Economy. The war in Ukraine, a delayed windfall for American arms dealers

Economy.  The war in Ukraine, a delayed windfall for American arms dealers
Written by on100dayloans

The thousands of missiles, drones and ammunition sent by the United States to Ukraine have not directly filled the coffers of American arms dealers, but the latter should profit in the longer term from the conflict, with Western countries anxious to muscle their defense against Russia.

Stocks of missiles to be replenished

Washington, like some of its allies, dipped into its stocks to supply the Ukrainian army with its Stinger and Javelin missiles, weapons long paid for by their manufacturers Lockheed-Martin and Raytheon Technologies. Their first quarter financial accounts, which will be released in the coming weeks, should therefore not be excessively inflated.

But we will have to replenish these stocks. The Pentagon thus intends to use 3.5 billion dollars for this purpose, provided for in a law adopted in mid-March, indicated a spokeswoman for the Ministry of Defense. The Javelin is currently produced by a joint venture of Lockheed and Raytheon. Raytheon’s Stinger had ceased production before a $340 million order from the Pentagon last summer.

“We are exploring options to more quickly replenish US stockpiles and replenish depleted stocks from allies and partners,” the spokeswoman said. It will take time to relaunch the industrial base – at the main suppliers and subcontractors – to allow the resumption of production. »

Relative but not insignificant profits

The profits that these groups could derive from these missiles, renowned for their ease of use, should not be extraordinary, believe several experts in the defense sector. According to CFRA’s Colin Scarola, “If 1,000 Stingers and 1,000 Javelins are sent to Eastern Europe every month for the next year, that could be $1-2 billion in revenue.” for Raytheon and Lockheed. A not insignificant sum but to relate to their respective turnovers of 64 and 67 billion last year.

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

Among the largest defense companies in the United States, Lockheed, Raytheon and Northrop Grumman declined to respond. General Dynamics stressed that it had not changed its forecasts since January, while Boeing simply noted that it was up to governments to make their budgetary decisions.

Tensions in the world that benefit sales

Some leaders had implied during the publication of the results of their groups at the end of January that the environment was favorable for their activities. Greg Hayes, CEO of Raytheon, has thus acknowledged that the rise of tensions in Asia, the Middle East or Eastern Europe will undoubtedly benefit international sales, “not immediately” but “later in 2022 and beyond”. His counterpart at Lockheed-Martin, James Taiclet, referred to the “renewed great power competition” likely to drive up the US defense budget.

“The war in Ukraine is reshuffling the cards of the geopolitical order as we have not seen it for 30 years, remarks Burkett Huey, of the firm Morningstar. People are realizing that the world is much less secure and that there is probably going to be a need for increased defense investment that can benefit companies in the sector. »

Same story with Eric Heginbotham, from the Center for International Studies at MIT, for whom Western governments, as in recent years in Asia, “will seek less to lower their spending” in this area.

The difficult American position

In the United States, Joe Biden has proposed a 4% increase in the defense budget, a figure to be put into perspective with regard to inflation. But at least the budget is not shrinking. Germany, after having dragged its feet for a long time on its military spending, announced at the end of February the immediate release of an envelope of 100 billion euros to modernize its army.

In this context, “countries will also probably seek to increase interoperability (of their equipment) with that of the United States, which is after all the pillar of NATO”, adds Eric Heginbotham.

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

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