Defense Contractors

Thales, Finmeccanica say geopolitical uncertainty boosts defense, security spending

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Thales CEO: Geopolitical risks create opportunities
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Global geopolitical uncertainty has pushed defense to the top of national agendas, helping prop up sales at major defense products suppliers, CNBC has been told.

Speaking to CNBC at the sidelines of the Singapore Airshow, Patrice Caine, chairman and chief executive of French aerospace, transport and defense company Thales, said, "All the countries we deal with continue to invest massively in their security and in their defense."

In Asia Pacific, for example, Thales is currently involved in a bidding war for the contract to supply and maintain Australia's new fleet of submarines, a deal that is reportedly worth A$50 billion ($35.83 billion). Thales owns a stake in French naval defense company DCNS which is one of the bidders; other bidders are from Japan and Germany, with a decision to be made mid-year.

Brent Lewin | Bloomberg | Getty Images

Caine's views were echoed by Giovanni Soccodato, executive vice president of strategy at Finmeccanica, the Italian industrial group. Soccodato told CNBC that demand for security, defense and aerospace products was growing, with Asia Pacific demand unscathed by the region's economic slowdown.

"Because this area is still seeing some tensions, it's still seeing some increased development in security and safety infrastructures, and all these needs defense," he said.

The ongoing civil war in Syria, North Korea's aggressive moves in recent months that included a nuclear test, and China's territorial claims in the South China Sea are just a few examples of the heightened political tensions that are spurring countries to invest more in defense and security.

Both suppliers reported seeing particularly robust demand from the Middle East. "For them it's a top priority," Caine said.

Thales' results for the six months to June 30, 2015 showed the company's order book from the Middle East for aerospace, transport, defense and security products was 1.68 billion euros ($1.87 billion), a leap of 158 percent on-year, and second only to sales to Europe.

The Middle East has been engaged in particularly heavy conflict since 2011, when the Syrian civil war broke out. Since then, the terrorist group which calls itself the Islamic State has occupied large swathes of land in Syria and Iraq, adding to further instability in the region.

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Iran is another area of new opportunity for security and defense companies, after the country returned to the international market last month when U.S.-led sanctions were lifted.

Already Iran's national carrier, Iran Air, has signed a 1 billion euro deal with French-Italian aircraft manufacturer ATR - a joint venture between Finmeccanica and the Airbus Group - for 20 new-generation aircraft.

Soccodato said his company had had good relations with the Persian state in the past and that it was looking to expand that relationship once all sanctions are fully lifted.

"We will follow opportunities and develop opportunities [with Iran]," he said.

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