MAGGIE PAGANO: Subs deal strengthens UK

Forget the reshuffle. The more important announcement Boris Johnson has made in recent days is the security and cooperation agreement he has signed with the United States and Australia, or AUKUS as it is called.

In a scene that wouldn’t look out of place in a Bond film, the leaders of the three powers came together live via video Wednesday night to reveal the makings of one of the most historic defense partnerships in decades.

While none of the leaders — US President Joe Biden, Australia’s Scott Morrison or Johnson — directly mentioned China, their message was crystal clear. Xi Jinping watch out.

Prime Minister Boris Johnson was in touch with US President Joe Biden and Australian Prime Minister Scott Morrison for a virtual press conference to announce the AUKUS agreement

For the first time, the new AUKUS Pact will enable Australia to build nuclear-powered submarines, using technology and expertise from the US and UK, to create a new Western stronghold in the Asia-Pacific region.

While Biden was confused again and addressed Morrison as that ‘fella down under’, Johnson used his spot in the spotlight to explain how AUKUS will be a big boost to new jobs and investment in the UK, and of course he couldn’t. resisting to add will help “level up” across the country.

So it could be. Shares in Rolls-Royce and BAE jumped on the nightly news as both companies are involved in building submarines and related technologies.

At Barrow shipyards in Cumbria, BAE Systems designs and manufactures nuclear submarines for the Royal Navy, the latest being the Astute model.

Rolls-Royce, for its part, is a specialist in nuclear submarine propulsion, and has supplied power for all of the Royal Navy’s nuclear submarines at its Derby plant for the past 60 years.

It’s too early to know the details of the deal — and who gets what and where — but on the face of it, the pact is good for BAE, which generates just over two-thirds of its revenue from the three countries, while Rolls- Royce earns about half of his income from the three.

The timing is also right, as both companies have been hit hard by the pandemic due to their high exposure to civil aviation, an industry that will take years to recover due to the slowdown in long-haul air traffic.

Hargreaves Lansdown’s Laura Hoy says there will be other benefits for BAE and Rolls-Royce as they also have interests in AI, cybersecurity and other surveillance technologies – another part of the new agreement – and so do some of the world’s largest technology companies.

It’s hard not to have sympathy for the French – also a nuclear power – who have been left out in the cold. In any case, for the time being it seems that the French deal with Canberra to supply diesel submarines has been withdrawn.

If the trio are sensible, they will find a role for the French, one of NATO’s biggest military expenditures next to the UK, and not a country to turn down.

Whether or not you agree to higher defense spending, the new pact indicates that higher spending is here to stay and that Biden is no less eager to turn off the tap on defense spending than Trump.

Holding defense stocks has suddenly become much more defensive.

Marlboro man

It’s time for some of the city’s major investors to hold up a mirror to rethink their mission statements and compare them to what they’re doing in the field.

The latest example of the contrast between the two is how so many of the UK’s major institutions have switched to accept Marlboro owner Philip Morris’s offer for Vectura, the inhaler business.

However, most of those same investors are eager to voice their concerns about ESG issues, and how much they care about the environment, diversity and other sensitive issues.

But there is a reason to accept big tobacco’s money in exchange for Vectura’s shares, which is that they believe Philip Morris’ boss when he says he wants to quit smoking, and that it is positive to support him to to take that step.

If so, they should say so. Why else would shareholders believe them on any other matter?

Market driven

While walking through my local Waitrose car park earlier this week, I overheard two young guys talking about the shortage of truck drivers.

One said to the other: ‘Did you hear, they shorten the test for trucks and supermarkets pay bonuses for new drivers. I’m thinking about quitting my job and going for it because I can double my pay.’

The other replied, ‘I’ve already stopped mine. Start training next week.’

Maybe the market is working.

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