South Korean Defense Industry Thrives with Rise in Weapon Orders Due to War
As geopolitical tensions escalate in various parts of the world including the Russia-Ukraine war and the Israel-Palestine armed conflict there has been a surge in weapon orders. South Korean defense companies are also reaping the benefits.
On the 27th (local time), major foreign media analyzed the performance of 15 major defense companies including Britain’s BAE Systems and South Korea’s Hanwha Aerospace. The total order backlog as of the end of last year was estimated to be $777.6 billion (approximately 1,006 trillion KRW), a 10.9% increase from two years ago ($701.2 billion).
According to the Stockholm International Peace Research Institute (SIPRI), global military spending last year increased by 3.7% to a record high of $2.24 trillion (approximately 2,896 trillion KRW). Amid continuing orders from governments, European military spending in particular has seen the steepest increase in 30 years due to the Ukraine war with orders for ammunition, tanks, and more on the rise. Countries have increased new orders to replenish their stocks after providing weapons to Ukraine.
The biggest increase in new orders was at Hanwha Aerospace. Foreign media reported that Hanwha Aerospace’s order backlog jumped from $2.4 billion (approximately 3.1 trillion KRW) in 2020 to $152 billion (approximately 19.6 trillion KRW) at the end of last year. Hanwha Aerospace received a large order from Poland a country neighboring Ukraine. SIPRI reported that due to the increase in weapon orders from Eastern European countries, South Korea’s weapons sales ranking jumped from 31st in 2000 to 9th in 2022.
Rheinmetall a German tank manufacturer, saw its order backlog increase from $14.8 billion (approximately 19.1 trillion KRW) in 2020 to $27.9 billion (approximately 36.4 trillion KRW) in 2022. The order backlog for the first half of this year stands at $32.5 billion.
The trend of increasing military spending by countries is continuing this year. The order backlog of 15 major defense companies analyzed by foreign media is already approaching last year’s annual order amount at $764 billion (approximately 989 trillion KRW) as of the first half of this year.
As countries increase their defense spending, investors are optimistic about the defense industry. The MSCI Global Aerospace and Defense Index composed of aerospace and defense company stocks has risen 25% over the past 12 months. The Stoxx Aerospace and Defense Industry Stock Index in Europe has jumped 50% in a year.
However, despite an increase in new orders, some defense companies in Europe and the United States are struggling to expand production capacity due to supply chain disruptions and labor shortages, unable to fully meet the surging demand.
By. Soo Yeon Oh