Russia-Ukraine war continues to make global arms industry giants earn money, especially the U.S. and Europe. Strong arms companies, particularly in Europe, aim to increase their production capacity to be able to keep up with the orders.
The famous British company BAE Systems, for example, decided to restart the discontinued production of M777 howitzer, which had succeeded in the war. According to the BAE, Central European countries are interested in M777. The company’s vice president, Mark Signorelli, added that they need order of at least 150 new M777 to start production again.
U.S. military approval is expected to start reproduction. New orders are also coming in for American HIMARS and Anglo-Swedish co-made NLAW portable anti-tank missiles.
U.S. based usual suspects Raytheon Technologies, Lockheed Martin and L3Harris Technologies are also winners of the war. L3Harris received an order worth $200 million to be sent to Ukraine. Raytheon has started using obsolete parts from the old Stingers and has called his retired staff back into office to increase production. Lockheed Martin doubled the production of Javelin anti-tank missiles and increased the production of HIMARS rocket launchers and GMLRS missiles by 60 per cent.
The war ‘relieves’ German Industry
Struggling German industry due to the cutting of cheap Russian gas, has been given a consolation called war. Germany’s automotive and defence company and one of Europe’s leading arms manufacturers Rheinmetall AG, acquired the Spanish explosive manufacturing company Expal for 1.2 billion euros. Armin Papperger, CEO of the company, said the customers will sign contracts with companies who have the capacity. According to Rheinmetall, Expal expected sales of around 400 million euros in 2023.
Rheinmetall shares have gained 115 per cent since January 1st. The company announced that it has increased tank ammunition manufacturing from 70,000 to 140,000 in one year. Rheinmetall, which also increased its cannon production from 70,000 to 110,000, also doubled its mortar production capacity. Papperger noted that they increased their potential medium-calibre ball production capacity from 1.2 million to 2.2 million annually and increased their capacity to produce military trucks from 2,500 to 4,000.
Rohde & Schwarz, who developed German military communication equipment other than Rheinmetall, Traton of Volkswagen, who developed military vehicles together with Rheinmetall, and Krauss-Maffei Wegmann (KMW), the manufacturer of Leopard 2 tanks, are also struggling to fulfil orders.
The German government had recently ordered 100 Panzerhaubitze 2000 self-propelled howitzer to be sent to Ukraine. KMW will be responsible for their production. The contract is said to be worth 1.7 billion euros. These howitzers have recently become a hot topic in the German media, claiming that they are the subject of a complaint in Ukraine because of their maintenance.
KNDS, the joint venture between KMW and France’s Nexter says governments should shape new arms contracts. KNDS CEO Frank Haun underlines that they cannot risk increasing capacity with just speeches and announcements.
The German government’s rearmament programme is also an incentive for its struggling economy. Carl Jonasson, CEO of Snigel Design, a Swedish maker of military gear, did not hide the fact that he was surprised by the size of the order they received from Germany in May.
Eastern and Central Europe find new export markets
In addition to German armament manufacturers, the war industry of the former Warsaw Pact countries has also achieved a significant market with the Ukrainian war.
Sebastian Chwalek, CEO of PGZ, the state-owned weapons and ammo consortium in Poland, said they have an important opportunity to enter new markets and increase export revenues in the coming years. The PGZ consortium controls over 50 companies, from weapons to shipping.
PGZ plans to invest 1.75 billion euros in the next decade, Chwalek told Reuters. That’s more than double its pre-war investment plan. The new production facilities will be built away from the border with Russia’s ally Belarus for security reasons, he said.
In 2023, Chwalek announced that they had reached the capacity to produce 1000 pieces of Piorun MANPAD systems. This figure was 600 in 2022 and 300 to 350 in previous years. The company’s pre-war 2022 revenue target was 1.43 billion euros. With the new situation, it is thought that this income will be much higher at the end of the year.
Czechia is also one of the countries that put the arms industry at the service of war in Ukraine. Prague has sold 2 billion euros of weapons and equipment to Kyiv, Czech Deputy Defence Minister Tomas Kopecny told Reuters. Czechia (then Czechoslovakia), the largest weapons producer after the USSR during the socialist bloc period, has realized its highest arms export since 1989.
David Hac, chief executive of Czech STV Group, the largest ammunition producer in Czechia, said that they would create new production lines for small-calibre ammunition and that they were considering expanding its large-calibre capability. Considering the tight labour market, Hajj added, they are trying to get new workers from a slowing automotive industry.
Another Czech war giant, the Czechoslovak Group, nearly doubled its revenues in the first half of 2022 compared to the same period of the previous year. The Group’s spokesman, Andrej Cirtek, said their sales to the Ukrainian army multiplied after the war in Ukraine started.
Surprise attack from South Korea
South Korea, which has become the world’s fourth largest arms exporter, is also one of the winners of the Ukrainian war. The K2 tanks developed by ROTEM, an affiliate of the Hyundai-Kia Automotive Group, are already targeted by many countries from Mexico to Qatar.
Although Seoul has declared that it will not provide lethal aid to Ukraine directly, it is reported that the United States wants to buy ammunition from Korea to send to Ukraine. When details of the deal surfaced in the Wall Street Journal, the South Korean Defence Ministry insisted that they believed the U.S. was the ammunition’s end user.
Despite all these statements, South Korea’s relation with the Ukrainian war is not new. Last September, South Korea inked the largest arms agreement with Poland in its history to supply 1,000 K2 tanks, more than 600 Hanwha K9 self-propelled howitzers and dozens of combat aircraft to Warsaw. This deal will help Poland to send more weapons to Ukraine.
Customers of Hanwha K9 howitzers include Finland, India, Norway, Estonia, Australia, Egypt, and Turkey.
Limits of the arms industry
Under threat of deindustrialisation, the consolation that Europe found in war has its limits. The defence industry’s renaissance may begin to descend again due to the rising cost of materials and energy and dependence on imports from third countries.
Most of the raw materials needed to produce military products are not mined or are mined in limited amounts in EU countries, Jiří Hynek, head of the Association for Weapons and Defence Industry of the Czech Republic, told EURACTIV. Hynek underlined that most of the crucial materials are imported from Asian and African countries.
The materials that are in short supply on the market today are: all packaging materials, many chemicals but also the cellulose required for manufacturing gunpowder, and synthetic rubber, whose prices are astronomical, Hynek said. The latest material is used for ballistic resistant vests, and the EU is dependent on Asia, especially China, for this substance.
The price of steel has gone from 700 euros per tonne to 3500 euros, while aluminium has risen from 5 euros per kilo to 15 euros, according to Paolo Può, president of the Italian military shipbuilder Cantiere Navale Vittoria. Noting that most of their contracts are signed with the state, Può added that they are asking the government for intervention in the sector.
Rheinmetall also announced that they are stockpiling raw materials. The German arms manufacturer said that they purchased aluminium and important plastics in the first place, adding that they also obtained semiconductors to avoid supply problems in the medium term. The company also mentioned they have significantly increased working capital this year.
In France, on the other hand, the war industry has been experiencing production difficulties since before the Ukrainian war due to the semiconductor and chip problems.
