Disappointing Black Friday sales were bad news for retailers, but business is booming in another top sector. The U.S. defense industry is selling high-tech weapons as fast as it can build them.
Foreign arms sales by American companies jumped 36 percent in fiscal 2015 to $46.6 billion. So said Vice Admiral Joe Rixey, the Pentagon official in charge of approving such sales, in a recent
Reuters interview.
Admiral Rixey heads the Defense Security Cooperation Agency, or DSCA. He is a naval aviator by training, but he sounds more like a corporate CEO reporting to Wall Street analysts.
“Projections are still strong” for next year’s sales, Rixey told Reuters. “It’s worldwide. The demand signal is coming in Europe, in the Pacific and in Centcom.”
What is a “demand signal,” you ask? In Pentagon-speak, it means “sales opportunity.” I wrote about this last year
in
"Your Money Will Be Drafted for the Coming Mideast War."
As expected, the demand signals are growing quickly. Aside from our own ongoing military adventures, Saudi Arabia has been reloading frequently as it continues
bombing Yemen. The desert kingdom is also gearing up to resist the newly un-sanctioned Iran.
Are these arms sales bringing the Middle East any closer to stability? No, but that is not their point.
Ineffective air campaigns are highly profitable for Lockheed Martin (LMT), Raytheon (RTN) and other U.S. defense contractors. Admiral Rixey’s agency, the DSCA, is supposedly the gatekeeper. Its mission is to make sure arms exports are consistent with U.S. foreign policy goals.
The industry chafes at even a perfunctory review. Reuters quoted a Boeing (BA) official who said he and his Gulf customers were “a little frustrated” with delays in approval for fighter jet sales.
With DSCA presently reviewing arms deals valued at $461 billion, you can see why Boeing and others are frustrated. They want to book those sales ASAP. (Approval might come faster if they offered high-paid jobs to some DSCA officials, but such corruption only happens in third world countries… I think.)
One thing is quite clear: with the U.S., Russia and now France bombing ISIS, the defense and aerospace sector is the place to be. The smart money knows it, too. Some of the top names have 2015 gains near 20% while the broad market is mostly flat.
This is nothing new.
Marine Corps Major General Smedley Butler wrote back in the 1930s “War is a Racket.”
He was right on target then, and he still is now.
Patrick Watson is an Austin-based financial writer. Follow him on Twitter
@PatrickW.