New British PM gains early defence win with Canada fighter jet tie-up

By Sarah Young, Tim Hepher and Joanna Plucinska

FARNBOROUGH, England, July 21 (Reuters) - Britain's new government secured an early defence win on Tuesday as Canada joined the delayed GCAP fighter jet programme, part of a wider push by European allies to reduce their reliance on U.S. weapons and military technology.

The move coincides with the Farnborough Airshow, the aerospace and defence industry's premier gathering, with wars in Ukraine and the Middle East driving demand for tools from combat drones and interceptor missiles to AI-enabled military software.

The airshow coincides with new Prime Minister Andy Burnham's first days in office. He named John Healey, who favours hiking the UK defence budget, as finance minister, while giving Health Minister Wes Streeting the defence brief.

The appointments boosted British defence and aerospace stocks on Tuesday, as markets bet companies would benefit from the new government's willingness to make Britain more war-ready. 

"I'm looking forward to working with him in his new capacity," Rolls-Royce  CEO Tufan Erginbilgic told reporters at the show on Tuesday, referring to Healey. "He understands Rolls-Royce and our agenda and how much we contribute to the country."

The new government's first announcement with foreign partners came on the Global Combat Air Programme, the stealth fighter being jointly developed by Britain, Italy and Japan. Canada joined as an observer, marking the first expansion beyond the founding members. 

BAE Systems, Boeing and Saab also signed a deal to advance a partnership to offer Britain a new fast-jet pilot training aircraft based on Boeing's T-7 system, as it looks for a replacement for the ageing Hawk fleet. 

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Healey had previously spent months lobbying the former prime minister to lay out a pathway to spend 3% of GDP on defence by 2030, rather than the 2.68% that the government eventually budgeted for.

"As Defence Secretary, John Healey championed British business, recognising the contribution that the defence sector makes to growth and national security," BAE Systems CEO Charles Woodburn said.

Canada is becoming an increasingly important defence partner for European nations as it looks to diversify its defence spending away from the United States and forge closer ties on the continent.

There will be no financial commitment involved in its observer status, but Canada could join the programme more formally in future, sharing the billion-dollar development bill and potentially ordering the jets. 

Defence companies made up half of a record 1,600 exhibitors at this year's show, highlighting a shift from the usual dominance of commercial aviation and reflecting how conflicts have reshaped spending priorities.

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On the commercial side, aircraft makers Boeing and European peer Airbus have announced hundreds of plane orders at the show, despite some tensions around delays and industry bottlenecks that have affected some airlines.

Reuters also reported Boeing has asked the U.S. government to press the European Union for transparency over a €3 billion ($3.43 billion) loan package to Airbus, rekindling trade tensions after the two sides extended a tariff truce over jet subsidies.

U.S. Trade Representative Jamieson Greer told CNBC on Tuesday that the USTR is looking at the loan "very closely".

"We can't accept a situation where companies don't have to operate under market-based systems, where Boeing has to operate and compete against an Airbus that gets unfair loans," Greer said.

Emirates President Tim Clark also fired criticism at plane and engine makers, saying he expects Boeing's delayed widebody 777-9 aircraft to be delivered in the second quarter of next year as it moves closer to certification.

"We should have had them in April 2020... so if we get them in the second quarter of 2027, that's a bit of a stretch under any circumstances," he said, adding the delays meant the plane risked being overtaken by technology before it was delivered.

"At some point we have to draw a line in the sand."

The U.S. Federal Aviation Administration told Reuters on Monday that it expected the aircraft to be certified late this year or early next year.

(Reporting by Sarah Young, Joe Brock, Tim Hepher, Joanna Plucinska, David Shepardson, Maria Rugamar, Dan Catchpole; Editing by Sharon Singleton and Adam Jourdan)