Tags: Saudi | Yemen | war | defense

Saudi-Yemen Conflict to Boost Defense Sector

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Wednesday, 08 Apr 2015 09:02 AM Current | Bio | Archive

Open warfare now prevails in yet another Middle East country, and U.S. defense stocks are once again a sure winner.

A Saudi-led air campaign is trying to recapture Yemen from al-Houthi rebels. The Yemeni people, who previously worried only about U.S. drone-launched Hellfire missiles, now have fellow Muslims bombing them, too.

U.S. forces aren't overtly involved — yet. The Pentagon is providing intelligence and logistical support, however, and American firms provided most of the ordnance the Saudis are now "expending" in Yemen.

Economically, the Yemen war is a dream scenario for the U.S. defense industry.

Public relations risk is minimal since U.S. troops aren't at risk. The region's remoteness means we will see few images of the inevitable civilian "collateral damage."

Furthermore, the Saudis will do most of their fighting from the air, since they lack ground combat expertise. Air-deployed munitions are generally more expensive and profitable for manufacturers like Raytheon (RTN).

Will an air campaign achieve the objective? No, it won't. To Daddy Warbucks, this is a feature, not a bug. Long, ineffective military campaigns consume large quantities of ammunition. The Saudis will need to refill their stockpiles. Ka-ching.

Lockheed Martin (LMT) CEO Marillyn Hewson was unusually blunt on the firm's January earnings call. Deutsche Bank analyst Myles Walton asked Hewson whether improved U.S. relations with Iran might affect Lockheed's sales in the region.

Hewson's answer:

"Just the volatility, even if there may be some kind of deal done with Iran, there is volatility all around the region. And each one of these countries believes they've got to protect their citizens and the things that we can bring to them help in that regard."

Translation: "These countries will keep fighting forever and we'll sell to all sides."

Even peace with Iran, on the unlikely chance it happens, will not reduce Middle East weapons demand. The region is a bottomless well of sales opportunity for Lockheed and its peers.

Note that Hewson said this before Saudi Arabia bombed Yemen. This new conflict is simply icing on an already delicious cake. The Islamic State already had Saudi Arabia in its sights. King Salman is fighting a two-front war now.

There's a good chance the morass will suck in the U.S. military more directly. Regardless, it will be a yet another sales bonanza for our defense sector.

For them, every war is a profit opportunity.

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PatrickWatson
Open warfare now prevails in yet another Middle East country, and U.S. defense stocks are once again a sure winner.
Saudi, Yemen, war, defense
393
2015-02-08
Wednesday, 08 Apr 2015 09:02 AM
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