage space for armaments. Building more weapons and increasing ammunition supplies is expensive, but NATO countries are finding the money. According to a report from the International Institute for Strategic Studies, NATO’s total spending increased by 11% in 2024, with even stronger growth among European NATO members, who increased their military spending by 19% in real terms.
In the UK, Prime Minister Kier Starmer has committed to increasing defense spending to 2.5% of GDP, up from 2%. This increase comes as Russia has ramped up its own arms production and increased imports from countries like North Korea and Iran. While China denies sending weapons to Russia, it supplies dual-use items—products that have both commercial and military applications.
Experts like Stuart Dee, a research leader in defense and security at the Rand Europe think tank, believe that the increase in military spending across NATO members is unlikely to be temporary. The ongoing conflict in Ukraine, coupled with global security challenges, suggests that higher defense spending is here to stay.
However, defense manufacturers remain cautious. After years of being sidelined, they need reassurance that the current demand will not evaporate overnight. Western governments are trying to provide this assurance by placing long-term orders now, signaling that they are committed to sustaining this growth.
Dr. Cynthia Cook, a senior fellow at the Center for Strategic and International Studies, explains that one of the best ways for governments to reassure defense firms is through long-term, multi-year contracts. These contracts ensure that companies will recoup their investments, making it worthwhile for them to scale up production.
As the world continues to navigate an uncertain future, the defense industry stands at a crossroads, balancing the need for increased production with the hope for long-term stability.
