Aerospace Sector Sees Potential Growth Amid Rising Defence Spending

Global defence spending is rising, presenting an opportunity in the aerospace sector for investors. Juliana Faircloth, VP and Director of Portfolio Research at TD Asset Management, notes that defence spending is driving demand for aerospace products and services. Investors are looking for ways to capitalize on this trend, with a focus on companies involved in defence-related aerospace activities.

Global defence spending is on the rise, presenting a significant opportunity for investors in the aerospace sector. Juliana Faircloth, VP and Director of Portfolio Research at TD Asset Management, highlights that increasing defence spending is driving demand for aerospace products and services. Investors are actively seeking ways to capitalize on this trend, with a particular focus on companies engaged in defence-related aerospace activities.

A recent announcement from AVPL International, a drone manufacturing and training firm, underscores the potential in this sector. The company has committed USD 1 million towards the research and development of defence drones, aiming to boost indigenous development of unmanned aerial systems (UAS) [1]. This investment is part of a broader strategy to reduce reliance on imported components and develop intelligent drones with swarm autonomy and indigenous counter-UAS capabilities.

Union Minister Piyush Goyal has also emphasized the potential for collaboration between Indian and international startups in the defence and aerospace sectors. He noted that India is poised to become a preferred supplier in the near future, driven by innovation, government support, and strong international ties [2]. This suggests a growing ecosystem of startups and established companies that could benefit from rising defence spending.

Investors are also looking at defence stocks for potential gains. According to SIPRI, global military spending increased to $2.4 trillion in 2024, and European countries have been increasing their defence budgets at the fastest pace since the 1950s [3]. The United States, the largest defence spender, is projected to see its annual defence budget rise about 4% for FY2025, reaching $849 billion. This increased spending is expected to drive demand for aerospace products and services, including unmanned systems and space technologies.

Companies like Lockheed Martin, General Dynamics, and L3Harris Technologies are well-positioned to benefit from this trend. Lockheed Martin, the world’s largest defence contractor, offers a discount to its historical average at 17x forward earnings and is projected to grow earnings by around 9.3% in the next 12 months [3]. General Dynamics, with a strong portfolio of defence contracts, is valued fairly at around 19x forward earnings and is projected to grow earnings by over 15% in the next 12 months [3]. L3Harris Technologies, with a potential “Golden Dome” defence system catalyst, is trading at a moderate discount to its historical value and has seen a significant run-up in stock price this year [3].

In conclusion, rising global defence spending presents a compelling opportunity for investors in the aerospace sector. Companies involved in defence-related aerospace activities are well-positioned to benefit from this trend, and investors should consider these opportunities carefully.

References:
[1] https://economictimes.indiatimes.com/news/defence/avpl-international-announces-1-mn-rd-investment-for-defence-drones/articleshow/122245746.cms
[2] https://economictimes.indiatimes.com/tech/startups/scope-for-bridge-between-india-international-startups-in-defence-and-aerospace-sector-union-minister-piyush-goyal/articleshow/122270589.cms
[3] https://www.investing.com/analysis/3-defense-leaders-set-to-gain-from-rising-military-spend-200663286