US defense contractors see longer term benefits from war in Ukraine

NEW  YORK

U.S. arms manufacturers are not cashing indirectly from the thousands of missiles, drones, and other weapons being sent to Ukraine, but they do stand to profit big-time over the long run by supplying countries eager to boost their defenses against Russia.

Like other Western countries, the United States has turned to its own stocks to furnish Ukraine with shoulder-fired Stinger and Javelin missiles, for instance. These weapons from Lockheed-Martin and Raytheon Technologies were paid for some time ago.    

So these companies’ first-quarter results should not be especially fatter because of the rush to arm Ukraine as it fights off the Russian invasion.    

But those U.S. military weapons stockpiles being tapped for Kiev will need to be replenished.    

The Pentagon plans to use $3.5 billion earmarked for this purpose in a spending bill approved in mid-March, a Defense Department spokesman told AFP.   

The Javelin anti-tank missile is made by a joint venture between Lockheed and Raytheon. The latter’s Stinger anti-aircraft missile had ceased to be produced until the Pentagon ordered $340 million of them last summer.   

The profits that the companies make from these missiles will not exactly be staggering, defense industry experts told AFP.  

 “If 1,000 Stingers and 1,000 Javelins get shipped to Eastern Europe each month for the next year, which is not unlikely given the current pace, in our view, we think it would equate to $1 billion to $2 billion in revenue for both program manufacturers, which is material,” said Colin Scarola of CFRA, an investment research firm.  

Raytheon’s and Lockheed’s revenue figures last year dwarf that amount, however: $64 billion and $67 billion, respectively.      

Some weapons manufacturing executives hinted when they last released quarterly results in late January that the situation around the world would benefit them.    

Greg Hayes, Raytheon’s CEO, said that rising tensions in Asia, the Middle East, and Eastern Europe would lead to higher international sales -- not right away but later in 2022 and beyond.    

His counterpart at Lockheed-Martin, James Taiclet, said he observed: “renewed great power competition” that could trigger higher U.S. military spending.    

“The war in Ukraine reshuffles the geopolitical order, in a way that hasn’t really been seen in the past 30 years,” said Burkett Huey of Morningstar, a financial services company.    

“People are starting to realize that the world is a lot less safe and there’s probably going to need to be increased investment in defense products, which would benefit the contractors,” Huey said.  

Eric Heginbotham, a researcher at the MIT Center for International Studies, said that for Western governments “there will be much less appetite for decreases” in military spending.