By now you’ve probably heard the news; The Pentagon’s Defense Intelligence Agency thinks “with moderate confidence” that North Korea has developed a nuclear weapon capable of being delivered on a ballistic missile. Good news, though: The DIA thinks such a weapon would have “low reliability.”
If you’re like me, “low reliability” doesn’t exactly elicit feelings of confidence. I mean, how accurate do you need to be to do damage with a nuke? Apparently, South Korea feels the same, as it intends to spend $1.6 billion to purchase attack helicopters from Boeing equivalent to 30 helicopters at an estimated $52 million base price. South Korea also wants to purchase 60 fighter jets, all for the express purpose of countering North Korea’s threats. Obviously, this is good news for defense contractors, and their investors.
You’ve got to hand it to the guy: Kim Jong-un has a flair for the dramatic. While escalating tensions and his continued bellicose remarks aren’t great, so far the only thing they’ve really done is serve as a means for further overseas defense spending — in addition to the attack helicopters, Boeing’s F-15 Silent Eagle, Lockheed Martin‘s (NYSE: LMT ) F-35 Stealth Fighter, and the Eurofighter Typhoon developed by BAE Systems (NASDAQOTH: BAESY ) , European Aeronautic Defense and Space, and Finmeccanica are all competing to be South Korea’s fighter of choice. Plus, Northrop Grumman (NYSE: NOC ) stands to benefit, as the U.S. has said it’s willing to sell South Korea one of its most elite spy weapons, the Global Hawk — an estimated $1.2 billion deal.
Is it all just talk?
Many U.S. analysts believe Kim is full of hot air, with no real intention to act. An attack against the U.S. would probably be suicide for North Korea, especially given that North Korea’s two allies, Russia and China, have both condemned Kim’s belligerent, war-mongering talk. It’s even rumored that Chinese officials have started referring to Kim as “the little upstart.”
Still, China is a longtime ally of North Korea and has critiqued America’s growing military presence in Asia. So even though China has condemned Kim, there’s no real way to determine how China’s defense ministry would react to an attack. Moreover, it’s rumored that one of the real reasons China has condemned North Korea is that it doesn’t want South Korea or the U.S building up a defense system in Asia. In fact, China has said the United States’ increased military presence is destabilizing Asia and escalating tensions.
How will it all end?
Right now, the only thing that’s certain is that defense companies are benefiting from escalating tensions with North Korea. Sequestration and domestic defense spending cuts are in full swing, and defense contractors are feeling the pinch. But thanks to Kim Jong-un, some defense companies are getting a welcome financial boost. And if there is an outright war, I imagine that’ll only improve defense companies’ revenue. Perhaps they should send Kim a fruit basket as thanks.