As Ukraine pleas to fire US arms farther into Russia, cash piles up at arms makers
(Originally published Aug. 27 in “What in the World“) Russia on Monday launched a massive bombardment of Ukraine, prompting a fresh plea from Ukraine’s president for permission to use long-range American missiles to hit targets inside Russia.
Russian forces fired 127 missiles and 109 Iranian-designed Shahed drones into Ukraine, making it one of the largest barrages of the war so far. Ukrainian President Volodymyr Zelensky has been using the success of Ukraine’s incursion across the border into Russia’s Kursk province to argue that the U.S. should lift its remaining restrictions on the use of U.S. weapons against Russia.
U.S. President Joe Biden has methodically relented on most of Kyiv’s demands, but the White House still won’t let Zelensky use long-range Atacm missiles to hit targets inside Russia, particularly air fields. And because they contain American components, the U.S. also stands in the way of France and the U.K. letting Ukraine use even longer-range Storm Shadow cruise missiles to hit those air fields.
Zelensky says Putin’s relatively tepid reaction to the incursion means Biden’s fears that Russian President Vladimir Putin might respond with a nuclear strike are unjustified. White House officials argue that the Atacms wouldn’t do Zelensky much good: thanks in part to the delay in approving their use, Moscow has had time to move many of its aircraft out of range. To counter that, Ukrainian officials are even drawing up a list of targets they’d like to use the Atacms to strike.
Ukraine has meanwhile demanded that Belarus withdraw troops from their shared border. Belarussian President Alexander Lukashenko said last week he was moving troops there after Ukraine moved a third of its own troops to the border.
Tensions continue to rise in the South China Sea, where on Monday 40 Chinese ships blocked two Philippine vessels from resupplying a coast guard ship, the Teresa Magbanua, which has been anchored near Sabina Shoal since April to prevent China from building a base on it.
On Sunday, Manila said a Chinese warship and coast guard ships rammed a Philippine fisheries vessel traveling to Sabina to resupply fishing boats there. Beijing said the vessel was being sent to resupply the Magbanua.
Growing global conflict has led to a surge in government defense spending likely to translate into record cash flow for top arms makers. An analysis by Vertical Research Partners for the Financial Times estimates that the 15 top defense companies will generate $52 billion in free cash flow in 2026 alone.
Of that, $26 billion will go to the top four U.S. weapons manufacturers, Lockheed Martin, RTX, Northrop Grumman, and General Dynamics, double 2021’s amount. Order books are at record highs: War in Ukraine and the Middle East, combined with rising tensions in the Pacific, helped push global military spending up 6.8% in 2023 to $2.4 trillion. And while the companies don’t book sales until they deliver the weapons—usually a few years later—pressure is on for them to make more faster. The iShares U.S. Aerospace & Defense ETF has climbed 23% in the past year.
Vertical Research predicts that, rather than plough the cash into new production, companies could end up handing much of that cash back to shareholders as dividends and share buybacks. Lockheed Martin and RTX bought almost $19billion of their own shares back last year, while BAE Systems just finished a nearly $2 billion share buyback and is already buying more.
They might also use the cash to snap up smaller, more innovative competitors. One criticism analysts have made is that cheap drones guided by artificial intelligence are changing the nature of warfare, rendering expensive missile and jets less effective.