Defence companies’ earnings are beginning to rise in response to Russia’s invasion of Ukraine in 2022, as clients including the US government replenish supplies sent to Ukraine and nations in Europe arm themselves in anticipation of Moscow’s aggressions.

U.S. defence contractors, including General Dynamics and Lockheed Martin, anticipate that their results in the upcoming quarters will be supported by ongoing orders for hundreds of thousands of artillery rounds, hundreds of Patriot missile interceptors, and an anticipated spike in orders for armoured vehicles in the coming months.

Late last year, new contracts to backfill U.S. weaponry shipped to Ukraine or supply Ukraine directly were inked, and the major defence companies are already benefiting financially.

Executives at Lockheed, General Dynamics, and RTX anticipate that the battle in Ukraine and Israel’s fight against Hamas will boost demand in the immediate future. All three companies have just released better-than-expected financial results.

“We’ve gone from 14,000 (artillery) rounds per month to 20,000 very quickly. We’re working ahead of schedule to accelerate that production capacity up to 85,000, even as high as 100,000 rounds per month,” Jason Aiken, General Dynamics’ chief financial officer, said on a call with Wall Street analysts on Wednesday.

“And I think the Israel situation is only going to put upward pressure on that demand.”

The Combat Systems division of General Dynamics, which produces tanks, artillery, and armoured vehicles for use in Ukraine, witnessed an approximately 25% increase in income over the same period last year.

During Tuesday’s earnings call with Wall Street analysts, RTX, the company that produces AMRAAM rockets deployed in Ukraine, stated that since Russia’s invasion in February 2022, it has received $3 billion in orders related to restocking US and Ukrainian military supplies, and the firm anticipates receiving more.

The Defence Systems business of Northrop Grumman had a 6% increase in revenue during the third quarter due to increased demand for rocket motors and ammunition for guided multiple-launch rocket systems, which are essential to Ukraine’s defence efforts against Russian forces.

This is a worldwide trend. On the strength of robust defence demand, Sweden’s Saab increased its full-year sales forecast on Thursday. Meanwhile, Germany’s Rheinmetall reported a surge in third-quarter profit due to robust demand for weapons and ammunition.

In his most recent request on October 20, U.S. President Joe Biden stated that certain firms that backfill manufacture of U.S. weapons delivered abroad will receive a portion of the $106 billion in additional cash for border enforcement, Israel, the Indo-Pacific area, and Ukraine. Biden listed “artillery shells manufactured in 12 states across the country,” citing Pennsylvania, Ohio, and Texas, along with Patriot missiles produced in Arizona.

Indeed, during a recent trade exhibition, officials from multiple defence industries emphasised that supply chain problems and a shortage of competent labour continue to impede companies’ ability to fulfil orders.

“The supply chain, to be completely candid with you, remains, and I think we expect to remain what I call fragile,” General Dynamics’s Aiken said on the earnings call, as the company said it was cutting its forecast for 2023 business jet deliveries. “I don’t think that’s going to get back to what we saw pre-pandemic for the foreseeable future.”

Lockheed said on October 17 that because of the demand for processor assembly, solid-rocket motors, castings, and forgings, divisions including aeronautics—which produces the cutting-edge F-35 fighter jet—are being impacted by labour and supply disruptions.

(Adapted from SCMP.com)

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