As the ongoing wars in Ukraine and the Middle East continue to escalate, Vertical Research Partners predicts that top weapon manufacturers will experience record cash flow during the coming years. This forecast, commissioned by the Financial Times, states that “the leading fifteen defense contractors are expected to log a free cash flow of $52 billion in 2026,” with the “top five US defense contractors generating a cash flow of $26 billion.
The record cash flow figures for 2026 will be double those from 2021. This upward trend is part of a larger pattern benefiting weapons manufacturers due to an increase in global military spending and conflict. However, this success has led to some contentious policies among these companies at home.
Prior to the recent surge in new orders, companies had already allocated billions of dollars into share buybacks; some even took on extra leverage to do so. In 2021, the aerospace and defense industries experienced their strongest year for buybacks in both the US and Europe over the past five years, according to data from the Bank of America. However, levels remain significantly below those seen in other sectors.
The large-scale repurchases using taxpayer money by US contractors have prompted criticism among some lawmakers who question whether companies are investing enough in new facilities and production. Executives at these companies have maintained that they are increasing capital spending even as they return money to investors.
Washington has played a significant role in driving the worldwide arms race, with its military budget equal to the next ten countries combined. Under President Joe Biden’s administration, billions of dollars worth of weapons were funneled into Ukraine, Israel, and Taiwan. This policy has led to massive wars in Ukraine, Gaza, and Lebanon, as well as rising tensions in the South China Sea between China and Taiwan or the Philippines.
The White House has the potential to deescalate many of these conflicts by leveraging its military aid to Israel and Ukraine. In the case of the South China Sea, Washington’s promise to go to war against Beijing on behalf of Manila and Taipei has partially contributed to the ongoing tensions between China and Taiwan or the Philippines.
The US has also provided weapons worth hundreds of millions of dollars to both Taiwan and the Philippines, further escalating tensions with China.
