The chief executives of Lockheed Martin (NYSE: LMT) and Raytheon (NYSE: RTN) described to investors Wednesday their expectations of the foreign military sales environment in light of oil price volatility worldwide and President-elect Donald Trump’s campaign suggestion that U.S. allies contribute more financial resources to their own defense.
Both CEOs told attendees at the Credit Suisse Industrials Conference in Palm Beach, Fla. that idea has already been a topic of discussion among many allied countries even as they face similar budget constraints to that of the U.S. and economic factors such as oil prices that particularly impact Middle East nations.
Countries sensitive to oil market dynamics in the Middle East have continued to focus on tactical fighter jet updates and missile defense programs despite the commodity’s global price decline over the past three years that has impacted their revenue, Lockheed chief Marillyn Hewson said at the conference in Palm Beach, Fla.
“I’m sure in any country looks at their budget situation and has to make choices but we’re seeing a strategic focus relative to a recognition that that countries should support their own defense capabilities and capacity, ” Hewson said.
Raytheon CEO Thomas Kennedy also highlighted missile defense systems as a key strategic priority for many Middle Eastern countries in his remarks to investors at the conference and pointed to withdrawals of U.S. forces from the region three years ago as an event that spurred nations their to invest in their own security.
“These countries are trying to protect their sovereignty. In those cases, economics and politics go to the side and they have to have these systems.”
NATO countries have also kept defense as a priority and alliance members agreed to set their spending levels at 2 percent of gross domestic product during a summer meeting in Warsaw, Poland, an event Hewson said continues the discussion of partner countries’ contributions to defense Trump raised on the campaign trail.
“I don’t think that’s a new message… they’re on a path to do that, ” she added.
Hewson’s latest comments in foreign sales came one month after she told investors during Lockheed’s third quarter earnings call the company has increased its annual international sales goal to 30 percent from the former 25-percent benchmark set in 2014 it expects to exceed this year.
Raytheon Chief Financial Officer Anthony O’Brien told Credit Suisse conference attendees the company expects to generate nearly 31 percent of total sales this year from international.
Trump’s campaign pledge to increase U.S. defense spending and efforts by foreign partners to increase their security allocations will bring Raytheon what Kennedy called a “double bounce” for its business from both domestic and international markets.
“One bounce is coming in for domestic and pouring money into that and the second is the fact that coalition partners will be put on notice to pick up their end of the game there.”