The Global Defence Industry After the Conflict in Ukraine: One Step Forward, Two Steps Back

The key trend is to get rid of old junk

Weapons manufacturers from developed countries have emerged as some of the principal beneficiaries of the war in Ukraine. The value of military aid to Ukraine pledged by the United States, the E.U. and their closest allies in other parts of the world has already reached an estimated $3 billion. It is hard to pinpoint a more exact number: announcements of upcoming deliveries are seemingly being made by anyone who feels like it, with the statistics representing a mix-up of what has been delivered or will be delivered, with what represents just a potential delivery, or even propaganda-fueled statements meant to demonstrate the West’s unity in the face of Russia’s aggression.

Whatever the real situation may be, the repercussions are already quite staggering: Germany alone has announced it will be setting up a special 100 billion euros fund to finance the rearmament and expansion of its Bundeswehr. According to SIPRI, 2021 saw global defence spending exceed 2 billion euros for the first time, despite the global economic slump in the wake of the pandemic. What is obvious is that military spending will only continue to grow further.

That said, one should not overestimate the impact of the Ukrainian crisis. We are still well below the Cold War-era level of defence spending as far as expenditures on armaments go. The crisis’ intermediate effects are of mixed nature and are more indicative of the industry’s generally precarious current state than anything else. Furthermore, in the medium term, the Ukraine crisis is expected to upend and destabilize the arms market.

Getting rid of old junk

The main trend that has been observed is the desire of some of the key players in the business to get rid of their stocks of obsolete weaponry, especially Soviet-made ones. This is why it often comes to light that some key countries’ advertised arms supplies actually get consigned to their East European allies first, who then, in exchange, ship the Soviet-made weapons they had stored in their arsenals to Ukraine. For example, it recently came to light that Slovenia will provide its T-72 tanks to Ukraine in exchange for Germany’s armoured vehicles. Or it could be that the announced U.S. financial aid will be used to buy back Soviet-made hardware.

The same holds true for many types of Western-made weapons. The scale of shipments of various types of anti-tank guided missile systems (ATGMs) and man-portable air defence systems (MANPADS) has reached a point where this cannot go on like this for much longer without the supplying countries’ running the risk of being left with no weapons for their own needs. And then, it would either be virtually impossible or economically too risky to quickly resume production of these weapons.

According to a report by Reuters, at a mid-April meeting between the Pentagon and the U.S. defence industry's representatives, weapons producers expressed their concerns about the feasibility of ramping up production any further out of fear that should the Ukraine situation change, they might end up being left with the weapons nobody needs anymore. Earlier, Raytheon Technologies’ CEO Gregory Hayes complained that his company had had to grapple with a shortage of weapons parts that are not available on the market but are needed to produce the Stinger shoulder-fired missiles intended for Ukraine. And that it had been suggested to redesign some of the electronics, including those used in the missile’s seeker head.

It might be a daunting task to quickly rebuild supply chains for large-scale manufacturing of many types of weapons, while less-than-large-scale manufacturing tends to be too costly. For now, the reaction of the West's defence industry indicates that it is prepared to take advantage of the opportunity that has presented itself and initiate a new cycle of limited-scale production and R&D efforts to support future rearmament programs. But on the whole, they do not yet see that a certain level of socio-political support for truly sizeable investments in defence production has been reached.

By and large, this dovetails nicely with the somewhat toned-down rhetoric of mostly U.S. military experts who point to the fallacy behind the U.S. politico-military course toward Russia. While it is clear that attempts will continue to be made to heat up public sentiment to a level where this would lead not only to an increase in the size of orders but also to a sweeping modernization of the entire defence industry, the outcome of such attempts remains far from being certain.

The Last Classic War

One of the defining features of the hostilities in Ukraine is the huge quantities of destroyed or abandoned military equipment. According to Russia’s Defense Ministry, since the start of the conflict, the Russian military has destroyed more than 140 Ukrainian military aircraft, more than 100 helicopters, 570 UAVs and 265 surface-to-air missile systems, over 2,500 tanks or other armoured vehicles, and about 300 multiple rocket launchers.

While Russia's losses are smaller, it is nevertheless quite sizeable too.

This is what drives the West's rush to re-equip Ukraine’s armed forces with heavy equipment. But the question is whether this obsession with heavy conventional weapons will be long-lasting and sustainable.

Another defining feature of combat tactics demonstrated in Ukraine has been a propensity for a rapid change in the way fighting is being performed. Therefore, it is plausible to suggest that, following the end of the hostilities, adjustments are likely to be made to choosing specific types of weapons optimal for modern warfare where speed, accuracy, and manoeuvrability have become critical factors.

The debate is likely to go beyond discussing the future of the tank, shifting the focus instead to measuring the real effectiveness of the traditional ATGMs and MANPADs in real war settings. While Ukraine’s military has been provided with some humongous quantities of MANPADs, given that direct combat engagements have been kept to a minimum, they have so far had only a limited impact on the campaign’s course.

Every major military conflict serves to help adjust in a major way one’s understanding of what modern warfare is all about. It has already become clear that the conflict in Ukraine will be no exception to this general rule.

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