How Pentagon Contractors Are Cashing in on the Ukraine Crisis
The New Gold Rush
by William D. Hartung, Julia
Gledhill, and Tom
Engelhardt Posted on April 18, 2022
The Russian invasion of Ukraine has brought immense
suffering to the people of that land while sparking calls for increased
military spending in both the United States and Europe. Though that war may
prove to be a tragedy for the world, one group is already benefiting from it:
U.S. arms contractors.
Even before hostilities broke out, the CEOs of major
weapons firms were talking about how tensions in Europe could pad their
profits. In a January 2022 call with his company’s investors, Raytheon
Technologies CEO Greg Hayes typically bragged that
the prospect of conflict in Eastern Europe and other global hot spots would be
good for business, adding that "we are seeing, I would say, opportunities
for international sales… [T]he tensions in Eastern Europe, the tensions in the
South China Sea, all of those things are putting pressure on some of the
defense spendings over there. So I fully expect we’re going to see some benefit
from it."
In late March, in an interview with the Harvard
Business Review after the war in Ukraine had begun, Hayes defended the
way his company would profit from that conflict:
"So I make no apology for that. I think again
recognizing we are there to defend democracy and the fact is eventually we will
see some benefit in the business over time. Everything that’s being shipped
into Ukraine today, of course, is coming out of stockpiles, either at DoD [the
Department of Defense] or from our NATO allies, and that’s all great news.
Eventually, we’ll have to replenish it and we will see a benefit to the business
over the next coming years."
Arms to Ukraine, Profits to Contractors
The war in Ukraine will indeed be a bonanza for the
likes of Raytheon and Lockheed Martin. First of all, there will be contracts to resupply weapons like Raytheon’s Stinger anti-aircraft missile and
the Raytheon/Lockheed Martin-produced Javelin anti-tank missile that Washington
has already provided to Ukraine by the thousands.
The bigger stream of profits, however, will come from assured post-conflict
increases in national-security spending here and in Europe justified, at least
in part, by the Russian invasion and the disaster that’s followed.
Indeed, direct arms transfers to Ukraine already
reflect only part of the extra money going to U.S. military contractors. This
fiscal year alone, they are guaranteed to also reap significant benefits from
the Pentagon’s Ukraine
Security Assistance Initiative (USAI) and the State Department’s Foreign Military Financing (FMF)
program, both of which finance the acquisition of American weaponry and other
equipment, as well as military training. These have, in fact, been the
two primary channels
for military aid to Ukraine from the moment the Russians invaded and seized
Crimea in 2014. Since then, the United States has committed around
$5 billion in security assistance to that country.
According to the State Department,
the United States has provided such military aid to help Ukraine "preserve
its territorial integrity, secure its borders, and improve interoperability
with NATO." So, when Russian troops began to mass on the Ukrainian border
last year, Washington quickly upped the ante. On March 31, 2021,
the U.S. European Command declared a "potential imminent crisis,"
given the estimated 100,000 Russian troops already along that border and within
Crimea. As last year ended, the Biden administration had committed $650 million in
weaponry to Ukraine, including anti-aircraft
and anti-armor equipment like the Raytheon/Lockheed Martin Javelin anti-tank
missile.
Despite such elevated levels of American military
assistance, Russian troops did indeed invade Ukraine in February. Since then,
according to Pentagon reports, the U.S. has committed to giving
approximately $2.6 billion in
military aid to that country, bringing the Biden administration's total to more
than $3.2 billion and
still rising.
Some of this assistance was included in a March
emergency-spending package for Ukraine, which required the
direct procurement of weapons from the defense industry, including drones,
laser-guided rocket systems, machine guns, ammunition, and other supplies. The
major military-industrial corporations will now seek Pentagon contracts to
deliver that extra weaponry, even as they are gearing up to replenish Pentagon
stocks already delivered to the Ukrainians.
On that front, in fact, military contractors have much
to look forward to. More than half of the Pentagon’s $6.5 billion portions of
the emergency-spending package for Ukraine is designated simply to replenish
DoD inventories. In all, lawmakers allocated $3.5 billion to that effort, $1.75 billion more
than the president even requested.
They also boosted funding by $150 million for
the State Department’s FMF program
for Ukraine. And keep in mind that those figures don’t even include emergency
financing for the Pentagon’s acquisition and maintenance costs, which are
guaranteed to provide more revenue streams for the major weapons makers.
Better yet, from the viewpoint of such companies,
there are many bites left to take from the apple of Ukrainian military aid.
President Biden has already made
it all too clear that "we’re going to give Ukraine the arms to fight and
defend themselves through all the difficult days ahead." One can only
assume that more commitments are on the way.
Another positive side effect of the war for Lockheed,
Raytheon, and other arms merchants like them is the push by
House Armed Services Committee chair Adam Smith (D-WA) and ranking committee
Republican Mike Rogers of Alabama to speed up the production of a next-generation
anti-aircraft missile to replace the Stinger. In his congressional confirmation
hearing, William LaPlante, the latest nominee to head acquisition at the
Pentagon, argued that America also needs more "hot production lines"
for bombs, missiles, and drones. Consider that yet another benefit-in-waiting
for the major weapons contractors.
The Pentagon Gold Mine
For U.S. arms makers, however, the greatest benefits
of the war in Ukraine won’t be immediate weapons sales, large as they are, but
the changing nature of the ongoing debate over Pentagon spending itself. Of
course, the representatives of such companies were already plugging the
long-term challenge posed by China, a greatly exaggerated threat,
but the Russian invasion is nothing short of manna from heaven for them, the
ultimate rallying cry for advocates of greater military outlays. Even before
the war, the Pentagon was slated to receive at least $7.3 trillion over
the next decade, more than four times the cost of President Biden’s $1.7 trillion domestic
Build Back Better plan, already stymied by members of Congress who labeled it
"too expensive" by far. And keep in mind that, given the current
surge in Pentagon spending, that $7.3 trillion could prove a minimal figure.
Indeed, Pentagon officials like Deputy Secretary of
Defense Kathleen Hicks promptly cited Ukraine as one of the rationales for the
Biden administration’s proposed record national-security budget proposal
of $813 billion, calling Russia’s
invasion "an acute threat to the world order." In another era that
budget request for the Fiscal Year 2023 would have been mind-boggling since it was higher than
spending at the peaks of the conflicts in Korea and Vietnam and over $100
billion more than the Pentagon received annually at the height of the Cold War.
Despite its size, however, congressional Republicans –
joined by a significant number of their Democratic colleagues – are already
pushing for more. Forty Republican members of the House and Senate Armed
Services Committees have, in fact, signed a letter to
President Biden calling for 5% growth in military spending beyond inflation,
which would potentially add up to $100 billion to
that budget request. Typically enough, Representative Elaine Luria (D-VA), who
represents the area near the Huntington Ingalls company’s Newport News military
shipyard in Virginia, accused the
administration of "gutting the Navy" because it contemplates
decommissioning some older ships to make way for new ones. That complaint was
lodged despite that service’s plan to spend a whopping $28 billion on
new ships in FY 2023.
Who Benefits?
That planned increase in shipbuilding funds is part of
a proposed pool of $276 billion for
weapons procurement, as well as further research and development, contained in
the new budget, which is where the top five weapons-producing contractors –
Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman
– make most
of their money. Those firms already split more than $150 billion in
Pentagon contracts annually, a figure that will skyrocket if the administration
and Congress have their way. To put all of this in context, just one of those
top five firms, Lockheed Martin, was awarded $75 billion in
Pentagon contracts in the fiscal year 2020 alone. That’s considerably more than
the entire budget for the State Department, dramatic evidence of how skewed
Washington’s priorities are, despite the Biden administration’s pledge to
"put diplomacy first."
The Pentagon’s weapons wish list for
FY 2023 is a catalog of just how the big contractors will cash in. For example,
the new Columbia Class ballistic missile submarine, built by the General Dynamics
Electric Boat plant in southeastern Connecticut, will see its proposed budget
for FY 2023 grow from $5.0 billion to $6.2 billion. Spending on Northrop
Grumman’s new intercontinental ballistic missile (ICBM), the Ground-Based
Strategic Deterrent, will increase by about one-third annually, to $3.6
billion. The category of "missile defense and defeat," a specialty of
Boeing, Raytheon, and Lockheed Martin, is slated to receive more than $24 billion.
And space-based missile warning systems, a staple of the Trump
administration-created Space Force, will jump from $2.5 billion in
FY 2022 to $4.7 billion in this year’s proposed budget.
Among all the increases, there was a single surprise:
a proposed reduction in
purchases of the troubled Lockheed Martin F-35 combat aircraft, from 85 to 61
planes in FY 2023. The reason is clear enough. That plane has more than 800 identified
design flaws and its production and performance problems have been a little short
of legendary. Luckily for Lockheed Martin, that drop in numbers has not been
accompanied by a proportional reduction in funding. While newly produced planes
may be reduced by one-third, the actual budget allocation for the F-35 will
drop by less than 10%,
from $12 billion to $11 billion, an amount that’s more than the
complete discretionary budget of the Centers for Disease Control and
Prevention.
Since Lockheed Martin won the F-35 contract,
development costs have more than doubled,
while production delays have set the aircraft back by nearly a decade.
Nonetheless, the military services have purchased so many of those planes that
manufacturers can’t keep up with the demand for spare parts. And yet the F-35
can’t even be properly tested for combat effectiveness because the simulation
software required is not only unfinished but without even an estimated
completion date. So, the F-35 is many years away from the full production of
planes that actually work as advertised, if that’s ever in the cards.
A number of the weapons systems which, in the Ukraine
moment, are guaranteed to be showered with cash are so dangerous or
dysfunctional that, like the F-35, they should actually be phased out. Take the
new ICBM. Former Secretary of Defense William Perry has called ICBMs
"some of the most dangerous weapons in the world" because a president
would only have minutes to decide whether to launch them in a crisis, greatly
increasing the risk of an accidental nuclear war based on a false alarm. Nor
does it make sense to buy aircraft carriers at $13 billion a
pop, especially since the latest version is having trouble even
launching and landing aircraft – its primary function – and is
increasingly vulnerable to attack by
next-generation high-speed missiles.
The few positives in the new budget like the Navy’s
decision to retire the unnecessary and unworkable Littoral Combat Ship –
a sort of "F-35 of the sea" designed for multiple tasks none of which
it does well – could easily be reversed by advocates from states and districts
where those systems are built and maintained. The House of Representatives, for
instance, has a powerful Joint Strike Fighter Caucus, which, in 2021, mustered more
than one-third of all House members to press for more F-35s than the Pentagon
and Air Force requested, as they will no doubt do again this year. A Shipbuilding Caucus,
co-chaired by representatives Joe Courtney (D-CT) and Rob Wittman (R-VA), will
fight against the Navy’s plan to retire old ships to buy new ones. (They would
prefer that the Navy keep the old ones and buy new ones with
more of your tax money up for grabs.) Similarly, the "ICBM Coalition,"
made up of senators from states with either ICBM bases or production centers,
has a near-perfect record of staving off reductions
in the deployment or funding of those weapons and will, in 2022, be hard at
work defending its budgetary allocation.
Towards a New Policy
Coming up with a sensible, realistic, and affordable
defense policy is always a challenge, will be even more so in the midst of the
Ukrainian nightmare. Still, given where our taxpayer dollars go, it remains all
too worthwhile. Such a new approach should include things like reducing the
numbers of the Pentagon’s private contractors, hundreds of thousands of
people, many of whom are engaged in thoroughly redundant jobs that could be
done more cheaply by civilian government employees or simply eliminated. It’s
estimated that cutting spending on contractors by 15% would save around $262 billion over
10 years.
The Pentagon’s three-decades-long near $2 trillion "modernization"
plan to build a new generation of nuclear-armed bombers, missiles, and
submarines, along with new warheads, should, for instance, simply be scrapped
in keeping with the kind of "deterrence-only" nuclear strategy developed
by the nuclear-policy organization Global Zero. And the staggering American
global military footprint – an invitation to further conflict that includes
more than 750 military
bases scattered on every continent except Antarctica, and counterterror
operations in 85 countries –
should, at the very least, be sharply scaled back.
According to the Center for International
Policy’s Sustainable Defense Task Force and
a study of alternative approaches to
defense carried out by the Congressional Budget Office, even a relatively
minimalist strategic rethinking could save at least $1 trillion over the next
decade, enough to make a healthy down payment on investments in public health,
preventing or mitigating the worst potential impacts of climate change, or beginning
the task of narrowing record levels of income inequality.
Of course, none of these changes can occur without
challenging the power and influence of the military-industrial-congressional
complex, a task as urgent as it is difficult in this moment of carnage in
Europe. No matter how hard it may be, it’s a fight worth having, both for the
security of the world and the future of the planet.
One thing is guaranteed: a new gold rush of
"defense" spending is a disaster in the making for all of us not in
that complex.
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Check out the newest Dispatch Books, John Feffer’s new dystopian novel, Songlands (the
final one in his Splinterlands series), Beverly Gologorsky’s novel Every Body Has a Story,
and Tom Engelhardt’s A Nation Unmade by War,
as well as Alfred McCoy’s In the Shadows of the American
Century: The Rise and Decline of U.S. Global Power and
John Dower’s The Violent American Century: War
and Terror Since World War II.
Julia Gledhill is an analyst at the Center for Defense
Information at the Project On Government Oversight.
William D. Hartung, a TomDispatch regular, is a Senior
Research Fellow at the Quincy Institute for Responsible Statecraft, and the
author of Prophets of War: Lockheed Martin and
the Making of the Military-Industrial Complex.
Copyright 2022 William D. Hartung and Julia Gledhill
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