Defense Contractors: Why Lockheed Martin is Permissible (Mostly)

One of the most counterintuitive results in Shariah stock screening is that major US defense contractors like Lockheed Martin, Northrop Grumman, Raytheon Technologies (now RTX), and General Dynamics generally pass the screens. Many Muslim investors are surprised by this because the products these companies make, missiles, fighter jets, warships, tanks, are associated with warfare and destruction.

The explanation comes down to a specific distinction in Islamic jurisprudence about weapons, combined with modern Shariah board interpretations that separate legitimate defense from prohibited activities. Let me walk through the reasoning.

The classical position on weapons

Classical Islamic jurisprudence is nuanced about weapons. The Prophet Muhammad himself used weapons in legitimate defensive and military contexts. Early Islamic society included weapon-makers (swordsmiths, bowyers, armorers) whose trade was considered a respectable craft. The Quran explicitly mentions iron's use for both peaceful industry and military strength in Surah Al-Hadid.

What classical scholars prohibited:
- Using weapons for oppression (zulm)
- Using weapons to kill innocents
- Weapons intended specifically for indiscriminate mass civilian harm

What classical scholars permitted:
- Manufacturing weapons for legitimate defensive purposes
- Trading weapons to parties who would use them permissibly
- Producing conventional military equipment for state militaries

The principle that emerged was roughly: weapons themselves are neutral; their permissibility depends on their intended and actual use.

How modern scholars apply this to public companies

Contemporary Shariah boards have applied the classical principle to modern defense contractors through a few key interpretations:

Interpretation 1: Selling weapons to established state governments is generally permissible because states have legitimate defense needs. A contractor selling tanks to the US military, the UK military, or allied governments is engaged in lawful commerce.

Interpretation 2: The buyer's use of the weapon is the buyer's responsibility, not the manufacturer's. If a government misuses a weapon, the moral weight falls on the government, not the manufacturer. This mirrors classical jurisprudence where the sword-maker isn't responsible for the soldier's choices.

Interpretation 3: Weapons of mass destruction, particularly nuclear, biological, and chemical weapons designed for indiscriminate civilian harm, are categorically impermissible. Any company primarily engaged in producing these would fail the Shariah screen.

Interpretation 4: Weapons specifically designed to target civilians (landmines in some interpretations, cluster munitions in some interpretations) are problematic. Most large defense contractors don't produce these in meaningful volumes.

The result: major conventional defense contractors pass business activity screens because their products are primarily for state militaries, primarily conventional rather than WMD, and primarily legal under international law.

Lockheed Martin's actual business

Let me walk through what Lockheed Martin actually makes. The company's 2024 segments are roughly:

• Aeronautics: F-35 fighter jets, F-16 fighters, C-130 transport aircraft, classified programs
• Missiles and Fire Control: Hypersonic weapons, air defense systems, missile defense
• Rotary and Mission Systems: Sikorsky helicopters, naval combat systems, radar
• Space: Satellites, missile warning systems, space exploration systems

All of these are defense products sold primarily to the US Department of Defense and allied militaries. The F-35 is the largest single contract. The buyer is always a state.

Business activity assessment: permissible under the majority scholarly view. Lockheed's customers are legitimate state militaries. The products are conventional weapons used for defense and warfare in conflicts where state militaries operate under legal authority.

The financial ratios for Lockheed Martin

Approximate Lockheed 2024 figures:
- Total revenue: approximately 70 billion
- Total interest-bearing debt: approximately 19 billion
- Cash and equivalents: approximately 2 billion
- Total assets: approximately 55 billion
- Market cap: approximately 115 billion
- Interest income: negligible

Debt ratio (market cap): 19 / 115 = 16.5%. Pass.
Debt ratio (total assets): 19 / 55 = 34.5%. Just fails AAOIFI (30%), passes others (33.33%).
Liquidity ratio: 2 / 115 = 1.7%. Pass.
Non-permissible income ratio: under 1%. Pass.

Lockheed has a marginal debt ratio under the strictest methodology but passes all others. Under DJIM, S&P Shariah, FTSE Yasaar, and MSCI Islamic, Lockheed is compliant. Under strict AAOIFI, it might be flagged depending on the quarter.

Northrop Grumman and Raytheon

Similar profiles. Northrop Grumman makes bombers, drones, missile defense systems, and space equipment. Raytheon Technologies (RTX) makes aircraft engines (Pratt & Whitney), missile systems (Raytheon), and avionics (Collins Aerospace). Both pass business activity screens for the same reasons as Lockheed.

Northrop's debt profile is typically cleaner than Lockheed's because Northrop has been less active in major acquisitions. Raytheon's debt profile varies more because of the Raytheon-United Technologies merger that created RTX, which added significant debt.

All three are generally included in major Shariah indices. Retail Muslim investors sometimes ask why, because the business feels uncomfortable. The answer is that scholarly methodology doesn't treat discomfort as a Shariah objection.

The counter-argument from some scholars

Not every Islamic finance scholar accepts defense contractors as compliant. A minority position argues:

• Weapons contribute to warfare, and warfare causes civilian harm regardless of manufacturer intent
• Modern weapons systems have more destructive power than classical weapons, making classical jurisprudence insufficient
• Defense contractors lobby for more military spending, creating incentives for conflict
• The buyer's use defense ("states are responsible, not manufacturers") is less convincing when evidence shows weapons being used for aggressive rather than defensive purposes

These arguments have scholarly weight but haven't achieved majority consensus. Most formal Shariah boards still treat conventional defense contractors as permissible.

Some Islamic investors adopt a personal ethical filter on top of the Shariah screen and exclude defense contractors regardless of formal compliance. This is a matter of personal judgment, not formal methodology.

The aerospace-commercial-defense split

Some companies are "defense-adjacent" rather than pure defense contractors. Boeing (BA) is the classic example. Boeing's commercial aircraft business (737, 777, 787) is clearly permissible. Boeing's defense business (fighter jets, bombers, satellites, missiles) is permissible under the majority view. Boeing's overall classification depends on the mix of commercial and defense revenue.

Historically Boeing has been roughly 60% commercial and 40% defense. Both segments are permissible, so the mix doesn't matter. Boeing's Shariah compliance has historically been driven by debt ratios, which blew out during the 737 MAX grounding and COVID-19 combined crisis. Boeing borrowed heavily to survive 2020-2021 and its debt-to-market-cap exceeded the limit for several quarters. As Boeing recovers financially, its ratios have been improving.

Airbus is the same structural story. Commercial aircraft plus defense systems, generally compliant on business activity, occasionally fails on debt during hard years.

The nuclear question

Nuclear weapons are a clear Shariah exclusion under the majority view. They're weapons of mass indiscriminate destruction that cannot be used without violating the prohibition on killing innocents.

Does this affect defense contractors that work on nuclear programs? It depends on the contractor's specific role. Companies that design nuclear warheads directly (like Los Alamos National Laboratory, which is operated by a consortium including some publicly traded companies) might be flagged. Companies that provide delivery systems (missiles) or command-and-control systems without directly designing warheads are in a gray area.

Most major defense contractors avoid the direct nuclear warhead work and focus on delivery systems, detection systems, and conventional weapons. This keeps them inside most Shariah screens.

The cyber and AI dimension

Modern defense contracting increasingly includes cybersecurity, artificial intelligence, and autonomous systems. These are permissible activities in themselves. Building defensive cyber tools, AI-assisted intelligence analysis, and autonomous reconnaissance drones are all within the permissible scope.

The harder question is autonomous lethal systems that can target and kill without human intervention. Classical scholars obviously didn't address this directly, and modern scholars are still working through the fiqh implications. For now, major defense contractors aren't being excluded for autonomous weapons work because the technology is mostly developmental and the screens are looking at current revenue, not future products.

The FaithScreener treatment

We include major defense contractors in Shariah-compliant lists when they pass business activity and financial ratio screens. Our business activity classification treats:

• Conventional weapons for state militaries: permissible
• WMD production: not permissible
• Cyber and intelligence systems: permissible
• Aerospace and space systems: permissible

We flag any specific exposure that a minority of scholars would consider problematic (for example, mention of cluster munition production in a company's disclosures) so investors can apply their own additional filters if they wish.

For Lockheed Martin specifically, we mark it as compliant under DJIM, S&P Shariah, FTSE Yasaar, and MSCI Islamic, and as marginal (close to fail) under AAOIFI due to the total-assets debt ratio. Users who want the strictest AAOIFI filter can exclude Lockheed. Users who are comfortable with the majority methodology can include it.

The broader lesson

Shariah screening is formal, rule-based, and narrow. It answers specific questions about riba exposure, prohibited activities, and financial ratio thresholds. It does not answer broader ethical questions about war, the military-industrial complex, or whether you personally want to own defense companies.

Many Muslim investors find the defense sector uncomfortable even when it formally passes screens. That discomfort is legitimate and doesn't need to be overridden by the formal ruling. If you'd rather not own Lockheed Martin for personal ethical reasons, the Shariah screen doesn't require you to.

But understand what the screen is saying when it marks defense contractors as compliant. It's not endorsing the sector. It's applying specific rules to specific facts and reporting the result. The rest is up to you.

This is true for every sector Shariah screening touches. The screen is a floor, not a ceiling. It tells you what's permissible under formal methodology. It doesn't tell you what's wise, prudent, or aligned with your broader values. Those decisions are yours to make.