On July 5, the Pentagon's ground-based midcourse defense program, or GMD, failed to intercept a ballistic missile fired from the Marshall Islands. Although the launch was only a test, the July 5 failure was the latest in a string of failures since successful runs in 2008. Now, some lawmakers are blaming that failure on President Obama and his administration, because of their decision to "drastically cut funding for the GMD program," leaving it on "life support."
But is this critique fair? More importantly, is this latest failure actually good news for defense contractors?
A world without nukes
In 2009, among other cuts to defense, President Obama cut $1.4 billion from the Missile Defense Agency's budget, scaled back the MDA and Boeing's (NYSE: BA ) Airborne Laser program, reduced interception and flight tests, and cut ground-based interceptor deployment down to 30. These cuts were in line with his campaign promise to cut back on missile defense spending and bring the United States closer to the goal of a "world without nuclear weapons."
The goal of having a world without nukes is admirable, and one that many people agree with, considering how destructive the arms race can be. But the reality is that countries such as Iran and North Korea aren't interested in disarmament, regardless of what the U.S. does, and are in fact actively pursuing their own nuclear agendas.
That fact became abundantly clear last December, following North Korea's missile tests. Accordingly, Obama reversed his previous decision on missile defense cuts and reinstated missile defense initiatives, although he didn't reverse his view regarding nuclear disarmament.
An unfair critique?
According to Pentagon officials, four years ago, North Korea's capabilities were considerably less advanced. Thus, when Obama made the decision in favor of missile disarmament, the U.S. wasn't facing the same type of threats it is today.
So are Obama and his administration responsible for recent missile failures? Yes and no. Yes, the funding to test and maintain the GMD was cut to such a degree that there have been only three attempted intercept tests and two flight tests conducted since successful 2008 test. But the threats to the U.S. weren't what they are now, the push for disarmament was driven by a desire for world disarmament and to slow the arms race, and there was a need to cut spending.
More pointedly, thanks to North Korea and Iran, Obama has reversed his previous push for missile disarmament and is increasing ground-based interceptors to 44. Defense Secretary Chuck Hagel announced that the U.S. will be shifting "resources" to boost funding to Lockheed Martin's (NYSE: LMT ) Aegis Missile defense system.
Plus, following the unsuccessful missile test, it's become clear that more needs to be done to make sure that the U.S. has effective ballistics missile interceptors. That's great news for defense contractors. Northrop Grumman (NYSE: NOC ) , for one, is the prime contractor on the Missile Defense Agency's Joint National Integration Center, a simulating and war-gaming center that provides answers for America's missile defense capabilities. Boeing makes ground-based interceptors. And Raytheon (NYSE: RTN ) builds the SM-3, a defense weapon used to destroy incoming ballistic missiles.
What about spending cuts?
Sequestration and spending cuts are a reality thanks to the inability of lawmakers on both sides to figure out a viable budget solution. However, thanks to continuing threats from abroad, and the recent missile failure, it seems highly likely that lawmakers will find a way to fund further MDA initiatives. In fact, House Armed Services Committee Ranking Member Rep. Adam Smith, D-Wash., is downright bullish on missile defense. "I don't think we need to put the brakes on anything," he says. "We need a missile defense system. Rogue actors, from North Korea to Iran, are developing missiles. We need to improve our missile technology."
Hindsight is 20/20
While some may disagree with the push toward disarmament, while others still fully support it, it's become clear to the Obama administration, and lawmakers on both sides of the aisle, that the need to improve the United States' missile defense capabilities isn't going away -- it's increasing. How this will play out over the next few months is uncertain, but it's likely that this revelation will help defense contractors that specialize in this area.
Boeing is one of the largest defense contractors in the world. Further, it builds ground-based interceptors, which are becoming more and more necessary thanks to countries such as North Korea and Iran. But there are some things to consider before you invest. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies, including Boeing, that could take off when the global economy gains steam. Click here to read the full report!