Starmer, Takaichi to Address Funding Gap in Fighter Jet Project
2h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
gcap-fighter-jetbae-systems
Fazen Markets Editorial Desk
Collective editorial team · methodology
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UK Prime Minister Keir Starmer and Japan’s Minister for Economic Security Sanae Takaichi are scheduled to meet on 14 June 2026 to discuss the future of the Global Combat Air Programme (GCAP). The high-stakes talks come as persistent questions regarding the United Kingdom's ability to meet its funding commitments threaten to delay the sixth-generation fighter project. The summit aims to align the partner nations—the UK, Japan, and Italy—on financial contributions and production shares for the aircraft, slated for entry into service by 2035. Investing.com reported the diplomatic engagement as pressures mount on the new UK government to clarify its defense spending priorities.
The GCAP partnership, formalized in December 2022, represents a strategic pivot for the UK and Japan from reliance on US defense contractors to a collaborative European-Asian industrial base. The last major international fighter program of comparable scale, the Eurofighter Typhoon, involved Germany, the UK, Italy, and Spain and faced significant cost overruns and delays exceeding 30% in its development phase. The current macro backdrop features elevated global defense expenditures, with NATO members targeting 2% of GDP and Japan embarking on its largest military buildup since World War II.
The immediate catalyst for the meeting is the first comprehensive defense review initiated by the incoming Starmer administration. This review is scrutinizing all major capital projects inherited from the previous government, including the UK's estimated £25 billion share of GCAP development costs. Japan’s government has expressed concern that any revision or delay from the UK could jeopardize the program's timeline, prompting Minister Takaichi’s direct involvement to secure assurances.
The total development cost for the GCAP fighter is projected to exceed £60 billion ($76 billion) shared among the three partner nations. The UK’s initial commitment was estimated at approximately £25 billion ($32 billion). This figure is now under review against a UK defense budget of £55 billion for 2026. Japan’s defense budget for fiscal year 2026 is approximately 7.95 trillion yen (£40 billion), with significant allocation for next-generation air power.
A comparison of prime contractors shows the scale of involvement. BAE Systems PLC, the UK lead, has a market capitalization of £36 billion. Its Japanese counterpart, Mitsubishi Heavy Industries Ltd, has a market cap of ¥4.8 trillion (£24 billion). Italy’s Leonardo S.p.A. has a market cap of €13 billion (£11 billion). The program aims to produce a fleet of over 500 aircraft, with production shares yet to be finalized.
| Metric | UK (BAE Systems) | Japan (MHI) | Italy (Leonardo) |
|---|---|---|---|
| Est. Dev. Cost Share | £25bn | ~£25bn | ~£10bn |
| Prime Contractor Market Cap | £36bn | £24bn | £11bn |
The program's success is critical for BAE Systems, for which GCAP could represent over 15% of its projected order book for the next decade.
Confirmation of full UK funding would trigger a positive re-rating for defense equities, particularly BAE Systems (BA./L). A secure GCAP contract could add an estimated 5-7% to BAE's valuation based on projected long-term earnings. Japanese defense suppliers like Mitsubishi Heavy Industries (7011.T) and avionics specialists Mitsubishi Electric (6503.T) would also see sustained investor interest. Conversely, any scaling back of the UK’s commitment would negatively impact these tickers and signal broader fiscal constraints on UK defense spending, potentially affecting smaller suppliers like Rolls-Royce (RR./L), the designated engine provider.
A key risk is the potential for intra-alliance friction over workshare and technology transfer, which could lead to delays and cost inflation that erode projected margins. The counter-argument is that geopolitical pressures, including tensions in the Indo-Pacific and Eastern Europe, make program cancellation politically untenable, ensuring a scaled-down version proceeds. Institutional investors are currently net long on European defense stocks, anticipating budgetary continuity, while some hedge funds are shorting sterling-sensitive contractors on concerns over UK fiscal health.
The primary near-term catalyst is the conclusion of the UK's defence review, expected by 31 July 2026. The outcome will define the funding envelope for GCAP. Second, the next GCAP joint government council meeting, scheduled for September 2026, will formalize any adjusted production agreements. Market participants should monitor the GBP/JPY cross, as yen strength could increase cost pressures for Japan if its share of dollar-denominated components rises.
Key levels to watch include BAE Systems' share price support at £13.50, a 10% retracement from current levels that would indicate deteriorating confidence. For the UK government, bond yields on long-dated gilts will be scrutinized; a sustained break above 4.5% for the 30-year gilt could signal market concern over increased borrowing to fund defense projects.
The Global Combat Air Programme is a trilateral initiative between the UK, Japan, and Italy to develop a sixth-generation stealth fighter aircraft. It aims to replace existing fleets like the Eurofighter Typhoon and Mitsubishi F-2. The program consolidates research and development efforts to reduce costs and create an advanced platform featuring artificial intelligence, drone teaming capabilities, and advanced sensors, with a planned operational date of 2035.
GCAP creates a future competitor to US-made fighters like the F-35 Lightning II in the export market, particularly in regions seeking geopolitical alternatives to US equipment. For US suppliers, it represents a mixed picture; while primes like Lockheed Martin face new competition, subcontractors may still secure business providing specialized components to the GCAP alliance, depending on final assembly and technology transfer rules.
Beyond defense, a successful GCAP partnership would significantly deepen UK-Japan economic ties, serving as a cornerstone of their post-Brexit trade relationship. It facilitates broader technology exchange in areas like artificial intelligence, cybersecurity, and advanced materials. A failure to agree on funding, however, could cast doubt on the UK’s reliability as a strategic partner and impact other joint ventures.
The GCAP project's viability hinges on the UK government's forthcoming defense spending review.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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