London: Asian countries will lead the way in defence spending over coming years and competition will be fierce to win arms contracts there and in other emerging markets, according to the chief executive officer (CEO) of French aerospace and defence company Thales.
“Defence spending goes along with the economic growth of a country. I think Asia will be the top (spender),” Thales CEO Luc Vigneron said in an interview with Reuters Insider at the Defence & Security Equipment international (DSEi) show in London.
Growth in defence spending is likely to come from “Asia, where the countries need to invest, Brazil, Russia and India,” said Vigneron.
Weapons makers globally are bracing for more cuts in defence spending sparked partly by this summer’s debt-ceiling deal in the United States (US) - the world’s biggest arms market. The US defence department is cutting at least $350 billion from previously projected spending, and additional cuts could kick in if Congress fails to find more deficit reductions by year-end. Britain also last year slashed its own defence budget 8% to help reduce its deficit - cutting its army, navy and air force.
Thales, Europe’s largest defence electronics supplier, believes the battle to win defence contracts overseas will be fierce as British and American arms suppliers aggressively chase new business in the Middle East and Asia to make up for stalling domestic military spending.
“Those (emerging) markets will be addressed by many competitors and at the same time those markets are showing a will to develop local industry, so the cake will have to be shared among competitors as well as local champions,” said Vigneron. “Will it be enough to compensate to what could happen in the occidental countries? It’s an open question.”
The US and British governments have been pressing hard in recent months to help their big defence contractors win export deals. Vigneron believes Thales will need help from the French government to boost its share of work overseas. “I think we will have to spend more time abroad than in the past,” said Vigneron. “We will have to get more support from our local governments going forward.”
State-controlled Thales expects growth at its aerospace and rail units to minimize the impact on its business of stagnant defence spending by western economies.
“Aerospace operates in defence and commercial markets and what we are looking at is the growth in commercial markets which could be part of the answer to some decrease in defence markets,” said Vigneron, who added that he expected growth in air traffic, which has risen 7% so far this year, to continue.
“In railway transportation the demand is there, even if there is some slowing down in the occidental countries due to budget pressures, the emerging nations are still showing strong demand,” he added.
Shares in Thales, which have fallen 12% in the last three months, were up 0.84% at €25.205 by 01:39 pm, valuing the company at around €5.1 billion.
Thales, which is in talks over a tie-up with French aerospace firm Safran, in July said first half earnings rose 48% to €303 million, fuelled by aviation and transport growth and a drop in one-off charges.