Despite Outcries About Inflation, Major Arms Makers Are Doing Just Fine

Business

The recent round of earnings calls by America’s largest weapons contractors demonstrates that the firms are doing just fine despite the challenges posed by inflation and supply chain issues. This financial performance contradicts the demands by the companies themselves and their top trade group, the National Defense Industrial Association, for speeded up payments, contract renegotiations, and other measures that are likely to pad their bottom lines without delivering much in the way of added defense capabilities.

Lockeed Martin, which is the biggest weapons contractor in the world, is a case in point. In the most recent quarter the firm’s operating profit increased by 6%. It has a backlog of $140 billion, and it is pouring billions into buybacks of its own stock, which is good news for shareholders but does nothing to promote innovation or add much if anything in the way of defense capabilities. To add insult to industry, Lockheed Martin
LMT
is seeking to increase its profit margin on the troubled F-35 combat aircraft, which has thousands of design flaws. In a series of analyses, the Project on Government Oversight has shown that the plane may never be fully ready for combat. And in a world where unmanned systems may be the wave of the future, the need to buy 2,400 of these planes at a lifetime cost of over $1.5 trillion is far from clear.

Going forward, Lockheed is counting on a flood of orders for items like its HIMARS artillery system, which has been used to great effect in Ukraine. In its call, it noted that “nations across the world having announced a planned five-year increase in defense budget funding of approximately $60 billion in total.” This is on top of near-record spending by the Pentagon.

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Interestingly, Lockheed Martin did not jump up and down about the impacts of inflation in its discussion with investors. In fact, one executive noted with regard to inflation that “[w]e’ve been able to absorb that through productivity and other management reserve type of actions. So we’ve not really seen much of an impact there.”

Taken together, these trends definitively demonstrate that this is not a company that needs or deserves special treatment.

Raytheon’s earnings call tells a similar story. Profits up, and, in the words of its CEO Greg Hayes, “extremely strong demand for our products, with over $22 billion of awards in the quarter.”

The exception to the rule is Boeing
BA
, which showed major losses. But this had nothing to do with inflation and everything to do with its mismanagement of programs like the KC-46 aerial refueling tanker, which has been a master class in how not to build an aircraft.

Given all the other urgent challenges facing our country and the world, from pandemics to climate change to growing poverty and inequality, this is no time to bail out weapons contractors that are doing just fine financially and are poised to cash in on the tens of billions in new spending to come.

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