Defense Market Survey: U.S. Firms Continue to Rule Global Arms Sales
2/26/2012
By Sandra I. Erwin
By Sandra I. Erwin
The world’s top suppliers of military hardware and combat support services scored sales of $411.1 billion in 2010, and 60 percent of that business went to U.S. companies, according to a study published today by the Stockholm International Peace Research Institute.
The institute unveiled the “SIPRI Top 100” survey for 2010, a database on international arms production. It contains financial and employment data on arms producing companies from countries that are members of the Organization for Economic Co-operation and Development and from developing countries, except China.
Total arms sales of the SIPRI top 100 inched up by 1 percent in real terms from 2009 to 2010. Since 2002, the top 100 have seen sales soar by 60 percent in real terms.
Arms-producing and military services companies from North America and Western Europe dominate the list. Firms from the United States took seven of the top 10 spots on the list: Lockheed Martin, BAE Systems, Boeing, Northrop Grumman, General Dynamics, Raytheon, BAE Systems Inc., EADS, Finmeccanica, L-3 Communications and United Technologies.
Sales by 44 U.S.-based companies accounted for over 60 percent of all arms sales by the top 100. Thirty companies based in Western Europe accounted for 29 percent.
The global arms industry continues to be highly concentrated, with the top 10 arms producing companies accounting for 56 percent, or $230 billion, of total Top 100 arms sales. “The data for 2010 demonstrates, once again, the major players’ ability to continue selling arms and military services despite the financial crises currently affecting other industries,” says SIPRI arms industry expert Susan Jackson.
The market for contractor-provided services is expanding, the SIPRI survey says. Data for 2010 shows a continuing increase in the sales of military services including systems support, training, logistics, maintenance, repair and overhaul. Twenty companies in the SIPRI top 100 are categorized primarily as services providers. Combined military sales for these companies rose from $22.3 billion in 2002 to $55 billion in 2010, a 147 percent increase in real terms.
Services will play a key role in company strategies for the foreseeable future, the study says. In 2010, for example, BAE Systems reported that 48 percent of its total sales (or $15.8 billion) were generated in the services market.
Increased sales in 2010 illustrate how the arms industry is shielded from immediate, drastic financial threats, SIPRI analysts assert. The expansion and consolidation of the arms industry further strengthened the position of the top 100 producers. Significantly, the entry point for inclusion in the Top 100 rose from $280 million in sales in 2002 to $640 million in 2010.
Corporate acquisitions are commonplace in the defense industry as companies seek to widen and deepen their market share. Two cases of increases in sales in the top 100 for 2010 due to company acquisitions illustrate this strategy. Triumph entered the top 100 for the first time following its acquisition of Vought Aircraft, which helped increase its sales by 125 percent to $1.1 billion. Babcock International saw its sales of military services jump by 40 percent with contracts it absorbed through its acquisition of VT Group.
Other facts and figures from the study:
• U.S.-based companies that have left the top 100 include ARINC and the Aerospace Corp., while others moved in, such as Hawker Beechcraft and Triumph Group, the latter due to its 2010 acquisition of Vought Aircraft Industries.
• The number of West European companies in the top 100 declined from 33 in 2009 to 30 in 2010, in part due to the slightly lower arms sales of Italy’s Avio and Fiat, which exited the top 100 in 2010, and because of the re-entry of the Brazilian company Embraer.
• Russia’s continued arms industry consolidation added another parent corporation to its top arms producers — United Shipbuilding Corporation— resulting in eight Russian arms producers in the SIPRI top 100.
• Vertolety Rossii’s sales increased by 135 percent due in part to the sale of Mi-8/17 transport helicopters to the Russian armed forces as well as to Afghanistan, Azerbaijan and Iraq.
• The wars in Afghanistan and Iraq had mixed impacts on companies’ arms sales. The transition from the sole-source logistics services LOGCAP III contract to the multi-source LOGCAP IV contract contributed to KBR’s decrease in sales in 2010 compared to 2009, while both Fluor’s and ITT Corp.’s revenues increased because of LOGCAP IV contracts. KBR’s overall sales decreased by $2 billion (17 percent) and Fluor increased its government segment sales by 53 percent in 2010.
• Navistar’s sales decreased by 16 percent due to decreases in purchases of military vehicles. BAE Systems also experienced a decrease in sales of the Bradley infantry fighting vehicle and the family of medium tactical vehicles. Truck manufacturer OshKosh Corp. had a 87.4 percent increase in sales in 2010 after winning the M-ATV (mine resistant ambush-protected MRAP all-terrain vehicles) contract.
• Kongsberg’s 37 percent increase in sales was attributed to major contracts from Finland, Norway, Poland and the United States.
Hawker Beechcraft had a 29.3 percent increase as a result of higher sales in trainer and attack aircraft.
• Lockheed Martin’s F-35 Joint Strike Fighter contract contributed to its $2.3 billion increase, as did deliveries and support activities in its C-130 Hercules transport aircraft programs, support activities for the F-16 combat aircraft, and increases in its “readiness and stability” operations.
• Northrop Grumman’s $1.1 billion increase was attributed to increases across its businesses.
Arms deals are defined by SIPRI as sales of military goods and services to military customers, including both sales for domestic procurement and exports. In March SIPRI will release its international arms transfers data — details of international sales, transfers and gifts of major weapons in 2010 — and in April it plans to publish its world military expenditure data — information on global, regional and national trends in military spending. In June, SIPRI will unveil its 2012 Yearbook, an analysis of the world's nuclear forces, the international peacekeeping agenda and nations’ steps to control weapons of mass destruction.
Topics: Defense Contracting, International, Procurement
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