Peace researcher Sipri
Despite the flood of orders, defense companies are earning less
A Bundeswehr main battle tank of the type “Leopard 2 A7V” stands on a training ground (symbolic photo). photo
© Philipp Schulze/dpa
Ukraine, the Middle East, Taiwan – in view of wars and conflicts, countries around the world want to buy weapons and ammunition. Arms companies can hardly save themselves from orders – and still have a problem.
The revenues of the world’s 100 largest defense companies have fallen despite the war in Ukraine. They were in 2022, according to a report on Monday from the Stockholm Peace Research Institute Sipri published a report at 597 billion dollars (around 543.4 billion euros), which corresponds to a decrease of 3.5 percent compared to the previous year. The reason is capacity problems. At the same time, companies have acquired significantly more orders. Sipri therefore expects significantly higher profits in the coming years.
Companies in the USA and Russia contributed the most to the decline in revenue. According to Sipri, US defense companies recorded combined revenues of $302 billion. This corresponded to a decline of 7.9 percent. Russian companies had to cope with a decline of 12 percent. The four German companies on the Sipri list – Rheinmetall, ThyssenKrupp, Hensoldt and Diehl – reported an average increase of 1.1 percent. For trans-European companies like Airbus, Sipri calculated revenues of $19.7 billion and an increase of 9.6 percent. Companies in Israel, Turkey and South Korea also reported higher revenue.
Many companies take a long time to expand production
Sipri said that due to the Russian invasion of Ukraine and global tensions, demand for weapons and defense equipment would skyrocket in 2022. However, companies currently have too little capacity. “Many defense companies have encountered obstacles in converting production to high-intensity warfare,” said Sipri defense expert Lucie Béraud-Sudreau.
In North America and Europe, many companies took a long time to expand their production. They would have had difficulties with this even before the Ukraine war. Some of their unfinished orders still date from this time. There are also shortages of raw materials, rising inflation and the effects of the corona pandemic on supply chains and the personnel situation. The orders received in 2022 would probably only be reflected in the companies’ balance sheets in two to three years, said Sipri researcher Nan Tian.
In 2022, the Ukraine war had virtually no impact on the revenues of the largest US defense companies. They were still working on orders from before the war. General Dynamics is the only private company in the USA that produces 155-millimeter grenades, which are fired en masse in Ukraine. Still, it recorded a 5.6 percent drop in revenue in 2022 and said it was only seeing signals of higher demand. The missile specialist Lockheed Martin pushed ahead with a mountain of orders worth $150 billion, but recorded a decline in revenue of 8.9 percent and, given the long production cycles, did not expect short-term increases in revenue due to the war in Ukraine.
Increase in income for German companies
German defense companies at least recorded an increase in income. They took in $9.1 billion, with only ThyssenKrupp seeing a decline. Airbus’ defense revenue rose by almost $1.7 billion to a good $12 billion. That was an increase of 17 percent.
Companies in the Middle East and East Asia appeared to be better prepared for the increased demand. The Israeli defense company Rafael, Baykar from Turkey and the South Korean company Hyundai Rotem reported increasing revenues, mainly from orders from Europe. At Baykar they even rose by 94 percent. Turkish companies also benefited from arms shipments to the Middle East.
“Companies in China, India, Japan and Taiwan have all benefited from continued government investment in military modernization,” said Sipri expert Xiao Liang. Such companies typically have a strong network of local suppliers and can thus mitigate disruptions to the global supply chain and respond more quickly to additional orders. Rafael also has a factory in Germany.
Only a few data from Russia
Overall, according to Sipri, the revenues of the world’s 100 largest defense companies in 2022 were, despite the decline, still significantly higher than in 2015, when the institute included Chinese companies in its top 100 list for the first time. The largest group remains US companies, with 42 on the list, generating 51 percent of total revenue. Chinese companies followed in second place, reporting an increase in revenue of 2.7 percent to $108 billion, accounting for 18 percent of total revenue.
According to Sipri, there was little data from Russian companies. Therefore, only two of them were included in the list in 2022. They recorded a 12 percent decline in revenue to $20.8 billion. Sipri cited high inflation and the decline in Russian arms exports as the most important reasons. In addition, the companies are refurbishing armaments from Soviet times, which is not well paid.