Despite protests against inflation, major arms manufacturers are doing very well

The recent string of earnings calls from America’s largest arms contractors demonstrates that the companies are doing very well despite the challenges posed by inflation and supply chain issues. This financial performance contradicts the demands of the companies themselves and their main trade group, the National Defense Industrial Association, for accelerated payments, contract renegotiations and other measures that could improve their results without doing much in terms of additional defense. capacities.

Lockheed Martin, which is the largest arms supplier in the world, is a good example. During the last quarter, the company’s operating profit increased by 6%. It has a $140 billion backlog and is investing billions in buybacks of its own shares, which is good news for shareholders, but does nothing to promote innovation or add much, if anything, to the defense capabilities. To add an insult to the industry, Lockheed Martin
LMT
is looking to increase its profit margin on the struggling F-35 fighter jet, which has thousands of design flaws. In a series of analyses, the Project on Government Oversight showed that the aircraft may never be fully combat ready. And in a world where unmanned systems could be the wave of the future, the need to purchase 2,400 of these aircraft at a lifetime cost of more than $1.5 trillion is far from clear.

Going forward, Lockheed is counting on a flood of orders for items like its HIMARS artillery system, which has been put to good use in Ukraine. In his appeal, he noted that “nations around the world have announced a planned five-year increase in defense budget funding of approximately $60 billion in total.” This is on top of near-record Pentagon spending.

Interestingly, Lockheed Martin didn’t skip over the impacts of inflation in its discussion with investors. In fact, one executive noted of inflation that “[w]We were able to absorb that through productivity and other management reserve type actions. So we didn’t really see much of an impact there.

Taken together, these trends definitely demonstrate that it is not a company that needs or deserves special treatment.

Raytheon’s earnings call tells a similar story. Rising profits and, in the words of its CEO Greg Hayes, “extremely strong demand for our products, with more than $22 billion in rewards during the quarter.”

The exception to the rule is Boeing
BA
, which recorded significant losses. But it had nothing to do with inflation and everything to do with his mismanagement of programs like the KC-46 air-to-air tanker, which was a master class in how not to build an airplane.

Given all of the other pressing challenges facing our country and the world, from pandemics and climate change to poverty and growing inequality, now is not the time to bail out arms contractors who are doing just fine. financially and are ready to collect tens of billions of new expenses to come.

Martin E. Berry