Conflict puts a rocket under US defense stocks

The tragedy of war sadly is good business for some companies, and the Russia-Ukraine conflict is no exception.

The share price of an exchange-traded fund that tracks US defense contractors had, by Tuesday, risen 9 percent this year. Russia's military operation in Ukraine began on Feb 24. The iShares US Aerospace & Defense ETF managed by BlackRock is approaching its 52-week high of $112.94. The fund is made up of 33 stocks.

Raytheon Technologies comprises nearly 23 percent of the fund's holdings, followed by Boeing with around 17 percent, Lockheed Martin at 6 percent, Northrop Grumman at around 5 percent, and General Dynamics at 4.8 percent. Aircraft manufacturing giant Boeing has a division called Boeing Defense, Space & Security.

The United States and other NATO allies have not sent troops into battle in Eastern Europe, but they have been sending weapons made by Raytheon and Lockheed Martin, such as Javelin anti-tank missiles and Stinger anti-aircraft missiles.

At least 19 US lawmakers or their spouses hold stock in Raytheon and Lockheed Martin, according to a Business Insider analysis of federal financial records, the website reported on March 22.

Rob Maness, a retired US Air Force colonel, tweeted on March 16: "When you hear Senators and Congressional members clamor for war, check their stock portfolio."

Also on March 16, Robert Reich, former US labor secretary, wrote on Twitter: "Lockheed Martin spends tens of millions lobbying Congress each year. The company boasted that Ukraine-Russia tensions would be good for business. 47 members of Congress and their spouses own up to $6.7M of defense contractor stocks. Anyone else see a problem with this picture?"

On March 2, Aparajita Dutta, a senior research analyst at Zacks, wrote in an article on nasdaq.com: "With America being the largest exporter of combat weapons around the world, the current situation has set the stage for the country's defense contractors to win more contracts. In fact, the United States has been supporting Ukraine in building up strength against Russia in recent history.

"In September 2021, the two nations announced a strategic partnership through which America offered a new $60 million security assistance package, including additional Javelin anti-armor systems and other defensive lethal and non-lethal capabilities, to Ukraine. Impressively, the United States has committed $2.5 billion in support of Ukraine's forces since 2014."

Weapons sent

By March 7, the US and other NATO members had sent about 17,000 anti-tank missiles and 2,000 anti-aircraft missiles to Ukraine, the CNN network reported.

On March 16, the White House announced an $800 million assistance package for Ukraine that included 800 additional Stinger systems and 2,000 Javelin systems.

According to a White House statement that day, the commitment also included "1,000 light anti-armor weapons, and 6,000 AT-4 anti-armor systems; 100 Tactical Unmanned Aerial Systems; 100 grenade launchers, 5,000 rifles, 1,000 pistols, 400 machine guns, and 400 shotguns; over 20 million rounds of small arms ammunition and grenade launcher and mortar rounds; 25,000 sets of body armor; and 25,000 helmets".

In the $813 billion defense portion of the 2023 fiscal year budget announced by the White House on Monday, $682 million would be sent to Ukraine to support its security and economy, and US President Joe Biden pledged a further $500 million in economic aid on Wednesday, in a phone call with Ukrainian President Volodymyr Zelensky.

"Naturally, the administration's budget rollout focused on the Russian invasion of Ukraine as one of the rationales for increased spending. But the Ukraine crisis should not be used as an excuse to increase the Pentagon's already enormous budget," William D. Hartung, a senior research fellow at the Quincy Institute for Responsible Statecraft, wrote on March 30 in an article for the institute's website.

"As if the numbers requested for the Pentagon were not enough to create a surge in the bottom lines of major weapons makers, these firms can be counted on to use their considerable lobbying muscle to press for more, working closely with their allies in Congress," he wrote.