Increased Weapon Orders Due to War... South Korean Defense Industry Benefits

Last Year Global Military Spending Up 3.7%
South Korea Weapon Sales Ranking 31st→9th
MSCI Defense Index Up 25% in One Year

As geopolitical tensions escalate worldwide, including the Russia-Ukraine war and the Israel-Palestine armed conflict, weapons orders have surged. They have increased by more than 10% in the past two years alone. Consequently, South Korean defense companies such as Hanwha Aerospace are also benefiting.

On the 27th (local time), major foreign media analyzed the performance of 15 major defense companies, including the UK's BAE Systems and South Korea's Hanwha Aerospace, revealing that as of the end of last year, the total order backlog amounted to $777.6 billion (approximately 1,006 trillion KRW). This figure represents a 10.9% increase from two years ago ($701.2 billion).

[Image source=Pixabay]

According to the Stockholm International Peace Research Institute (SIPRI), global military spending last year rose by 3.7% to $2.24 trillion (approximately 2,896 trillion KRW), marking an all-time high. As governments continue to increase orders, European military spending, in particular, has risen at the steepest rate in 30 years due to the impact of the Ukraine war, with increased orders for ammunition, tanks, and more. Countries have increased new orders to replenish stockpiles after supplying weapons to Ukraine.

The company with the largest increase in new orders is Hanwha Aerospace. Foreign media reported that Hanwha Aerospace's order backlog surged from $2.4 billion (approximately 3.1 trillion KRW) in 2020 to $15.2 billion (approximately 19.6 trillion KRW) at the end of last year. Hanwha Aerospace received large orders from Poland, a country neighboring Ukraine. SIPRI noted that due to increased weapons orders from Eastern European countries, South Korea's ranking in global arms sales jumped from 31st in 2000 to 9th in 2022.

German tank manufacturer Rheinmetall's order backlog increased from $14.8 billion (approximately 19.1 trillion KRW) in 2020 to $27.9 billion (approximately 36 trillion KRW) in 2022. Its order backlog for the first half of this year reached $32.5 billion.

The trend of expanding military spending continues this year as well. According to foreign media analysis, the order backlog of 15 major defense companies reached $764 billion (approximately 989 trillion KRW) as of the first half of this year, already approaching last year's annual order volume.

As defense spending increases worldwide, investors are optimistic about the defense industry. The MSCI Global Aerospace & Defense Index, composed of aerospace and defense company stocks, rose 25% over the past 12 months. Europe's Stoxx Aerospace & Defense Stock Index jumped 50% in one year.

However, despite the increase in new orders, some European and U.S. defense companies are struggling to expand production capacity due to supply chain disruptions and labor shortages, preventing them from fully meeting the surging demand.