In this article, you will learn:
How does the international situation affect the U.S. defense industry?
Which companies benefit the most from this?
The U.S. military-industrial complex is loaded with contracts. For example, the replenishment of stingers may not run out until the middle of the next decade! It will take a little less time to replenish Javelin missiles than Stingers, but there are also a lot of them, because both Javelins and Stingers have handed over thousands of them.
"We're at a point where with some things, like artillery, if we wanted to give the Ukrainians more, we'd have to take them away from some of our National Guard units," Mark Kantian, a senior adviser at the Center for Strategic and International Studies think tank, said this summer.
Here is a five-year chart of the Lockheed Martin stock price
As you can see, since February 24, 2022 (the beginning of the war in Ukraine), the share price has increased significantly. Further, the average price of Lockheed Martin's stock over the next twenty months up to today has been much higher than it has been during the three years of the war. You've probably noticed it yourself, though. It must be said that in the structure of all US military assistance to Ukraine during the twenty months of the war, there are few products of Lockheed Martin.
General Dynamics, the manufacturer of the sensational 155 mm shells for Western-style howitzers, also began to do noticeably better after the start of the war. By the way, the fact that the West has set a goal to increase production from 2025,14000 shells per month to 70000,2025 by <> suggests that strategists in Washington expect an intense war in <> as well.
Of course, this will be a high-profile event, as it is widely believed that this will be a turning point in the war, but there is one problem. Analysts in the Western media say that Western desigence makers are delaying deliveries, among other things, because they doubt the possibility of Western aircraft overcoming Russian air defenses. In any case, Ukrainian F-16s will be shot down, and every F-16 supplied by European countries will be replaced by F-35s, Western military officials openly say this. Recall that the cost of one F-35 in the basic configuration is $83.4 million. Other trim levels cost even more.
According to the most optimistic forecasts, the war in Ukraine may end in the second half of 2024, but there are very few analysts who say so. In reality, the war will continue for at least a few more years. It is worth saying that the West is gradually expanding the list of weapons that are supplied to Ukraine. Accordingly, these aid packages are becoming more and more expensive. It is not known what share of the costs of supplying aircraft to Ukraine will be borne by European countries, but we can say for sure that the United States will still play a key role here, because everyone knows that Europe's weapons reserves are quite modest, and all the same, missiles, parts for fighters and the fighters themselves are produced in the United States.
We can say for sure that in the event of an expansion of the conflict, it will be primarily an air war, respectively, and the losses will be mainly in aircraft, and Lockheed Martin will benefit the most from this, since the losses of any aircraft will also most likely be replaced by the F35 and much less likely that the F15 modification of the S/E, because the S/E project is estimated by many as a failure and it is also believed that this is primarily an export project. In any case, Western planes will get even more PR and the neighbors of Iran and Israel will want to replenish their aviation and air defenses, if only because the already existing conflict will increase the likelihood of a new one in the eyes of the governments of the Middle Eastern countries. An arms race in the Middle East will also raise the profits of American companies, because there are many rich oil monarchies in this region.
The events that have already taken place have had a significant effect. American weapons have received strong PR both in Ukraine and in the Middle East. This is evidenced by changes in the demand for American weapons in the world market. Demand has grown strongly, even though American weapons are expensive. Some importers of Russian weapons have terminated contracts due to disappointment in Russian weapons. There is a well-known case when Russia, due to a shortage of weapons, was unable to fulfill its obligation to export to India.
Many of those who broke contracts decided to buy American or European equipment. By the way, even if a country buys European equipment, in most cases, American companies still benefit, since they often take part in European weapons projects to one degree or another.
Another argument in favor of investing in the U.S. military-industrial complex is that, in fact, almost all contracts are signed by the U.S. Department of Defense with just five companies. Here is a list of these companies:
This list is compiled according to the principle of primacy in terms of contract size. The biggest contractor is Lockheed Martin, the second largest is Raytheon, and so on. Data taken from Wikipedia.
The speed and responsiveness required for modern warfare is also the reason why much of defense production takes place under large contracts, according to Brett Velikowicz, a former U.S. Army Special Operations intelligence officer. This is important to say, as it suggests that you shouldn't expect a significant portion of profits to start going to smaller companies.
In June 2021, the President of Indonesia announced a $125 billion plan to modernize his army. The rest of the countries are not far behind. Viet Nam is taking similar measures. Australia has entered into the AUKUS alliance and has also doubled its military budget over the past few years. Japan and South Korea are also buying American F-35 fighters and air defense systems. In 2023, Japan's defense spending is $52.67 billion, but this number is scheduled to double in the coming years. This is stated at the official level, and for this purpose the constitutional ban on spending more than 1% of GDP on defense has even been lifted.
A security dilemma is a situation in which countries interpret increased military spending by their neighbors as measures against them and, in turn, take similar measures. This is how the spiral unwinds. This has often happened in world history and is now happening in Europe and Asia. This fact tells us that the current levels of spending in many countries are not yet marginal.
Today, no one disputes that the world is unstable and could become even more unstable. Unfortunately, wars are still an integral part of international politics. But if you want to make money, international turbulence is an opportunity for you.
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