Military Orders for Ukraine Are Boosting Revenues for U.S. Arms Manufacturers

Russia’s invasion of Ukraine in 2022 is starting to boost revenues for defense contractors, as customers such as the US government replenish their stockpiles of weapons supplied to Ukraine and European countries arm themselves considering Moscow’s aggression. U.S. defense contractors such as Lockheed Martin, General Dynamics and others anticipate existing orders for hundreds of thousands of artillery shells, hundreds of Patriot interceptor missiles and a surge in armored vehicle orders expected in the coming months to confirm their results in the near quarters. New contracts were signed late last year for direct deliveries to Ukraine, or backfill for US weapons sent to Ukraine, and revenues are now flowing to major defense contractors. Lockheed, General Dynamics and RTX have reported better-than-expected results in the past few days, and executives expect the conflict in Ukraine and Israel’s war with the Palestinian group Hamas to boost demand in the short term. “We increased the production of (artillery) shells from 14,000 to 20,000 a month very quickly. We’re working ahead of schedule to increase that production capacity to 85,000, even 100,000 rounds a month,” Jason Aiken, General Dynamics chief financial officer, said during a call with Wall Street analysts on Wednesday. “And I think the situation in Israel will only increase the pressure on that demand,” he added. Revenue at General Dynamics Combat Systems, a unit that makes armored vehicles, tanks and artillery for Ukraine, rose nearly 25% compared to the same period last year. RTX, which produces the AMRAAM missiles used in Ukraine, said in a call with Wall Street analysts on Tuesday that it has received $3 billion in orders since Russia invaded in February 2022 that are tied to replenishing Ukraine and U.S. military stockpiles, and the company expects further growth. Sales of Northrop Grumman’s defense systems segment rose 6% in the third quarter, driven by strong demand for ammunition and rocket motors used in guided multiple launch rocket systems (GMLRS), which are crucial in supporting Ukraine’s defense efforts against Russian forces. It’s part of a worldwide trend. Sweden’s Saab raised its full-year sales forecast on Thursday amid strong defense demand, while Germany’s Rheinmetall said third-quarter profit grew due to strong demand for weapons and ammunition. On 20 October, President Joe Biden claimed that as part of his latest request for $106 billion in new funds for Ukraine, Israel, Indo-Pacific and border security, some of the orders would go to companies that replace the production of U.S. weapons sent overseas. Biden mentioned Patriot missiles made in Arizona and “artillery shells made in 12 states across the country,” naming Pennsylvania, Ohio and Texas. At the recent trade show executives from several defense firms warned that a shortage of skilled labor and supply chain problems continue to hamper the companies’ ability to fill orders. “The supply chain problem, frankly speaking, remains,” General Dynamics’ Aiken said during earnings call as the company said it was cutting its business jet delivery forecast for 2023. “I don’t think we’re going to get back to what we had before the pandemic in the foreseeable future.” On 17 October Lockheed said that supply and labor disruptions are affecting divisions such as aeronautics, which produces the advanced F-35 fighter jet, because of the need for processor building, solid rocket motors, castings and forgings.