The efforts made by Nato allies to make sure Ukraine has enough firepower to fend off Russian troops has meant their own ammunition stocks are running low.
The conflict has consuemed "an enormous amount of ammunition and depleting allied stockpiles”, Nato secretary-general Jens Stoltenberg warned in a recent address. Ukraine is currently firing ammunition at a rate that is “many times higher than our current rate of production”, he added. “We need to ramp up production and invest in our production capacity.”
Countries are aware of the problem and are allocating more of their defence budgets to restocking ammunition. The US and France have both recently signed multi-year contracts with defence companies that will allow them to ramp up capacity, Stoltenberg said.
BAE Systems (BA.), which provides munitions to the Ministry of Defence, has been increasing production at its existing facilities since last year by adding more shifts and taking on more people, chief executive Charles Woodburn told Investors’ Chronicle. It is also adding capacity by bringing in new production lines, plant and forges, but this has “a lead time associated with it” which means that although work started in mid-2022 it will be either later this year or early next year before much of this is ready.
Morten Brandtzæg, chief executive of Nammo, a Norwegian munitions maker, recently told the Financial Times that Ukraine has been firing 5,000-6,000 artillery shells per day, which is similar to the amount a smaller European nation would typically order in a year. As a result, the waiting time for large-calibre ammunition has recently increased from 12 to 28 months, according to Stoltenberg.
At the same time, the US has been decreasing its spending on artillery ammunition – particularly for 155mm artillery rounds – for several years and at current production rates its stocks “would at best last for 10 days to two weeks of combat in Ukraine”, former Lt Col Alex Vershinin said in a recent blog post for the Royal United Services Institute.
BAE Systems also has exposure to the US, where it runs two ‘GoCo’ (government-owned, contractor-operated) facilities that make the ‘energetics’ that go into munitions. But munitions are not a huge part of its overall business.
The stockpile picture is worse for European nations. The UK’s ammunition stocks would only last for eight days of “high intensity combat”, while France’s would run out in four days and Germany’s in two, according to UBS. The Nato standard is meant to be30 days. Woodburn said he could not quantify the scale of BAE’s production for confidentiality reasons.
However, it forms part of BAE’s short-cycle revenue stream that makes up around 10 per cent of its business. This also includes some revenue from MBDA – the missile systems partnership with Airbus (FR:AIR) and Leonardo (IT: LDO) – and flying hours from its Typhoon programme.
UBS analysts said ex-US defence spending is likely to increase to a compound annual rate of 12 per cent between now and 2030, up from 7.5 per cent before Russia’s invasion. They expect European and South Korean arms manufacturers to take more market share as both the US and Russia restrict exports.
UBS has buy ratings on BAE and France’s Dassault Aviation (FR:AM), stating that both are currently priced only on orders already announced, but that these should increase once the UK, France, Australia and Japan publish updated defence reviews.
