Defense Spending: Future Trends Amid Political Changes

Current Defense Budgets and Spending Trends

Current defense budgets are seeing bipartisan support in Congress, with the U.S. defense appropriations bill for FY 2024 totaling $825 billion, a 3% increase from FY 2023. European defense budgets are also rising faster than U.S. budgets, indicating a global trend of increased defense spending.

"And as Congress is deliberating on that budget, we're encouraged in what we're seeing that there will be continued bipartisan support for defense spending at the President's budget level, if not higher. Yes. And on that, in your conversations on the Hill, do you" --- (NOC, conference, 2024/05/30)

"U.S. Budget Environment With three quarters of our sales from the U.S. Government, U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term." --- (LMT, sec filing, 2024/Q1)

"Defense Spending Environment - The National Defense Authorization Act ("NDAA") for fiscal year 2024 was finalized in December 2023, and the fiscal year 2024 budget cycle concluded with the enactment of the Further Consolidated Appropriations Act, 2024 (the "Act") on March 23, 2024." --- (HII, sec filing, 2024/Q1)

"The European defense budget seems to be moving higher, a little faster and steeper than the U.S. defense budget." --- (TXT, earning call, 2024/Q2)

"On March 23, 2024, the U.S. government enacted a defense appropriations bill for the government’s FY 2024 totaling $825 billion, representing an increase of more than 3% over the enacted FY 2023 spending level." --- (GD, sec filing, 2024/Q1)

Impact of Geopolitical Tensions on Defense Spending

Geopolitical tensions, such as Russia's invasion of Ukraine, are driving increased defense spending globally. This rise in expenditure is fueling demand for advanced defense electronics, ensuring continuous market growth.

"What are the Current Market Drivers? Geopolitical Tensions and Defence Spending Geopolitical tensions and the consequent increase in defence spending by various countries are driving the global defence electronics market." --- (LMT, press release, 2024/06/13)

"The ongoing geopolitical dynamics and the resulting defence spending ensure a continuous demand for advanced defence electronics, driving market growth." --- (NOC, press release, 2024/06/13)

"Geopolitical Matters. In response to Russia’s invasion of Ukraine, the U.S. government and the governments of various jurisdictions in which we operate, have imposed broad economic sanctions and export controls targeting specific industries, entities, and individuals in Russia." --- (RTX, sec filing, 2024/Q1)

Technological Advancements Shaping Future Defense Spending

Technological advancements are driving future defense spending, with programs like DARPA's ACE and investments in next-generation technologies by companies like Lockheed Martin and Raytheon. Strategic leadership and systems like Northrop Grumman's IBCS are also pivotal in addressing complex threats and supporting global security.

"The achievements of and technologies developed through the Defense Advanced Research Projects Agency (DARPA) Air Combat Evolution (ACE) program will serve as a foundation for future advances in safer, more reliable, and more efficient aviation – both for military and commercial domains." --- (LMT, press release, 2024/05/03)

"So with the best portfolio within A&D, core driving our continuous improvement in operational excellence and ongoing investments in next generation technologies, I'm incredibly confident in RTX's future and our ability to transform into the best company in A&D." --- (RTX, earning call, 2024/Q1)

"Together, we are set to forge a future that supports global security and technological advancement. Brown, a native of Brisbane, Australia and a 33-year veteran of the Royal Australian Navy (RAN), has extensive knowledge and experience of Australia's submarine program and defense and industry strategy." --- (HII, press release, 2024/06/03)

"#IBCS is ready to defeat the complex threats of today and tomorrow by unifying sensors and effectors to support the commitment to global security and technological advancement among the U.S. and its allies." --- (NOC, Twitter, 2024/06/17)

"Partnering for the Future of Missile Defense Lockheed Martin has an extensive understanding of the end-to-end missile defense mission and is committed to maintaining a positive and transparent relationship with the MDA." --- (LMT, press release, 2024/04/15)

Government Policies and Political Changes

Government policies and political changes significantly impact defense spending. Companies like RTX and LMT highlight how legislation, payment policies, and geopolitical conditions create uncertainties affecting operations and cash flows. NOC emphasizes the importance of government program recertification processes, while LMT stresses the need for transparency in political lobbying activities.

"Government legislation, policies, and regulations can impact our business and operations." --- (RTX, sec filing, 2024/Q1)

"Our cash flows may be affected if the U.S. Government changes its payment policies." --- (LMT, sec filing, 2024/Q1)

"As we are working through that process and the government will work through a process here in the next 6 weeks or so to determine whether they recertify the program and any changes they want to make to it going forward, we will then rebaseline associated with these changes." --- (NOC, conference, 2024/05/30)

"Other Matters Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, geopolitical conflicts and strained intercountry relations, U.S. and non U.S. tax law changes, foreign currency exchange rates, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses." --- (RTX, sec filing, 2024/Q1)

"We are asking for more transparency on lobbying on Lockheed's political activities because we want to be assured it is not trying to shape it is not trying to shape foreign policy that is at odds with its human rights commitments." --- (LMT, event transcript, 2024/05/02)

Role of International Alliances in Defense Spending

International alliances play a crucial role in defense spending by integrating commercial technology into military applications, enhancing supply chain resiliency, and expanding production and sustainment partnerships. Collaborations with NATO and European allies, as well as international suppliers, are pivotal in bolstering defense capabilities and inventory.

"In the longer term, what we focus on is 21st Century Security, really bringing commercial technology and the 1,000,000,000 of dollars that have been invested in things like edge computing, networking, artificial intelligence and applying that to military problems for our customers, as well as building out our supply chain, working on supply chain resiliency to include international partners." --- (LMT, conference, 2024/05/30)

"Together with our broad – and growing – network of suppliers in the region, we are moving forward to increase this critical air defense missile inventory in support of NATO and our European Patriot allies. Sener is a private engineering and technology group with a demonstrated expertise in the design and production of missile actuation and control system technologies." --- (RTX, press release, 2024/04/29)

"So we will be mitigating any future programs that we have. And we're eager to have international production and sustainment partners, and we're going to expand that." --- (LMT, earning call, 2024/1-30)

Defense Contractors' Perspectives on Future Spending

Defense contractors like Northrop Grumman, Boeing, Lockheed Martin, Raytheon Technologies, and General Dynamics emphasize long-term positioning, flexibility, and confidence in meeting future needs. They focus on R&D, CapEx, and specific contracts to ensure sustained growth and predictability in defense spending.

"And that's where a majority of my time will be focused while we also continue to position the business for the long term and make good choices on how we're spending our R and D and CapEx to fuel future growth into the 30s." --- (NOC, conference, 2024/05/30)

"There's nothing that's changing dramatically but we do have flexibility in order for us, 1, to be able to give them schedules that meet their fleet needs, albeit at reduced levels, but also confidence that in the future we're going to get more predictable." --- (BA, conference, 2024/05/23)

"And between now and then, I'm sure we'll have discussions in terms of getting future phases on contract." --- (LMT, earning call, 2024/Q1)

"Before we discuss our first quarter, I want to spend a few moments on the strength of this foundation and how we plan to build upon it in 2024 and beyond." --- (RTX, earning call, 2024/Q1)

"For the defense segments, the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results." --- (GD, sec filing, 2024/Q1)