While the country contributed to NATO’s air policing initiatives in the North Sea, Finland also shared an 830-mile border with Russia, resulting in many economic benefits.
The invasion removed nonalignment as an option. Finland was either with Russia and defenseless or aligned with NATO.
Treaty obligations will mean significant increase in defense spending. Finland has already ordered 64 new F-35 warplanes, the elite joint strike fighter (JSF) developed by Lockheed Martin, Northrop Grumman and BAE Systems (BAESY). The JSFs cost between a whopping $110 million and $135.8 million.
More importantly, aligning with NATO is a commitment to interoperability with the American defense ecosystem.
This directly benefits the big U.S. contractors. The market for their goods is expanding and they will face no competition for the foreseeable future.
In the short term, the revenue increase is going to be minimal. Defense contractors recognize sales when systems are delivered, and that can take several years. In the interim, the sector will benefit from supplementary bills passed to aid the war effort in Ukraine.
Last week, President Biden signed a $40 billion Ukrainian war package. The U.S. is sending existing equipment to the war-torn country. Those systems will later be replenished at an additional cost to U.S. taxpayers.
The Raytheon-made Javelin missile system has become a vital part of the Ukrainian defense effort.
The heat-seeking, shoulder mounted anti-tank missiles are mostly responsible for destroying 664 Russia tanks, according to data published at Radio Free Europe.
In early April, the U.S. Department of Defense said that 7,000 Javelins had been deployed to Ukraine. For perspective, another Department of Defense procurement document notes that Raytheon has never been able to produce more than 6,480 units during any 12-month span.
The F-35-ification of European armies might be a bigger deal, though.
In addition to the cost of the units, corresponding ground support, spare parts and maintenance, there is lock-in factor. Europe is now committed to America-made gear for decades to come.
The benefit to Europe is peace of mind. If Finland and Sweden are accepted into NATO, the countries would join their Nordic neighbors, Denmark, Norway and Iceland.
The five countries currently work together under the Nordic Defense Cooperation pact. Bringing NORDEFCO inside NATO would facilitate joint planning, cut off Russian maritime access to St. Petersburg and strengthen defense of the North Atlantic and Artic Sea routes.
American defense contractors are reliable technology partners. The companies are also backed up by the largesse of the U.S defense budget, a record $810 billion in 2021.
There is no appetite politically to decrease military spending. And that sentiment is spreading globally, thanks to the carnage in Ukraine.
Raytheon, Lockheed Martin and Northrop Grumman are currently the best way to play this bigger trend.
At share prices of $90, $424 and $443, the stocks trade at 15.5 times, 14.9 times and 16.3 times forward earnings, respectively.
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