War! What is it good for?
The famous song from the ’70s by Edwin Starr has a point that anyone on a human level would agree with. But the politics of war is often an unpleasant and hostile business. If you look at the daily news, you hear of some sort of military conflict going on somewhere in the world almost every day. Most recently, civil unrest in Kazakhstan and the rising tensions between Russia and Ukraine come to mind.
These recent events prompted a look into a sector of publicly traded companies that fly below the radar, surrendering the battle for attention to tech companies while navigating the political landscape with military precision. This sector deals with a very lucrative business of supplying armed forces around the globe.
US-based military behemoths, such as Lockheed Martin Corporation (NYSE: LMT), Raytheon Technologies Corp (NYSE: RTX), Northrop Grumman Corp (NYSE: NOC), and General Dynamics Corp (NYSE: GD), racked up a combined $204 billion in sales in 2021. That is loads of firepower. It is no surprise that the US government is the biggest client of these 4 companies, accounting for approximately 70% of all sales for Lockheed Martin, Raytheon, and Northrop Grumman.
However, the remaining 30% is where it gets rather interesting.
For example, take the F-22 Raptor stealth fighter jet produced by Lockheed Martin. With its ability to conduct air-to-air and air-to-ground combat operations, the F-22 is still considered a top military achievement. However, Congress banned the aircraft from being exported to clients abroad to protect its stealth technology and classified features.
Another stealth fighter jet by Lockheed Martin, the F-35 Lightning II, was developed and funded by the US in collaboration with NATO countries and close allies – UK, Australia, Canada, Italy, Norway, Denmark, Netherlands, and Turkey. However, after Turkey purchased the Russian advanced air defense system, S-400, the Trump administration immediately moved to ban Turkey from buying F-35 jets and remove them from the program. The Biden administration extended the ban.
US federal law makes it almost impossible for other countries to procure US-made military weapons. The US government is the largest buyer of American military weapons, responsible for 70% of sales within the military supply sector. This leaves the question, “Which foreign militaries make up the missing 30%, and why are they able to buy weapons from US suppliers while others are not?”
Without question, all of this is the cost of doing business. When you are one of the top 5 US government contractors, you must consider what your client wants. After all, the client is always right.