A quick glance at the news headlines helps to explain why the UK defence industry continues to outstrip many other areas of the economy, a point borne out by the performance of the FTSE 350 Aerospace & Defence index. Geopolitical threats intensified in 2023, and the means of responding to them has been under the microscope, arguably supporting long-term opportunities for defence contractors. The UK remains one of the world’s leading defence exporters, so the deterioration in the global security situation and the consequent reassessment of the threat posed by asymmetrical warfare provides a favourable industry backdrop.
Defence systems are evolving rapidly in the digital age. Established entities such as BAE Systems (BA.) will continue to benefit from traditional procurement contracts with lengthy lead times, but the industry will need to adapt to the changing demands of defence agencies, as it is apparent that the conflict in Ukraine has already informed strategic thinking in the military.
A contract awarded to QinetiQ (QQ.) in the second half of last year gives some idea of the evolution of battlefield systems now under way. QinetiQ came into being through the privatisation of the UK’s Defence Evaluation and Research Agency, so testing and analysis for air, land, sea and target systems is part of the company’s DNA – leaving it in a favourable position to exploit the ongoing changes in defence procurement. At the end of August, the defence contractor’s US subsidiary secured a five-year $224mn (£176mn) deal to provide mission support to the US Space Development Agency (SDA), specifically regarding the US agency’s proliferated warfighter space architecture, essentially a network of hundreds of military satellites and sensors. Control of the skies, or more accurately the exosphere, is critical to emerging battlefield systems, many of which incorporate artificial intelligence technologies – the shape of things to come.