Major defense contractors Lockheed Martin, Oshkosh and Raytheon appeared pleased this week as escalating conflicts in the Middle East were touted as a reason for investor optimism at a Credit Suisse conference in West Palm Beach.
While defense spending has been a target of budget cuts for the past few years dating back to the budget sequester, this trend was recently reversed with an October budget deal which included $607 billion in additional defense spending.
“Our programs are well supported [in the budget],” said Lockheed’s Executive Vice President Bruce Tanner at the conference. “We think we did fare very well.”
Wilson Jones, president of Oshkosh, noted that countries have shown interest in buying M-ATV armored vehicles made by the company due to “the ISIS threat growing.”
The situation on the ground in Syria and recent downing of a Russian aircraft by the Turkish military has brought defense spending to the forefront of presidential rhetoric. Meanwhile, defense contractors viewed the aircraft downing through a positive lens for their bottom line.
Presidential candidate and United States Senator Rand Paul (R-Ky.), an outspoken critic of defense spending, asked “how is it conservative to pass a trillion dollars in military expenditures?” during an exchange at the November 12th presidential debate. Paul’s criticism directly targeted a proposal by fellow 2016 candidate United States Senator Marco Rubio (R-Fla.), calling for a $1 trillion dollar increase over the next 10 years. Rubio is one of several candidates calling for large scale increases in defense spending.
The perceived need for the U.S. military to operate stealth aircraft like the Lockheed Martin-made F-22, combined with increases in spending by other regional powers like Saudi Arabia and the United Arab Emirates on munitions and other systems for use in operations in Yemen, give defense manufacturers even more reason for a positive outlook.
Given this volatility in the region, the environment also promises to provide a boost for candidates in both parties who can leverage hawkish rhetoric and calls for increased U.S. involvement in the Middle East.