By Tim Hepher, Cassell Bryan-Low and Joanna Plucinska
FARNBOROUGH, England, July 17 (Reuters) - Spiralling security risks are expected to push defence to the forefront of Britain's Farnborough Airshow, as aerospace and arms makers struggle to keep pace with demand for weapons while cementing a fragile recovery in civil jet and engine production.
With the Ukraine war in its fifth year and a ceasefire in tatters in the Gulf, those risks are also likely to move the ritual contest between Boeing and Airbus
for commercial jet orders down the pecking order at the July 20-24 show.
"The global security environment is arguably more complex and volatile today than we have seen in many, many decades, and we are watching security threats evolve at a breakneck pace," Air Chief Marshal Harv Smyth, head of the Royal Air Force, told an International Air Chiefs Conference ahead of the show.
Weapons makers enter their biennial bazaar witnessing the biggest rise in European defence spending since the Cold War but with unresolved questions about where and how money will be spent.
Some industry leaders warn that defence technology startups developing drones and AI-powered targeting software could disrupt the industry much as SpaceX
"The younger companies are aggressive, not risk-averse," Tom Enders, president of the German Council on Foreign Relations and co-chairman of German defence startup Helsing, told Reuters.
"They spend their own money. Procurement agencies and armed forces increasingly understand this is the way for a dynamic fast-moving industry," said Enders, the former Airbus CEO who also chairs tank maker KNDS.
While some new budgeted funds will be spent on today's warplanes like the Lockheed Martin F-35 and the Eurofighter - both performing displays next week - startups like Helsing and U.S.-based Anduril are pushing AI-driven systems like uncrewed fighter cohorts, despite initial setbacks.
"Valuations are tilting in favour of the defence entrants but...most militaries are still spending the vast amount of their resources on manned platforms," said Byron Callan, managing partner of research firm Capital Alpha.
Organisers told Reuters defence will represent half of the record 1,600 exhibitors at the show, up from 40% historically, with a sharp increase in AI, deep-tech and finance companies.
COMMERCIAL JET SALES, SUPPLY CHAINS
On the commercial side, Airbus and Boeing are expected to announce new orders and disclose customers behind previously booked deals.
But with delivery slots largely sold out well into the next decade, the usual flurry of announcements is likely to attract less attention as investors focus instead on aircraft deliveries, where manufacturers generate most profits.
Air shows can still produce surprises, but industry sources said total deals may struggle to climb far above 300 aircraft, well below some pre-show forecasts of as many as 800 jets. The tally could also include deals that have already been announced.
"Winning orders is not the question. It's not the relevant measuring stick that it used to be because of production capacity constraints," said Jerrold Lundquist, managing director of advisory firm The Lundquist Group.
Aerospace has been wrestling with supply problems since COVID-19, especially for castings and forgings - critical parts made to exacting standards from molten or solid metal.
Fixing such issues is key to a repeatedly delayed target by Airbus to lift single-aisle jet output by about 25% to 75 a month in 2027. Boeing, looking to narrow a gap against its rival and put a floor under declining market share, has signalled it is studying production above currently targeted levels.
"The supply chain...has improved relative to where it was a year or two ago but (not) to the point where Airbus can pursue its goal of 75," said manufacturing expert Kevin Michaels, managing director of AeroDynamic Advisory.
"And as Boeing raises rates, it's surely going to cause issues there as well," he added.
Delays in engine deliveries have been one of the aviation industry's most persistent supply-chain headaches, frustrating aircraft manufacturers and airlines.
GE Aerospace, one of the world's largest jet-engine makers, said conditions were improving but more work remained.
"I do think the supply chain has really turned the corner," GE Aerospace CEO Larry Culp told Reuters. "(There is) more work to do."
(Reporting by Tim Hepher, Cassell Byran-Low and Joanna Plucinska; Additional reporting by Dan Catchpole, Rajesh Kumar Singh, Allison Lampert, Shivansh Tiwary and David Shepardson; Editing by Joe Brock and Jamie Freed)
