Economy War in Ukraine is a delayed surprise for US arms dealers

The thousands of missiles, drones and munitions sent by the United States to Ukraine have not directly added to the coffers of American arms dealers, but the latter should benefit from the conflict in the long run as Western countries seek to bolster their defenses against Russia.

Stocks of missiles will be replenished

Washington, like some of its allies, has used its stockpiles to supply the Ukrainian army with Stinger and Javelin missiles, weapons long paid for by their manufacturers Lockheed-Martin and Raytheon Technologies. Therefore, their first quarter financial statements, which will be released in the coming weeks, should not be overstated.

But we will have to replenish these reserves. Thus, the Pentagon intends to use for these purposes 3.5 billion dollars provided for in the law adopted in mid-March, the press secretary of the Ministry of Defense indicated. The Javelin is currently manufactured by a joint venture between Lockheed and Raytheon. Raytheon’s Stinger was discontinued before the Pentagon received a $340 million order last summer.

“We are exploring options to replenish US stocks faster and replenish depleted stocks with allies and partners,” the spokeswoman said. It will take time to restart the production base – at the main suppliers and subcontractors – to resume production. »

Relative but insignificant profit

The profit these groups can make from these missiles, known for their ease of use, should not be extraordinary, say some experts in the defense sector. According to CFRA’s Colin Scarola, “if 1,000 Stingers and 1,000 Javelins are sent monthly to Eastern Europe over the next year, that could amount to $1-2 billion in revenue” for Raytheon and Lockheed. Not a small amount, but relative to their respective turnovers of 64 and 67 billion last year.

“Raytheon probably makes a lot more money selling Patriot defense systems to Saudi Arabia than it does Stinger missiles,” said Jordan Cohen, an arms sales specialist at the Cato Institute think tank. They will not necessarily want to devote too many resources to this. »

Among the largest US defense companies, Lockheed, Raytheon and Northrop Grumman declined to respond. General Dynamics stressed that it has not changed its forecasts since January, while Boeing simply noted that governments must make their own budgetary decisions.

Tensions in the world that benefit sales

Some leaders, when the results of their groups were published at the end of January, signaled that the conditions for their activities were favorable. As such, Greg Hayes, CEO of Raytheon, acknowledged that rising tensions in Asia, the Middle East, or Eastern Europe would no doubt benefit international sales “not immediately” but “later in 2022 and beyond.” Lockheed-Martin colleague James Tyclet mentioned “renewed great-power competition” that would likely increase the US defense budget.

“The war in Ukraine is reshuffling the cards of the geopolitical order in a way we haven’t seen in 30 years,” notes Morningstar’s Burkett Huey. People are realizing that the world is much less secure and that there is likely to be a need for more defense investment that can benefit companies in the sector. »

Same story with Eric Heginbotham of MIT’s Center for International Studies, for whom Western governments, as they have in recent years in Asia, “will be less eager to cut their spending” in this area.

The plight of the American

In the United States, Joe Biden has proposed a 4% increase in the defense budget, a figure that should be adjusted for inflation. But at least the budget is not being cut. Germany, after a long delay in military spending, announced at the end of February an immediate 100 billion euro package to modernize its army.

In this context, “countries are also likely to seek to increase the compatibility (of their equipment) with that of the United States, which is, after all, the backbone of NATO,” adds Eric Heginbotham.

Thus, in mid-March, Germany decided to purchase F-35 fighter jets from Lockheed, which began a process several years before their delivery, when manufacturers receive the bulk of the income. This “F-35-ification” of military forces outside the United States is good news for American companies, and the US military certainly sees a practical side to it, said Eric Gomez, a defense policy specialist at the Cato Institute. “But that makes it harder for the United States to consider pulling back in Europe” at a time when the Biden administration “regularly reiterates that China is its priority (in terms of defense),” he adds.

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