Rolls-Royce and BAE Systems, two major UK defence contractors, announced upgraded earnings guidance on Thursday, citing sustained increases in global defence spending by governments. Both companies have benefited from heightened geopolitical tensions and strategic military initiatives.
Rolls-Royce, which manufactures jet engines for military and civilian aircraft, turbines for naval vessels, and small nuclear power plants, raised its forecast for underlying operating profit this year to £4.7bn-£4.9bn from the previous range of £4bn-£4.2bn. The company also increased its free cashflow projection to £3.8bn-£4bn from £3.6bn-£3.8bn. Chief Executive Tufan Erginbilgiç highlighted the company’s benefits from recent NATO summit commitments, particularly regarding the Saab GlobalEye airborne warning system and the MQ-4C Triton surveillance platform, both powered by Rolls-Royce engines. The firm has also secured orders for engines powering autonomous drone systems, including the Brontanax drone being developed alongside BAE Systems.
Rolls-Royce’s growth has been driven by multiple factors beyond defence, including strong demand from commercial aviation as long-haul routes recover and increased orders from datacentres supporting artificial intelligence operations. Erginbilgiç noted improved visibility on defence orders following the UK’s publication of its defence investment plan, which confirmed Tempest fighter jet funding through 2030 and allocated £5bn for autonomous weapons development.
BAE Systems, a major supplier of UK weapons systems including tanks, fighter jets, and munitions, upgraded its profit forecast to expect earnings growth of 10% to 12%, compared with the previous estimate of 9% to 11%. The company cited sustained defence budget increases globally and secured several significant contracts, including a deal with Turkey for Typhoon aircraft support and a US agreement to quadruple production of thermal seekers for the THAAD missile system. BAE also maintains a £5.9bn contract with the British government for the HMS Dreadnought nuclear deterrent submarine.
Both companies’ share prices moved upward following the announcements, with Rolls-Royce gaining 5% and BAE Systems rising 2%.
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