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 Boeing's (BA 0.07%) attack helicopters, while the U.S. found it needed to beef up missile defense. Those decisions directly benefited Lockheed Martin's (LMT 0.12%) Aegis Missile defense system and will probably end up benefiting Northrop Grumman (NOC 1.00%), the prime contractor on the Missile Defense Agency's Joint National Integration Center -- a simulating and war-gaming center -- as well as Boeing's ground-based interceptors, and Raytheon's (RTN) 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.
There are a number of senators on both sides of the aisle that have serious concerns about arming Syrian rebels. Sen. Rand Paul (R-Ky.), said: "The president's unilateral decision to arm Syrian rebels is incredibly disturbing, considering what little we know about whom we are arming. Engaging in yet another conflict in the Middle East with no vote or Congressional oversight compounds the severity of this situation." Sen. Chris Murphy (D-Conn.), said: "I'm deeply skeptical about plans for military intervention in Syria, given the dangerously fractured state of the opposition, and the very real risk of American weapons and money falling into the hands of the same terrorist organizations we're already fighting around the world."
What to watch for
So far, the Obama administration has declined to specify what arms the U.S. will send to Syria. But the White House has described a recently approved arms package as "mostly light weapons," while the rebels have stated their need for anti-tank and anti-aircraft missiles. The good news is Ahmed al-Jarba, the coalition's newly elected president, has publicly rejected an alliance with jihadists and repeatedly stressed his desire to have Syria be a pluralistic democracy. Still, on Thursday, Kerry stated that "there is no military solution" to Syria's civil war and said the only way forward is through political negotiations.
The newly approved arms package seems to indicate that the U.S. will arm Syrian rebels, but given that the decision is political, a lot could happen between now and delivery. Regardless, this is another example of why defense companies are here to stay. There will always be dictators and corrupt leaders threatening the safety of their, and other nation's, people. Consequently, there will always be a need for weapons, and their makers. As such, defense contractors make a great long-term investment.