This article first appeared in The Edge Financial Daily, on November 26, 2015.

EUROPE’S defence industry is set to reap a US$50 billion (RM210 billion) windfall as the Nov 13 terrorist attacks on Paris prompt governments to ramp-up spending on military capabilities spanning cyber security to fighter jets, armoured vehicles and drones in an effort to defeat Islamic State (IS).

France, where Dassault Aviation SA’s Rafale fighter jet is made, has halted plans to cut almost 10,000 military personnel, while Germany will spend an extra €8 billion (RM35.93 billion) on defence and Britain has earmarked a further £12 billion (RM76.17 billion), benefiting companies including BAE Systems plc. Italy said on Tuesday it would devote €1 billion more to security, after the draft budget called for €2 billion of reductions.

European governments are rethinking their defence policies after years of cuts tied to the draw down in Afghanistan and Iraq, and austerity programmes imposed after the global slump. The spending commitments will swell budgets that have begun to revive amid heightened tensions with Russia following last year’s annexation of Crimea, with Britain committing in August to spending 2% of gross domestic product on defence.

“Over the 2015 to 2019 period, an extra US$50 billion will be added to Western European defence spending as a result of changes implemented this year,” said Fenella McGerty, senior analyst for defence budgets at IHS Jane’s. There will be an US$11 billion uplift this year, she said, driven by adjustments in France, Germany and the United Kingdom that began with the Jan 7 assault on the Paris offices of French satirical magazine Charlie Hebdo.

The most immediate response to this month’s attacks saw France join air strikes against IS positions in Syria, with bombing sorties led by Dassault’s Rafales, further burnishing the combat credentials of a warplane that has enjoyed a string of overseas order successes after deployment in Afghanistan, Libya, Iraq, Mali, and the Central African Republic since 2007.

Britain may follow suit, extending its anti-IS campaign from Iraq to Syria, following an announcement from Prime Minister David Cameron later this week.

While recent UK bombing missions have been undertaken by ageing Panavia Tornado aircraft designed for the task, Cameron confirmed in Monday’s defence statement that the Royal Air Force Eurofighters, built by BAE, will get enhanced ground-attack capability, allowing them to play a more active role, and a 10- year life extension that will effectively create two extra squadrons.

Britain will also take all 138 Lockheed Martin Corp F-35 fighters initially ordered and triple the pace of deliveries to 2023, allowing deployment of two new aircraft carriers with a full roster of planes. BAE is an F-35 partner and Rolls-Royce Holdings plc helps make the engines, as it does on Eurofighter.

Cameron also reiterated a commitment to an Anglo-French venture for the development of military drones. Under an agreement signed last year, BAE and Rolls-Royce are working with France’s Dassault, Selex ES Ltd, Thales SA and Safran SA on a model along the lines of General Atomics Aeronautical Systems Inc’s Predator. Thales also has a 25% stake in the Rafale.

Airbus Group SE will offer surveillance and reconnaissance upgrades to its A400M military transport and A330 airborne tanker models, providing operators with a “cheap and simple” option for boosting intelligence gathering, according to Fernando Alonso, head of its military aircraft arm.

Germany’s Defense Ministry said in June it would purchase the proposed European-led air-defence system known as the Medium Extended Air Defense System and opened bids for new multi-purpose combat ships as part of a force modernisation.

Asymmetric military campaigns would require smaller calibre ammunition, with shares of German armaments specialist Rheinmetall AG up more than 8% since the Paris attacks. Sweden’s Saab AB won an order on Tuesday to supply hand-held rocket launcher to the Austrian armed forces which starts next year.

Cyber security has been the other main focus of spending announcements, with Britain saying on Tuesday it would spend £1.9 billion over five years countering IS’s use of the Internet for planning, propaganda and online attacks, creating a specialist task force to seek out its communications.

The North Atlantic Treaty Organization has also been testing cyber defences designed to counter rogue states and terrorists, including week-long exercises involving simulated Internet attacks on military radars.

US companies also stand to benefit from Europe’s rearmament, with two of three major new spending commitments announced by Cameron involving trans-Atlantic deals. Boeing Co won a contract for nine P8 torpedo-fitted maritime patrol aircraft, and 600 Scout armoured vehicles built by General Dynamics Corp will form the core of new “Strike Brigades” due by 2025.

The new focus has also brought cuts. Britain plans to make £11 billion of savings in military and intelligence operations to fund new gear, Cameron said, including land sales and civilian job cuts. The UK will also procure only eight Type 26 frigates from BAE, down from 13. — Bloomberg View