This year’s Defense News Top 100 list includes a few non-surprises.
Lockheed Martin remained the largest contractor, which has been the case since the annual list was published in 2000. Consolidation resulted in movement among contractors, with Raytheon Technologies knocking Boeing off its No. 2 position. Finally, U.S. and Chinese firms dominate the Top 10, reflecting the size of those governments’ respective defense budgets.
But here’s what I found noteworthy about this year’s list:
1. Some prominent suppliers are missing. Unfortunately, all contractors don’t respond to the Defense News survey, notably General Atomics and SpaceX, as well as some suppliers that would appear to clear the lowest-ranking sales figure on the list. Triumph Group is one example. Some of the firms taken private have also dropped from the Top 100, notably Cobham, which was purchased by Advent International in 2020.
For non-U.S. contractors, there also some that could show up in the Top 100, including several Russian and Chinese contractors, the Polish Armament Group, and possibly Taiwan’s Aerospace Industrial Development Corporation.
2. Defense News added some more services contractors. This year’s list includes two federally funded research and development centers — Mitre and Aerospace Corporation. This raises the question, however, of where to draw the line between private, nonprofit and state-owned enterprises. Naval Group of France is included in the list, and Chinese firms are state-owned, though they may have multiple subsidiaries listed on stock markets. The U.S. Department of Defense operates logistics centers, shipyards, depots and arsenals. If government-owned shipyards compete against the private sector for ship repair work, they arguably are a market factor, too.
3. For all the interest defense establishments have in fostering innovation and new ideas, no new startup in recent years has made it into the Top 100. SpaceX could be the one, and others, such as Palantir or Turkey’s Baykar, may have a crack at this in the 2020s. But contrast defense to other high-tech or engineering sectors where new entrants are reaching scale and are shaking up the old guards. For the DoD in particular, it has not supported a new entrant that has been able to scale to a sales level that would entail inclusion in the Top 100. Doing so could well spawn significant additional capital inflows to support defense/security startups.
4. Not all contractors increased sales in 2020 compared to 2019. The total sales data from fiscal 2020 is not comparable to fiscal 2019 because there are eleven firms included in this year’s list for which there is no fiscal 2019 data. United Technologies Corporation and Raytheon Company were listed in last year’s rankings, but there were divestitures to BAE Systems with the formation of Raytheon Technologies. Still, it’s noteworthy that not all contractors increased sales in FY20 compared to FY19.
5. Consolidation has been an enduring theme and continues to reshape the sector. However, it remains to be seen how the Biden administration will assess further consolidation in defense. The Top 100 suggests a fragmented market, but that’s far from the case in some segments where a handful of suppliers or primes exist. The services sector, however, is an exception, and the Top 100 suggests further consolidation is probable.
Byron Callan is a policy research expert at Capital Alpha Partners. He specializes in the defense and aerospace industries.