WEAPONS LOBBY – 16. Big Five US Arms Makers Profit From Ukraine Conflict and Overcharge Pentagon

WEAPONS LOBBY – 16. Big Five US Arms Makers Profit From Ukraine Conflict and Overcharge Pentagon

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Originally published by Ekaterina Blinova on Sputnik International

The Ukraine conflict has become a great boon for American Big Five defense contractors, sending their stocks up and boosting their profits. Before adopting the latest $61 billion package, the US Congress had passed four Ukraine spending bills totaling $113 since the beginning of the conflict in February 2022.

The lion’s share of the entire spending initiative, or $61.8 billion (54.7%), went to the US Department of Defense which granted its major contractors lucrative new contracts.

Still, $61.8 billion pales in comparison with the Pentagon’s nearly trillion-dollar budget that accounts for roughly 40% of military expenditures by countries around the world, as per the Stockholm International Peace Research Institute (SIPRI) report for 2023.

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America’s Big Five defense contractors, namely Lockheed Martin, RTX (formerly Raytheon), Boeing, Northrop Grumman and General Dynamics, appeared to be ready for the boon before Russia’s special military operation was launched.

In January 2022, top US arms contractors lauded a deteriorating state of global peace and security as a business opportunity for their investors and employees. In particular, Raytheon CEO Greg Hayes stated that a potential military conflict in Ukraine and tensions in the Asia Pacific region create “opportunities for international sales.”

“I fully expect we’re going to see some benefit from it,” Hayes remarked. For his part, Lockheed CEO James Taiclet forecasted that the Pentagon’s $740 billion defense would continue to grow in 2023 due to increasing instability.

Indeed, the Big Five have seen impressive stock growth in the first year of the Russian special military operation. As per the Quincy Institute for Responsible Statecraft, shares in Lockheed Martin, RTX, Boeing, Northrop Grumman and General Dynamics had grown in value 12.78% on average between February 2022 and February 2023.

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The think tank found that their stocks, on average, outpaced the S&P 500 by 17.82%, the NASDAQ composite index by 23.88%, and the Dow Jones Industrial Average by 12.71%.

As of April 26, Lockheed Martin‘s stock is valued at $461.29 which constitutes a 12.71% rise since the beginning of hostilities. On November 28, 2022, it peaked at $496.23. The company provides Javelin anti-tank missiles, HIMARS mobile artillery rockets, and PAC-3 air defense missiles, as well as other munitions and missiles to Ukraine. The company’s revenue for the twelve months ending March 31, 2024, was $69.6 billion, a 5.28% increase from 2022.

General Dynamics‘ stock has seen an uptick from $227.98 (February 22, 2022) to $284.41 (April 26), or a 24.75% increase. It peaked at $295.18 on April 5 and then faced a slight downward trend which some associated with Russia successfully knocking out the defense contractor’s M1A1 Abrams main battle tanks in the special military operation. Ukraine was reported to quietly withdraw its Abrams from the front line to avoid the increasing threat from Russian drones. The company’s full-year revenue for 2023 was $42.3 billion, a 7.3% increase from 2022.

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On the eve of the conflict, RTX Corporation‘s stock stood at $98.12; then it mounted to $104.27 on April 11, 2022, and has seen a series of ups and downs since. However, it spiked 45.3% from October to April, being apparently driven by the combination of the Israeli and Ukrainian hostilities. RTX is famous for producing Stingers, advanced medium-range air-to-air missiles (AMRAAM), MIM-104 Patriots and air defense munitions used by the Ukrainian military in the combat zone. In January, the defense contractor was picked to build 1,000 US Patriot missiles to equip European member states. RTX reported sales of $68.9 billion in 2023, up 3% compared to 2022.

Northrop Grumman’s stock started to rise from $409.67 on February 22, 2022, up to $480.45 as of April 26, marking a 17.28% leap. The contractor has supplied Ukrainian troops with various types of military equipment, including Bushmaster automatic cannons and ammunition and, allegedly, RQ-4 Global Hawk aircraft. Northrop Grumman’s sales increased 7% to $39.3 billion in 2023, compared with $36.6 billion in 2022.

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Boeing‘s stock stood at $201.48 prior to the conflict. It sharply went down in May and again in September 2022; then rebounded reaching $264.27 on December 11, 2023. As of April 26, it has slid to $167.22. Boeing has still not fully recovered from the setbacks caused by the COVID pandemic. To make matters worse, a recent six-week audit by the Federal Aviation Administration (FAA) of Boeing’s production of the 737 Max jet exposed numerous problems. The US defense contractor is known for providing Ukraine with ground-launched small-diameter bombs. Boeing earned $77.7 billion in revenue in 2023, ending the period with a net loss of $2.2 billion.

Defense Contractors Overcharging Pentagon to Earn More

There is more to the US defense contractors’ reported bonanza then meets the eye. Democratic lawmakers raised the alarm earlier this year over the Big Five inflating prices for the Pentagon in order to further boost their profits.

Bernie Sanders, senior United States senator from Vermont, particularly pointed the finger at RTX Corporation that has increased prices for its Stinger missiles “sevenfold since 1991” making the Pentagon pay over $400,000 to replace each missile sent to Ukraine. “Even accounting for inflation and improvements to missile technology, that is an outrageous price increase,” the US lawmaker stressed in his February op-ed for Atlantic.

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In May 2023, CBS News published the results of a six-month investigation into “what can only be described as price gouging by US defense contractors.” The media outlet revealed that the Pentagon has been overpaying for almost everything from radar, missiles, and helicopters down to the nuts and bolts. What’s worse, this worrisome trend started well before the Ukraine conflict.

As per Sanders, “the Pentagon bears a big share of the blame too”:

As per Sanders, “the Pentagon bears a big share of the blame too”: “The Defense Department has been plagued by waste, fraud, and financial mismanagement for decades. In fact, the DoD remains the only federal agency that cannot pass an independent audit – a requirement under federal law since the early 1990s,” the senator stressed.

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In 2023, the DoD failed its sixth audit after being unable to fully account for 63% of its $3.8 trillion in assets, according to the lawmaker. Therefore it’s hardly surprising that defense contractors routinely overcharge the Pentagon—and the American taxpayer—by nearly 40% to 50%, he argued.

To complicate matters further, the share of these windfall profits flow back to US politicians through the arms manufacturers lobby groups. As per OpenSecrets, the Big Five spent nearly $140 million on lobbying the federal government in 2023.

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Democrats have voiced concerns that the US military-industrial complex is now run by only five corporations that use their monopoly to reap enormous profits. For some reason, Bernie Sanders and like-minded Democratic progressives still approve of the Biden war effort in Ukraine thus contributing to the cycle of violence and sheer money grabbing.

Originally published by Ekaterina Blinova on Sputnik International

All links to previous Gospa News articles have been added in the aftermath for the ties with the topics highlighted

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