Hundreds are dead following a Syrian attack on a Damascus suburb in what looks like a chemical weapons attack. Further, the U.S. warned Syria that if it used chemical weapons, the U.S. would retaliate, and following the attack, the Navy moved warships into striking distance of Syria.
So will the U.S. really fire missiles at Syria? And if it does, what does it mean for defense companies?
Tensions run high
Syria has been in the middle of a civil war for a while, and the U.S. has generally supported the rebels because President Bashar al-Assad is known for his human-rights violations, corruption, and disdain for the U.S., as well as using chemical weapons against opposition forces. These actions, among others, resulted in President Obama's approval of a "light arms" package for Syrian rebels last month -- although the latest reports indicate that the weapons haven't yet been delivered.
Further, according to reports by CBS, the Pentagon has started to prepare for a cruise missile strike on Syrian forces, and Obama said of the latest attack, "This is something that is going to require America's attention," as a chemical weapons attack is considered a "crime against humanity" according to international law.
What this means for defense
As I've written before, defense companies benefit from a state of war. When North Korea tested missiles, South Korea spent $1.6 billion on Boeing's (NYSE:BA) attack helicopters, and the U.S. beefed up missile defense. That benefited Lockheed Martin's (NYSE:LMT) Aegis Missile defense system and will probably benefit Raytheon's (NYSE:RTN) SM-3, a defense weapon used to destroy incoming ballistic missiles, and Northrop Grumman (NYSE:NOC), the prime contractor on the Missile Defense Agency's Joint National Integration Center -- a simulating and war-gaming center.
Syria's apparent willingness to use chemical weapons is concerning for a number of reasons. One, is it puts America in a tough predicament as far as involvement goes. On one hand, Syria violated international law, but on the other hand, America is strapped when it comes to defense spending. Moreover, the current Syrian government is backed by Russia, and the U.S. backs the rebels. As such, U.S. involvement would be likely to strain an already tense relationship between the U.S. and Russia. And if the U.S. does decide to launch missiles at Syria, it'll probably lead to further and more costly involvement down the line -- great for defense companies, not so great for taxpayers.
What to watch
So far Obama hasn't specified what he intends to do, but the Pentagon has prepared for a missile strike. The U.S. could be just posturing, or it could be a sign of a coming strike. At the very least, the escalating situation in Syria is likely to highlight the need for adequate missile defense -- and offense -- in the fiscal 2014 defense budget. It also highlights the need for Navy warships, which could push the House to agree with the Senate's proposal to approve the Navy's $100 million request for 10 DDG-51 destroyers.
That would be great news for General Dynamics (NYSE:GD), which builds the Aegis destroyer through its Bath Iron Works shipbuilding company, and Huntington Ingalls Industries, which also builds the destroyer through its Ingalls Shipbuilding company -- the Navy typically buys ships from both builders. Regardless of exactly how this plays out with defense companies, this is a situation to watch.