Defense industry CEOs assure investors that the world is still unstable enough to keep the money flowing

Eli Clifton / The Quincy Institute for Responsible Statecraft

 (April 30, 2021) — Business is good for weapons companies according to their just released first-quarter-2021 earnings. Lockheed Martin, Northrop Grumman, and General Dynamics all had first-quarter-revenues that exceeded estimates. And executives from all three corporations were surprisingly blunt with investors on earnings calls about why their revenues were soaring: the Biden administration’s tilt toward great power competition with China and greater international instability.

General Dynamics’ Chairman and CEO Phebe Novakovic clearly stated that what’s bad for people is good for their bottom-line. “[U]nfortunately, for the state of humankind, the world has become an increasingly dangerous place,” said Novakovic on Wednesday. “And so we see the reflection of that concern in many US allies with increased demand for many of our products in Europe, Eastern Europe, a little bit in Asia, parts of the Middle East and in the former Commonwealth nations and the UK.”

She later concluded that the potential of the world becoming more dangerous was producing a “nice cadence continuing in terms of our orders.”

Meanwhile, Lockheed CEO James Taiclet — who in January told investors that a growing security rivalry with China should give his company leeway with antitrust regulators concerned about Lockheed’s vertical consolidation of the missile industry — doubled down on his emphasis that a brewing cold war with China would be good for Lockheed’s business.

“[T]he Biden administration clearly recognizes that we’re all in the year of this resurgent great power competition and regional disruptive powers that are out there as well like Iran and North Korea,” said Taiclet on April 20. “That’s a world that’s not going to get any more peaceful anytime soon, most likely and so strong national defense is a priority of the administration, I believe, based on their own statements.”

Taiclet went on to conclude that “I see strong opportunities going forward under this administration for international defense cooperation, that would benefit Lockheed Martin, I expect.”

Northrop Grumman CEO Kathy Warden echoed similar sentiments, telling investors on Thursday that “we believe our capabilities will remain well aligned with US national security priorities,” emphasizing that “the Biden administration has signaled that it views competition with China as the most pressing long-term security challenge and will invest in the capabilities needed to maintain US national security advantages.”

She singled out the government’s “modernizing” of the nuclear arsenal as “aligned with our portfolio.” The investment in nuclear weapons is a $2 trillion project, one that Quincy Institute Distinguished Fellow Joe Cirincione observed was “a collection of legacy systems and new programs promoted for financial and political profit,” benefiting lobbyists and defense contractors like Northrop, not driven by US national security interests or strategy.

Indeed, none of the comments coming from weapons manufacturers celebrating the potential for a cold war competition with China or the declining “state of humankind” shouldn’t come as any surprise. They are, after all, in the business of selling tools of war. But it’s taxpayers who are picking up a growing bill for weapons, and those bills are coming from an increasingly less competitive and shrinking industry.

A 2019 report from the Government Accountability Office found that nearly half of all Defense Department contracts went to United Technologies, Lockheed Martin, Northrop Grumman, General Dynamics, and Boeing. And, according to Brown University’s Cost of War Project, over half of the defense budget — currently at $740 billion per year — goes to private contractors.

That might explain why Novakovic’s statements to investors on Wednesday could lament the “state of humankind” and “the world has become an increasingly dangerous place” but lead with the observation that “it’s a very good start to the year.”

With a president in the White House who explicitly linked his ambitious domestic spending bill to competing with China, an ongoing (if unnecessary) nuclear weapons overhaul, and a Pentagon budget that may actually grow by $11 billion if Biden’s proposed budget is adopted, it’s certainly a “good start to the year” for an industry that profits off the world becoming more dangerous. 

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