The war in Ukraine has come as a bonus for defense companies as they register a 17 percentage point in dollar terms since early January. Such out performance has occurred only two other times since 1999 — first during America’s War on Terror (2001) and the Syrian War (2014-till date).
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The biggest gainers have been companies like Lockheed Martin, BAE Systems, and, AEVEX Aerospace which has rallied strongly. BAE alone has seen a three-fold hike in share prices this year.
Lockheed Martin’s Javelin shoulder-held anti-tank weapon, which has been supplied in thousands to Ukraine by the Joe Biden administration has proved itself on the battlefield, inflicting major damage to Russian tanks.
Meanwhile, the stocks of BAE Systems, the largest player in the UK and Europe, are up 26%. While individual companies have done well as a result of this, the entire sector has benefited; in the US, the S&P’s Aerospace and Defense fund has seen an increase of at least 11 percent.
Ahead of the conflict, Gregory J. Hayes, chief executive of American defense giant Raytheon, stated on a January 25 earnings call, “We just have to look to last week where we saw the drone attack in the UAE… and of course, the tensions in eastern Europe, the tensions in the South China Sea, all of those things are putting pressure on some of the defense spendings over there. So I fully expect we’re going to see some benefit from it.”
The Ukraine war has come as a blessing for defense companies with the European Union (EU) announcing a delivery of $1.63 billion in aid to buy arms and the US helping Kyiv with $350 million to date, this is over and above $650 million Washington provided Ukraine last year. The latest security package by the US, the eighth such installment, includes 72 howitzers, 144,000 artillery rounds, 72 tactical vehicles to tow howitzers, and more than 121 Phoenix Ghost tactical drones manufactured by AEVEX Aerospace.
Pentagon spokesman John Kirby told reporters last week that the Phoenix Ghost drones were “rapidly developed by the Air Force, in response, specifically to Ukrainian requirements.”
Militarization Of Europe
Experts believe that the Ukraine War is only a modest opportunity for the arms firms. The prospects of increased militarization of Europe in the years and decades ahead is where the true profits will lie. This is something top officials at arms manufacturers are already talking about when they address shareholders and the business media.
Nations, including Germany, fundamentally pacifistic since the end of the Second World War, are now seeking to reshape their entire military in the wake of Russia’s actions.
Germany has already placed an order for 35 F-35 fighters, the world’s most modern combat aircraft, from US manufacturer Lockheed Martin.
The move came after German chancellor Olaf Scholz said Berlin would increase its military expenditure by a one-off payment of $113bn, and commit to devoting 2 percent of its annual budget on arms expenditure.
“In attacking Ukraine, Putin does not just want to eradicate a country from the world map, he is destroying the European security structure,” Scholz told German legislators in February, in what represented the biggest shift in its foreign policy for 70 years.
US Leading The Way
Last week, the Pentagon played down a classified meeting between the top officials at eight major arms manufacturers – Boeing Defense, Space & Security, L3Harris Technologies, Raytheon Technologies, BAE Systems, Lockheed Martin Corporation, Huntington Ingalls Industries, General Dynamics and Northrop Grumman.
Defense department spokesman John Kirby told reporters it was “part of a normal, scheduled, routine conversation”. But the meeting involved the CEOs of the companies and the talks were classified.
In March, the Biden administration proposed a 2023 Pentagon budget of $813bn, a 4 percent increase of $31bn, from the 2022 spending package the president signed into law that month. It is likely Congress will add to that figure, as it did in 2022.
The overall industry is global in scope. The US is easily the world leader, with 37% of all arms sales from 2016-20. Next comes Russia with 20%, followed by France (8%), Germany (6%) and China (5%).
Beyond the top five exporters are also many other potential beneficiaries in this war. Turkey defied Russian warnings and insisted on supplying Ukraine with weapons including hi-tech drones – a major boon to its own defense industry, which supplies nearly 1% of the world market.
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