If there’s one thing that spurs defense companies’ profits, it’s war. And by all accounts, the civil war in Syria is horrific. More than 100,000 people have been killed, 1.8 million have fled, and 4.25 million are displaced. Further, on Thursday, the leader of Syria’s Western-backed opposition group told U.S. Secretary of State John Kerry that if the United States doesn’t supply the rebels with promised weapons, President Bashar al-Assad’s regime would win.
Assad is known for his human-rights violations, corruption, and disdain for the U.S., but what pushed the Obama administration into promising weapons to Syrian rebels was “conclusive evidence” that Assad’s regime used chemical weapons against opposition forces. However, the promise for weapons was made in June, and only recently was a “light armament” package approved. And now there is growing opposition to the United States’ involvement in Syria. So, what does this mean for defense companies?
Benefiting from a state of chaos
War is an unfortunate fact of human existence. Some are just, others are not; but regardless, defense contractors benefit from this state of chaos. In fact, war is out-and-out lucrative to defense companies’ bottom line.
For example, when North Korea decided to go on its missile-launching venture, South Korea responded by spending $1.6 billion on The Boeing Company (NYSE:BA)‘s attack helicopters, while the U.S. found it needed to beef up missile defense. Those decisions directly benefited Lockheed Martin Corporation (NYSE:LMT)‘s Aegis Missile defense system and will probably end up benefiting Northrop Grumman Corporation (NYSE:NOC), the prime contractor on the Missile Defense Agency’s Joint National Integration Center — a simulating and war-gaming center — as well as The Boeing Company (NYSE:BA)’s ground-based interceptors, and Raytheon Company (NYSE:RTN)‘s SM-3, a defense weapon used to destroy incoming ballistic missiles.
The war in Syria presents similar lucrative opportunities for defense contractors. But it’s not defense contractors that make the decision on whether to supply arms. In this case, the decision lies with the president.
To arm, or not to arm, Syria
The problem with arming Syrian rebels is that there’s a possibility that such arms could end up in the hands of al-Qaeda-backed groups and other terrorist organizations. One example from last year is the Obama administration’s decision to arm Libyan rebels from Qatar. Evidence emerged that Qatar was giving some of those weapons to Islamic militants. Obviously, the decision to arm Libyan rebels didn’t turn out as planned. Consequently, the Obama administration, while still approving a Syrian rebel arms package, is approaching this decision with more caution.