The defence space is seeing renewed policy focus globally, especially in Europe where we are witnessing a scale-up in spending after years of stagnation. What kind of investment trajectory are you pencilling in for EMEA? How long and sustainable is this growth runway?
Benjamin Heelan: In Europe, for the past two to three years since the invasion of Ukraine, we have been rebuilding our defences. We have realised that Europe needs to be able to step up and provide support to Ukraine. But what has caused the sector over the last six months to go particularly parabolic is that Europe has woken up to the fact that we are entering a decade of hard power. Europe as a region has historically relied very heavily on soft power and as a result, we have just allowed our defence industrial base to get to a very depleted level whether that be around operational readiness, whether that be around inventory.
The real trigger that we had here in Europe was not being invited to those initial peace negotiations between the US and Russia about Ukraine. And it was that event, that realisation that we just were not being taken seriously as a threat or a negotiating power. What we have seen since is most countries in Europe are now stepping up announcing much higher levels of defence spending and that is going to culminate at the end of June.
So, at the end of June, we have the NATO leaders summit which is going to be at the Hague in Europe. We will see the NATO alliance announce 3.5% of GDP as a target for defence spending plus 1.5% on defence related items whether that be cyber security, whether that be infrastructure. So, to just put that into numbers for you versus the end of 2020 fall that could be an extra $370 billion of investment in Europe if we go to 3% and obviously higher if we go to 3.5%.
The second thing to remember is that we have to spend more of that defence spending on equipment. Germany spent roughly 8 to 9 billion euros on actual equipment in 2021. We think that could be 60 billion euros by the end of this decade. I hope those numbers give you some idea about the 10-year trajectory of growth that we see in Europe. We see it as a very structural end market particularly in Europe. But globally, we are entering a decade of hard power investment.
Aerospace is a sector at an intersection of technology, mobility, and global trade as well. What are the key trends you are tracking within this sector and is the post Covid recovery still intact or showing some fatigue?
Benjamin Heelan: In the commercial aerospace sector, the demand environment is pretty healthy, people want to travel – be it in Europe, America, and also countries like India and China where growth is far more significant than what we have in my home country of the UK, but the travel demand is clearly there. What we have struggled with coming out of Covid has been the supply chain. The supply chain has been 9 out of 10 questions that I have had to deal with over the past three to four years. How are things performing? How are we recovering from the pandemic? I think we are actually at a point now where the supply chain performance is pretty good. Things are generally being delivered on time. There are a number of little idiosyncratic items that are still delayed, weighing on deliveries in certain areas, but generally speaking the sector is in a very healthy position.What we have seen year to date is more macroeconomics impacting the sector whether that be through tariffs and through licenses being revoked. Last week the US revoked the licenses of CFM Leap-1C engines into China. The Airbus company that I cover is having to pay tariffs exporting equipment into their facilities from Europe into the US. It is tariffs and licensing and national security that has become the big talking point of the commercial aerospace industry. But from a cycle perspective, supply chain is good, demand is good. The outlook for that sector is very positive.
