Defense companies take in less despite flood of orders

Peace researcher Sipri - Defense companies take in less despite flood of orders

The revenues of the world's 100 largest arms companies have fallen despite the war in Ukraine. According to a report published on Monday by the Stockholm-based peace research institute Sipri, they amounted to 597 billion dollars (around 543.4 billion euros) in 2022, which corresponds to a decrease of 3.5 percent compared to the previous year. This is due to capacity problems. At the same time, companies have acquired significantly more orders. Sipri therefore anticipates considerably 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 dollars. This corresponds to a decline of 7.9 percent. Russian companies had to cope with a decline of 12 percent. In contrast, 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 such as Airbus, Sipri calculated revenues of 19.7 billion dollars and an increase of 9.6 percent. Companies in Israel, Turkey and South Korea also recorded higher revenues.

Many companies take a long time to expand production

Sipri explained that the Russian invasion of Ukraine and global tensions caused demand for weapons and military equipment to skyrocket in 2022. However, companies currently have too little capacity. "Many arms companies have encountered obstacles in switching production to high-intensity warfare," said Sipri arms expert Lucie Béraud-Sudreau.

In North America and Europe, many companies took a long time to expand their production. They were already having difficulties with this before the war in Ukraine. Some of their unfinished orders date back to this time. In addition, there is a shortage of raw materials, rising inflation and the effects of the coronavirus pandemic on supply chains and the personnel situation. The orders received in 2022 will probably not be reflected in companies' balance sheets for another two to three years, said Sipri researcher Nan Tian.

In 2022, the war in Ukraine had virtually no impact on the revenues of the largest US defense companies. They were still working off orders from before the war. General Dynamics, for example, is the only private company in the USA that manufactures 155-millimetre shells, which are being fired en masse in Ukraine. Nevertheless, it recorded a 5.6 percent drop in revenue in 2022 and explained that it was only seeing signs of increased demand. The missile specialist Lockheed Martin had an order backlog of 150 billion dollars, but recorded a fall in revenue of 8.9 percent and did not expect any short-term increases in revenue due to the war in Ukraine in view of the long production cycles.

Increase in revenue for German companies

German defense companies nevertheless recorded an increase in revenue. They took in 9.1 billion dollars, with only ThyssenKrupp recording a decline. Airbus' armaments revenue rose by just under 1.7 billion to a good 12 billion dollars. This was an increase of 17 percent.

Companies in the Middle East and East Asia were apparently better prepared for the increased demand. The Israeli defense company Rafael, Baykar from Turkey and the South Korean company Hyundai Rotem reported rising revenues, mainly due to orders from Europe. At Baykar, they even rose by 94 percent. Turkish companies also benefited from arms deliveries 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 tend to 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 plant in Germany.

Only little data from Russia

Overall, according to Sipri, the revenues of the world's 100 largest defense companies in 2022 were still significantly higher than in 2015, when the institute included Chinese companies in its top 100 list for the first time, despite the decline. The largest group continues to be US companies, 42 of which are on the list, generating 51 percent of total revenue. Chinese companies followed in second place, reporting a 2.7 percent increase in revenue to 108 billion dollars, accounting for 18 percent of total revenue.

According to Sipri, there was little data available from Russian companies. As a result, only two of them were included in the list in 2022. They recorded a 12 percent drop in revenue to 20.8 billion dollars. Sipri cited high inflation and the decline in Russian arms exports as the main reasons. In addition, the companies are working off armaments stocks from the Soviet era, which is not so well paid.

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1. Despite the war in Ukraine, Sipri anticipates higher profits for arms companies due to a significant increase in orders.
2. US defense companies, such as General Dynamics, had orders from before the Ukraine war that affected their 2022 revenues.
3. German defense companies like Rheinmetall and ThyssenKrupp reported an average increase of 1.1% in revenues, while Airbus saw an increase of 17%.
4. Turkish defense company Baykar reported a 94% increase in revenues mainly due to orders from Europe.
5. Many companies, including those in North America and Europe, have faced challenges in expanding production due to capacity issues, raw material shortages, inflation, and supply chain disruptions.
6. Chinese, Indian, Japanese, and Taiwanese companies have benefited from continued government investment in military modernization, allowing them to better respond to increased demand.
7. Israeli defense company Rafael, with a plant in Germany, also reported higher revenues due to orders from Europe.
8. Russian defense companies faced a 12% decline in revenues in 2022 due to high inflation, a decline in arms exports, and the companies working off armaments stocks from the Soviet era.
9. European companies, such as Airbus S. A. S., contributed to the decline in revenue of the world's 100 largest arms companies.
10. Sipri expects companies in the defense industry to see higher profits in the coming years due to increased demand due to global tensions and the war in Ukraine.11.Inflation, a global issue, has affected many companies' profits, including those in Europe.
11. Defense companies in Turkey and South Korea also reported higher revenues in 2022.

Source: www.stern.de