Even as U.K. defense stocks plummeted Friday morning in the wake of Britain’s vote to leave the European Union, one analyst predicted that British defense spending may actually increase in the long run and that partnerships with the American defense industry may come out unscathed.
The U.S. and U.K. have a close relationship, both as partners in national security matters and between the two countries’ defense industrial bases. Britain-based companies, such as BAE Systems, develop platforms for the U.S. military, and the British military buys goods from U.S. companies, such as the F-35.
In one of the biggest purchases between the two countries, the United Kingdom is set to purchase 138 F-35Bs from Lockheed Martin. The decreasing value of the pound means the price tag on these joint-strike fighters will go up in the short term, but Richard Aboulafia, the vice president of analysis at Teal Group, said he doesn’t expect that to last.
“There’s a very serious market reaction today that’s based upon fear,” he said. “The pound might recover in the space of a year or two.”
In fact, if anything, he said he expects Britain’s defense spending to actually increase, something that often accompanies waves of nationalism and “dreams of glory.”
“You talk to folks in Britain, and there really is an awareness that Britain needs to be its own power basically. There’s an implication there that, if anything, defense spending might go up,” he said.
Maureen Schumann, a spokeswoman for Lockheed Martin, said in a statement to the Washington Examiner that the company is still looking at how the Brexit may affect its business with the United Kingdom.
“Lockheed Martin remains committed to our U.K. business, and we will continue to work closely with our partners in government and industry to understand the potential impact that the decision may have,” she said.
Aboulafia said one of the biggest issues facing U.S. defense contractors in terms of the Brexit is how quickly trade terms can be renegotiated with Britain. While President Obama suggested that negotiations on new trade terms outside of those with the European Union could be drawn out, Aboulafia said that may have just been his attempt to influence the vote outcome.
“I assume that we will in fact go back to the negotiating table pretty quickly, but if not, that could be an issue because we have these very smooth free trade terms with the EU that will in part have to be renegotiated,” he said.
BAE Systems and Rolls Royce are two U.K.-based companies that build platforms and engines for the U.S. military, but Aboulafia said most of the things they make for the United States are actually made domestically.
“They’re all domiciled here. Rolls Royce is going to be interesting, but even that, a lot of what the U.S. military buys from Rolls Royce is built in Indianapolis,” he said.
Ultimately, he expects many of the messages of doom and gloom to not play out now that British voters have spoken.
“It’s in everyone’s interest to play up the shock associated with this before the election, and I think it’ll be in everyone’s interest to smooth things out now that the decision has been made,” he said.
