Ukraine War Spurs Arms Makers to Boost Production
The world’s biggest arms makers are scaling up production of rocket launchers, tanks and ammunition as the industry shifts to meet what executives expect to be sustained demand triggered by the war in Ukraine.
The ramp-up is playing out in large measure in Europe, where a handful of long-established arms makers have grown accustomed to more modest, peacetime demand for their wares and are now trying to increase capacity to meet an expected crush of orders. Shares of many of these lesser-known international arms players, including Germany’s Rheinmetall AG RHM 0.95%increase; green up pointing triangle and Sweden’s Saab SAABF 0.86%increase; green up pointing triangle AB, have soared on hopes of big orders.
Rheinmetall, one of Europe’s biggest weapons and munitions makers, last week agreed to buy a Spanish rival to bolster its munitions-making capacity. Its chief executive said he expects major new contracts next year.
“You have to make an entrepreneurial decision,” said Chief Executive Armin Papperger. “The customers will give contracts to the companies who have the capacity.”The push to add production is playing out in the U.S. and Asia, as well. The Pentagon has committed more than $17 billion in weapons and services to Ukraine, most of it drawn from existing stocks. It has also awarded about $3.4 billion in new contracts to replenish domestic and allies’ stocks.
On both sides of the Atlantic, the rising demand has coincided with supply-chain kinks and shortages of workers and parts. Some of the war’s most in-demand weapons, such as shoulder-fired Stinger antiaircraft missiles, had been practically out of production, leading companies to find workarounds fast.
Raytheon Technologies Corp. has cannibalized old Stingers and brought back retirees to boost production that had slowed to a trickle. The U.S. hadn’t ordered the missiles since 2008. L3Harris Technologies Inc., with $200 million in orders for equipment destined for Ukraine, said it has been pulling computer chips from old radios to make new communications gear and avoid missing any Ukraine-related delivery targets. Lockheed Martin Corp. is doubling output of the Javelin antitank missiles it coproduces with Raytheon, and it is boosting output of Himars rocket launchers and GMLRS missiles by 60%.
And in Asia, South Korea plans to sell artillery shells destined for Ukrainian forces through a confidential arms deal between Seoul and Washington, The Wall Street Journal previously reported.
Defense budgets in Europe, which had been declining for decades, have seen gradual increases since Russia’s annexation of Crimea in 2014. Moscow’s invasion of Ukraine in February has provided a more immediate boost. Rheinmetall shares are up 115% since Jan. 1, while shares of Saab and Britain’s BAE Systems PLC have gained 30% and 44%, respectively.
In the U.S., manufacturers have long supplied gear for export and for ground wars around the world. The war in Ukraine has given their shares less of a boost. Lockheed shares are up 36% since the start of the year. General Dynamics is up 22%, and Raytheon has climbed 12%.
Poland is increasing its defense budget to 3% of its gross domestic product in 2023, up from 2.1% currently. Lithuania, Estonia and Latvia are moving toward 2.5%, according to the London-based International Institute for Security Studies, a defense think tank. Sweden, Finland and the U.K. have also made commitments to lift budgets.