Ukraine's tanks are looking somewhat the worse for wear after nearly a year's worth of fighting against Russian-backed separatists. Photo: / DenTVinform.
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Will America sell weapons to Ukraine?
Mikheil Saakashvili, who led the former Soviet Republic of Georgia when Russian tanks, troops, and planes invaded, overran, and bombed that country into submission in 2008, visited Washington, D.C., this past week to urge U.S. legislators to do just that: bolster Ukraine's defenders by selling them U.S.-made weapons.
Meanwhile, U.S. Secretary of State John Kerry notes that President Barack Obama is "examining" the possibility. Of course, he's been "examining" this possibility for nearly a year, even as city after city have fallen to Russian-leaning separatists backed by Russian special forces (commonly referred to as Russia's "little green men"). To date, though, the U.S. Defense Security Cooperation Agency hasn't notified Congress of a single planned arms sale to Ukraine.
An-ti-ci-pation... it's keeping them waiting...
For investors wondering whether America will ever make up its mind, and wondering which defense companies will be tapped to sell arms to Ukraine when we do, this seems like the question of the decade: When will the U.S. agree to arm Ukraine? But as I've argued in the past, I think this is the wrong question.
Selling weapons into a war zone, hoping they'll be used against an erratic warlord armed with nuclear weapons, isn't a necessarily prudent. I do believe that there will eventually be contracts to be won in Ukraine (rebuilding its air force, for example, which has been decimated by the war) -- but don't expect to see significant arms sales to Ukraine until fighting has ceased.
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Simply put, the time for Ukraine to build up its military was before it was attacked -- not in the middle of the attack. Ukraine had a chance to rearm after seeing what happened to Georgia, but it failed to use its time wisely.
If not Ukraine, then who?
Fortunately, other countries are learning from Ukraine's mistake. Ever since the initial Russian invasion of Crimea, there's been a surge of interest throughout Eastern Europe in bolstering national defenses. It's here that we may find an opportunity to profit from their investments. After all, the Obama Administration may be loathe to sell weapons to Ukraine -- but it's looking increasingly eager to prevent the next domino from falling to Russian forces, and willing to provide weapons to countries willing to help keep that from happening.
Case in point: Earlier this month, Stars and Stripes reported that the U.S. is sending a dozen A-10 Thunderbolt II "Warthog" attack planes to Germany. 3rd Air Force commander Lt. Gen. Darryl Roberson says this squadron will be working with NATO partners, "especially along the border of Russia, Lithuania, Estonia, Romania, Bulgaria," to dissuade further Russian aggression.
Don't worry, Europe. Help is on the way -- A-10s are coming. Photo source: U.S. Air Force.
In addition to cooperating with the Warthogs, many of these countries are making investments of their own. For example, Romania recently upped its defense budget by 20%. Estonia has placed an order for 44 Dutch CV9035NL armored personnel carriers. Latvia's buying 123 surplus CVR(T) armored personnel carriers from Britain. And Lithuania is doubling its defense spending on new armored vehicles and artillery systems.
Poland has been investing heavily in German Leopard 2 main battle tanks and F-16 fighter jets from Lockheed Martin . (Bulgaria's also said to be in the market for new fighter jets.) Poland's investing a further $43 billion to build a new air defense system to defang Russia's superior air force.
Slovakia, itself a former victim of Soviet aggression (see: Prague Spring, The) and sharing a border with Ukraine, is arming up as well. Last week, we learned that the country is in the process of negotiating a sale of nine new UH-60M Black Hawk Helicopters from United Technologies , when the DSCA notified Congress of the pending sale.
What it all means for investors
Just how big of a deal is this burgeoning European arms race for American defense contractors? As I outlined last year, current NATO policy urges member states to spend 2% of their annual GDP on defense. But out of 28 member states, only four countries actually do spend that much. (And one of them is us.) To reach even the 2% minimum level of annual spending on defense will require a continentwide 25% increase in defense spending -- billions of dollars in defense contracts for which companies like United Technologies, Lockheed Martin, and their peers can compete.
And the cost of repairing defenses left weak by decades of underinvestment in defense -- and the potential for selling weapons to shore up these defenses? That could be much, much more.
Note: And that's just the billions being spent by U.S. allies. Don't forget the $22 billion that we are planning to spend on building Europe a ship-borne Ballistic Missile Defense system -- seen here being tested aboard the USS Hopper (DDG 70). Photo source: Wikimedia Commons.
The article U.S. Says No Weapons for Ukraine... but Here, Slovakia, Have a Few Helicopters originally appeared on Fool.com.
Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 309 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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