US arms manufacturers in particular benefit from the war in Ukraine

Shortly after Russia fired its first missiles at Ukraine, the stock prices of the world’s largest arms manufacturers skyrocketed. One’s war is the other’s revenue model

And ironically, the war that Russian President Vladimir Putin is waging in his neighbor is making the arms industry in the United States even stronger, experts expect. Russia consumes so much weapons and ammunition in Ukraine that the Russian industry will have to produce mainly for its own use in the near future. US arms exports in particular benefit from this: the US has a global market share of 54 percent and the five largest defense groups in the world are American.

The Americans – and some European manufacturers – not only get a bigger share of the market, the pie itself also gets a lot bigger. Shocked by the Russian aggression, many countries in Europe are setting aside billions of euros extra for defence.

Germany is leading the way. Chancellor Olaf Scholz sets up a fund with 100 billion euros for military affairs. That is double the regular German defense budget. And right now in the US Congress negotiated a defense budget of 782 billion dollars (5.6 percent more than the last fiscal year). Roughly 200 billion is for salaries, the rest goes to new equipment (and maintenance).

Defensive Systems

What weapons will they buy in the near future? And where?

In the short term, experts say, surface-to-air missiles and anti-tank systems are popular. The European Countries That Ukraine Now provide such defensive systems, will want to replace them themselves soon. At least that is possible at the American Lockheed Martin, with a defence-related turnover of USD 58.2 billion (2020). the world’s largest arms manufacturer† And at number two, Raytheon Technologies (turnover: 64 billion dollars).

“Weapons manufacturers benefit enormously from this war,” says Danny Pronk, military analyst at the Clingendael Institute† “In the short and long term. I expect NATO countries to order quite a few new anti-aircraft missiles and anti-tank systems.” The French Thales (turnover, for comparison in dollars: 9.1 billion) and BAE Systems (24 billion dollars) in the United Kingdom are also on the market for this.

Pronk expects that Western arms manufacturers will face less competition from the Russian defense industry in the coming years. In the coming years, this will mainly have to produce for its own armed forces, partly due to the presumably large material losses in Ukraine.

Pronk: “The Russian army had to leave tanks and armored vehicles in Ukraine. Moreover, especially at the beginning of the war, the Russians used a lot of precision guided munitions.”

Russia will want to replace those ‘smart’ bombs and lost tanks and vehicles. Now the Russian arms industry is much smaller than the American one – Russia’s market share is 5 percent. Moreover, the factories there are relatively old. According to Pronk, this offers little room for production for own use and for export.

Sanctions against Russia hit the arms industry hard. For example, the military technology holding company Rostec, which comprises 60 percent of the Russian defense industry, is on the sanctions list. This also applies to Rostec CEO Sergei Chemezov. The oligarch has known President Putin since their time together in East Germany in the 1980s. On Wednesday, the Spanish police reported that Chemezov’s superyacht has been seized in Barcelona.

It is unclear what the sanctions mean for India’s large defense order with Russian manufacturer Almaz-Antey. India, a major customer of the Russian arms sector for many years, is paying $5 billion for five units of the advanced air defense system S-400. They should be delivered now.

Also read: These weapons play a key role in the war in Ukraine

Also Turkey ordered these S-400 systems, much to the ire of the US. NATO member Turkey was subsequently barred from participating in the F-35 project. According to analyst Pronk, the fighter jet from Lockheed Martin and partners is one of the few combat aircraft that can compete with the Russian radar system.

Partly because of this, the F-35 is high on the wish list of many western countries. Monday it was announced that Germany wants to buy 35 fighter jets of the type† They cost over $100 million each. Last year, Finland and Switzerland already ordered F-35s; in 2020 Italy, UK, Netherlands, Norway and Denmark did the same. The netherlands have eighteen F-35s in service

Flourishing Stocks

Who will western countries spend their billions with?

The risers on the stock market give an indication. As the global economy plummeted due to the war in Ukraine, skyrocketing energy and commodity prices, inflation and the aftermath of the coronavirus crisis, stocks of arms manufacturers in the US, Europe and China boomed.

For example, the Lockheed Martin share is now worth about a third more than at the beginning of this year. Raytheon Technologies, producer of, among other things, the anti-aircraft systems Patriot and Stinger, bomber manufacturer Northrop Grumman and tank builder General Dynamics also rose.

Boeing’s share price fell. Although the aircraft manufacturer achieves 40 percent of its turnover with military aircraft, investors are looking more at the problems in civil aviation. This also applies to the pan-European concern Airbus, which not only builds popular passenger aircraft, but is also a major manufacturer of (military) helicopters.

But in general, the stock prices of arms manufacturers also rose in Europe. take it Italian Leonardo† This producer of fighter planes, helicopters and communication systems, among other things, presented strongly improved annual figures last week, and an optimistic forecast. A profit of 587 million euros was made on a turnover of 14.1 billion euros, an increase of 142 percent. The war in Ukraine is good for business, said board chairman Alessandro Profumo. „I am sure that this tragic event in Europe will lead to […] more spending on defense,” he said in a commentary on the annual figures. That day, Leonardo’s share price rose in Milan by 12 percent.

As early as January, Profumo’s American colleagues from Lockheed Martin and Raytheon similar outlook† Lockheed Martin chief executive James Taiclet spoke of the “great power struggle” between China, Russia and the US. “It promises more business for the company.”

Production lines full

And things were not going bad in the international arms industry, says researcher Pieter Wezeman of Sipri, the Stockholm International Peace Institute. “The production lines were already fairly full. World production is recovering quickly from Covid-19.”

The institute has been bringing the international arms industry in pictures† On Monday, Wezeman and colleagues presented their annual report Trends in international arms transfer

Since the 9/11 attacks, sales of arms manufacturers and military service providers have increased almost continuously. Expenditure only experienced a dip during the credit crisis, between 2008 and 2011. While the global arms trade in 2000 was still worth $300 billion, now according to Sipri it is around $550 billion.

“The high imports from Europe, East Asia, Oceania and the Middle East lead to a worrying weapon build-up,” says Wezeman. Europe was the region that imported the most weapons in the past five years, Sipri said. “The serious deterioration of relations between most European states and Russia has been a major driver of the growth of European arms imports.”

In the past five years, especially American and French exports have increased, according to Sipri. The institute works with periods of five years and not with comparisons from year to year to overcome the effect of one-off large orders (fighter jets, for example).

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It is unclear how quickly the arms industry can now benefit from heightened tensions in Eastern Europe and East Asia (Taiwan, South China Sea), says Wezeman. Lockheed Martin reported in January that the company is still suffering from logistical problems due to the corona crisis. The war in Ukraine and the sanctions against Russia could also lead to production problems. Russia is an important supplier of raw materials. Supply will fall, costs will rise.”

Cyber ​​domain

Frank Slijper, who has been following the arms industry for the Dutch peace movement PAX for years, does not expect one specific product to dominate arms sales. “It is mainly one-and-one. And more army, and more air force, and the cyber domain, and special forces

He disputes the idea that there is now only interest in heavy equipment such as aircraft and tanks. That may be useful for a ‘traditional’ war to defend its own territory, but according to Slijper, the armed forces also want to continue investing in lighter equipment for overseas missions.

Slijper worries about increasing armaments. “I don’t go along with the idea that we are no match for Russia. I do not have the impression that we have seriously neglected our military capabilities. Europe needs to work more seriously on cooperation.”

He warns against the power of the large conglomerates in the arms industry, especially in the US. “The consolidation in the US arms industry started right after the Cold War and has not stopped since.” All the mergers and acquisitions have shaped the US defense industry into an immense power bloc, with a lot of influence in Washington DC. According to research by an American think tank In 2020, the five largest arms manufacturers spent $60 million on lobbying. For example, they tried to get the US government to approve arms supplies to “politically sensitive” customers. Patriots for Taiwan, missiles for Chile, fighter jets for Jordan.

But the time of unbridled concentration of power in the US defense industry may be over. The US regulator, the Federal Trade Commission (FTC), made a special decision last month: it blocked the billion-dollar sale of the company Aerojet Rocketdyne. Lockheed Martin was willing to pay $4.4 billion for this rocket engine maker, the last major independent supplier. According to the FTC, the purchase would lead to “unacceptable consolidation in the market for critical national security.”

Frank Slijper of PAX warns of another risk from the current state of the defense sector. Now the NATO member states urgently ship weapons and ammunition to Ukraine, threatens to obscure the view of the equipment. Where are the hundred sniper rifles that the Netherlands donated? Germany’s thousand anti-tank weapons? The five thousand machine guns that Belgium sent to Ukraine? For years, the peace movement has been advocating more control over the international arms trade† That is more important than ever, says Slijper. “Certainly now that the floodgates are opening and the arms trade will only grow.”

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