Sukhoi's Su-35 attended the Paris Air Show last summer to much fanfare. Russian arms sales increased by 28 percent in 2012, according to a new report. (Eric Feferberg/AFP via Getty Images)
SIPRI Top 100 Defense Companies Data – 2012
The ranking is followed by sales in 2012 and 2011
1. Lockheed Martin, US, $36bn, $36.27bn
2. Boeing, US, $27.6bn, $30.56bn
3. BAE Systems, UK, $26.85bn, $29.16bn
4. Raytheon, US, $22.5bn, $22.9bn
5. General Dynamics, US, $20.94bn, $23.33bn
6. Northtrop, US, $19.40bn, $23.34bn
7. EADS, Trans Europe, $15.40bn, $16.40bn
8. United Technologies, US, $13.46bn, $11.64bn
9. Finmeccanica, Italy, $12.53bn, $14.57bn
10. L-3 Communications, US, $10.84bn, $12.52bn
11. BAE Systems Inc, US, $10.37bn, $13.56bn
12. Thales, France, $8.88bn, $9.48bn
13. SAIC, US, $7.82bn, $7.94bn
14. Hungington Ingalls, US, $6.44bn, $6.38bn
15. Almaz-Antel, Russia, $5.51bn, $3.86bn
16. Safran, France, $5.30bn, $5.24bn
17. Honeywell, US, $5.11bn, $5.28bn
18. Rolls Royce, UK, $5.01bn, $4.73bn
19. Sikorsky, US, $4.51bn, $4.97bn (United Technologies)
20. United Aircraft, Russia, $$4.44, bn$4.40bn
21. General Electric, US, $4.1bn, $4.1bn
22. Oshkosh Truck, US, $3.95, bn$4.37bn
23. MBDA, Trans Europe, $3.86bn, $4.17bn (Finmeccanica/ BAE Systems/ EADS)
24. ITT Exelis, US, $3.80bn, $4.15bn
25. Pratt & Whitney, US, $3.72bn, $3.00bn
HELSINKI — Defense companies — waging an uphill battle to drive up revenues and increase order flows — must plan for the possibility of several more years of low spending by western governments, according to the Stockholm International Peace Research Institute (SIPRI).
The organization’s latest Top 100 Global Defense Companies data, for 2012, reveals that sales by the world’s 100 largest defense companies fell by 4.2 percent to $395 billion, in real terms. This level of overall performance followed a 6.6 percent drop in sales in 2011. However, taking a longer historic view, arms sales by the Top 100 have increased by 29 percent since 2003.
While demand for military hardware may be subdued in western markets, the dynamic of Russia’s military modernization programs has bolstered domestic demand and sales. Arms sales by Russian companies increased by 28 percent in 2012, according to the data.
Demand for defense materials remains strong and climbing in Asia, South America and the Middle East. Due to a lack of available data, the Top 100 does not include Chinese arms companies.
Although Russia’s defense companies are maintaining high export levels, the increase in arms sales in 2012 largely reflects “large and growing” domestic sales emanating from its US $700 billion 2011–2020 State Armaments Plan, said Sam Perlo-Freeman, the director of SIPRI’s Military Expenditure and Arms Production Program.
“Russia’s arms industry is gradually re-emerging from the ruins of the Soviet industrial era,” Perlo-Freeman said. “The industry is still plagued by outdated equipment, inefficient organization and widespread corruption, which will continue to limit Russia’s ability to compete technologically with the West.”
The surge in orders flowing from the 2011-2020 State Armaments Plan contributed significantly to five of the six Russian defense companies listed in the Top 100 — with the exception of United Aircraft Corporation — raising their sales by over 20 percent in 2012. Almaz Antei, which lifted its sales by 41 percent in 2012, is now in 14th position on the Top 100 companies’ chart, the first Russian company to reach this ranking.
The level of sales performance produced by US companies listed in the Top 100 were harmed by the US withdrawal from Iraq, Perlo-Freeman said.
“The US arms industry has fallen back somewhat from the heights it reached before the Budget Control Act, when the USA was still involved in two wars,” he said. “The industry still enjoys sales and profits that are very high by historic standards.”
Sales by the 42 listed US-based arms producers represented 58 percent of the total arms sales generated by Top 100 companies in 2012, with the 30 listed companies located in Western Europe accounting for another 28 percent of the total.
KBR (formerly Kellogg Brown & Root) saw the largest percentage decline in arms sales of any Top 100 company in 2012. Its sales, consisting mainly of logistics support, were down by 60 percent for the year. Sales by companies providing armored vehicles to US forces in Iraq and Afghanistan, including Navistar and AM General, also decreased.
Defense companies in the Ukraine, Brazil and South Korea also made strong advances in their sales performances in 2012. The consolidation of much of the Ukrainian arms industry into Ukroboronprom resulted in a 14 percent increase in the company’s sales to $1.44 billion in 2012.
Brazil’s Embraer produced a 36 percent increase in sales to $1.06 billion in 2012, raising it from 83rd in 2011 to 66th in 2012.
The lower levels of military spending in the US, and in most Western European countries, will continue to drive the sector’s leading established arms suppliers to develop new or stronger sales in Asia, Eastern Europe and South America, said Luuk de Gier, an industry analyst based in The Hague.
“India, Pakistan, Thailand, Malaysia, Taiwan and Japan will remain big spenders on military hardware and defense technologies in coming years,” de Gier said. “The military [expenditures] of Middle Eastern states, such as Saudi Arabia, United Arab Emirates, Yemen and Qatar, are also likely to increase to maintain their [gross domestic product]-to-defense-spend ratios to between 10 and 20 percent. Defense spends in South America are growing too, but this is a more politicized environment for western contractors to do business.”
While the recovery in arms sales in the US and Europe may be slow, those western defense companies unimpeded by restrictive national export rules are likely to fare best in driving sales outside of their home markets, de Gier said.
“In a strictly European context, defense groups in the Nordic countries in particular operate under very tight export controls that can reduce their ability to export widely. By contrast, countries like the US, France, Italy and Britain operate under less restrictive export controls,” de Gier said. “As a result, many Middle Eastern, Central African and Asian markets are out of bounds, under existing rules, to Nordic defense companies.”
The restrictive export rules and legal apparatus under which all Nordic states operate was underlined when Swedish Enterprise Minister Annie Lööf backed down from comments suggesting that Sweden could re-open its arms trade with China, despite an arms embargo imposed in 1989.
“Government ministers in Sweden, or some other European states, may want to strengthen defense exports, but they must be aware of the legislative constraints. In the case of China, there is no gray area,” said Ulf Bjereld, a political analyst at the University of Gothenburg. “Under Swedish law, it is regarded as a dictatorship and arms exports are banned.”
With tight export controls to contend with, Nordic defense equipment and service suppliers will continue to primarily focus on generating sales orders from established “partner” nations in Europe and the US.
The lower national expenditure on military equipment in the US and Europe is harming Nordic defense revenues and orders. Latest figures from the state data research organization Statistics Norway reveals that the value of Norwegian exports of military equipment dropped by $64.5 million to $339 million in 2013, with weaker orders from Europe contributing to the result.
“We are seeing a clear trend here, and one that is challenging for the defense industry. This is not simply a fall off in defense exports in 2013. Despite increased defense spending by Norway, which has helped industry, we have seen a decline in arms exports each year since 2008,” said Kristian Norheim, the deputy chairman of the Norwegian legislature’s Standing Committee on Foreign Affairs and Defense. “The news isn’t all bad. The stand out figure in 2013 was the $91.5 million in sales to the US, which was $12.8 million up on the previous year,” ■