Can a defence contractor be a quality business?

BAE Systems can qualify as a high-quality business because its scale, captive customers and privileged access to sensitive defence programs support durable competitive advantages.

• BAE Systems is the largest non-US defence contractor, serving customers across North America, the UK, Europe, the Middle East and Australasia across air, maritime, space, cyber and electronic systems.
• Its scale supports procurement, accumulated testing and combat data, and R&D capacity, with each $1 spent on R&D generating benefits equivalent to $8 because government partners fund the increment.
• Government relationships have lasted for decades, including more than 70 years with Australia, while programs such as the Global Combat Air Program are expected to remain in service beyond 2070.
• Compatibility across platforms reinforces customer retention, as shown by the integration of BAE Systems' APKWS counter-drone capability into the Eurofighter Typhoon for customers across Europe and the Middle East.
• A Special Security Agreement with the US Government gives BAE Systems access to sensitive Department of Defense, Intelligence Community and Homeland Security programs.

Takeaway: Montaka expects these advantages to endure as defence spending rises after years of underinvestment and governments respond to threats from Russia, China and Iran, although government budget cuts remain the key risk.