BAE Systems suffered a blow today as the German government confirmed an American upgrade of its jet fighter fleet, the Lockheed Martin (NYSE:LMT)-manufactured F-35.
The new planes will be capable of carrying nuclear weapons, an upgrade that would take too long for Germany’s existing fleet of Eurofighter Typhoons, made by BAE and Italian firm Leonardo.
Options for the German government were the F-35, Boeing’s F/A 18 and BAE/Leonardo’s Eurofighter with the order part of a US$100bn defence spending package promised by Chancellor Olaf Scholz following Russia’s invasion of Ukraine.
Germany will order the airfield-based F-35A version of the Lockheed plane, with the B aircraft carrier option already in use with the Royal Navy.
In a note today, Citigroup picked BAE as one of its defence stocks for 2023, highlighting the increased spending by European governments.
“We remain positive on Defence. European governments have been sluggish to spend, but we believe that orders are coming.
“In 2023, the need for ammunition could increasingly be an important theme in the sector. We see resilient margins, as defence companies benefit from inflation-protected contracts.
BAE Systems and QinetiQ are its two top UK-listed picks.
Shares in BAE Systems edged up 0.1% to 835.4p.