U.S. arms manufacturers can see long-term revenue growth as countries want to increase their defensive capabilities after the Ukraine conflict.
Like many Western countries, the US has transferred Stinger man-portable air defense missiles and Javelin anti-tank missiles from its arsenal to support Ukraine. These weapons were purchased by the US military from defense contractors Lockheed-Martin and Raytheon Technologies.
So when the companies’ first-quarter results are released in the coming weeks, they won’t be as strong. However, in the future, their profits are expected to increase because the US defense stockpile needs to replenish to make up for the number of weapons transferred to Ukraine.
The Pentagon plans to use $3.5 billion for additional weapons, according to a budget proposal approved in mid-March, a Defense Department spokesman said. Javelin anti-tank missiles manufactured by Lockheed and Raytheon joint manufacturing. The Stinger air defense missile was discontinued until the Pentagon placed an order for $340 million last summer.
“We are considering options for rapidly replenishing the arsenals of the United States, as well as those of our allies and partners,” a Pentagon spokesman said.
However, defense industry experts assess the profits that companies make from these missile contracts will not be too large, because these are relatively simple weapons.
“If 1,000 Stinger missiles and 1,000 Javelin missiles are delivered to Eastern Europe every month next year, which is possible at the current rate, we think they will bring in about $1-2 billion in revenue,” Colin said. Scarola, an expert at investment research firm CFRA, said. Raytheon and Lockheed’s revenue last year was $64 and $67 billion, respectively.
“Raytheon could make more money selling the Patriot long-range air defense missile system to Saudi Arabia than the Stinger man-portable air defense missile system,” said Jordan Cohen, an arms sales expert at the Cato Institute.
A Ukrainian soldier unloads a US-aided Javelin missile at Boryspil airport in Kiev on February 11. Photo: AFP
Since before Russia’s military campaign in Ukraine began on February 24, several arms company executives have hinted that the world situation is in their favor. Greg Hayes, CEO of Raytheon, at the end of January assessed that increased tensions in Asia, the Middle East and Eastern Europe will lead to higher arms sales, not immediately, but from the second half of 2022 and beyond next year.
James Taiclet, CEO of Lockheed-Martin, thinks great power competition could spur more US military spending.
The war in Ukraine will cause countries to increase their need to buy weapons and equipment. “The conflict has changed the geopolitical order in a way that hasn’t been seen in 30 years,” said Burkett Huey, an analyst at Morningstar, a financial services firm. “People are starting to realize the world is less secure and perhaps need to increase investment in defense. This will benefit weapons manufacturers.”
Eric Heginbotham, a research fellow at the MIT Center for International Studies, said the Ukraine conflict would make Western countries as well as some Asian countries “not willing to cut defense budgets”.
In the US, President Joe Biden has proposed to increase the defense budget by 4%. Germany, which has always been cautious in this regard, changed its policy in late February, after Russia launched a military operation. Berlin announced the immediate disbursement of 100 billion euros to modernize the armed forces.
“Countries are looking to strengthen defense cooperation with the United States, the mainstay of NATO,” Heginbotham said.
In mid-March, Germany said it would buy Lockheed’s F-35 fighter jet. Orders take several years to produce, and then they get paid for most of the money.
Eric Gomez, a defense policy expert at the Cato Institute, said that “the process of F-35ization of the European military” will bring many benefits to US military contractors. At the same time, the US military also wants this, because it and its allies will have similar operating platforms.
“But on the other hand, it also makes it difficult for the United States to pull its attention away from Europe to focus on China, which the Biden administration considers its most formidable opponent,” Gomez said.
Hong Hanh (According to AFP)
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