Budget Cuts Lead to Fewer Arms Sales in 2011

By Antonio Perez, Epoch Times
February 18, 2013 Updated: October 1, 2015
A Lockheed C-130 Hercules preparing for take off at the Kabul International airport, in Kabul. (ALEXANDER KLEIN/AFP/GettyImages)
A Lockheed C-130 Hercules preparing for take off at the Kabul International Airport, in Kabul, Afghanistan. Lockheed Martin, the world's largest defense contractor with $47.1 billion in revenues for 2012, is guiding for higher profits in 2013. (Alexander Klein/AFP/GettyImages)

The elite of global defense companies sold fewer arms in 2011 than in 2010, according to a report by a Swedish think tank. The decrease of 5 percent is mainly due to austerity and fewer large-scale conflicts. 

“Austerity policies and proposed and actual decreases in military expenditure as well as postponements in weapons program procurement affected overall arms sales in North America and Western Europe,” says a report by the Stockholm International Peace Research Institute (SIPRI), published Feb.18. 

Other factors include the winding down of large scale conflicts in Iraq and Afghanistan as well arms sanctions against certain countries. Nonetheless, the top 100 global defense companies are finding other ways to stay profitable.

“Arms producing and military services companies have been taking steps to insulate themselves against austerity measures,” says SIPRI industry expert Dr. Susan Jackson in the report. The companies are diversifying into other geographies, such as Latin America and other areas, such as cybersecurity.

“One clear trend is that major arms producing companies are looking into cyber security as an expanding market,” Vincent Boulanin, a researcher at SIPRI told The Epoch Times. “Cyber security is one of the rare items in the military budget that remains privileged despite austerity,” he adds, conceding that this market is relatively small compared to traditional revenue channels.   

The top 100 are ranked by total arms revenue and mostly made up of American (60 percent) and European (29 percent) companies. Other companies from China or Ukraine could have made the list, but not enough information was available. The top 100 sold $410 billion in arms and related services in 2011.  

Big American Companies Holding up Well 
On the day the report was released, world No. 5 Raytheon announced a new contract from the Finnish Defense Forces. The company will deliver thermal biocular systems, an infrared imaging device used for search and targeting. The dollar amount of the contract was not disclosed.

While the price tag in this case is likely to be small, Raytheon’s order book is in good shape. According to an analysis by Citigroup, the company posted a record order backlog of $24 billion for 2012. The analysis also notes a large share of international orders, which helps the company reduce the impact of U.S. spending cuts.

Big companies like Raytheon are looking toward Asia excluding China, the Middle East and Latin America to make up for shortfalls in the developed world says Boulanin: “In terms of countries, they are especially looking at India, Brazil … United Arab Emirates or Saudi Arabia.”

Nonetheless, some of Raytheon’s sales could fall prey to the sequester of automatic spending cuts this year. The sales guidance for 2013 of $23.6 billion–$24.1 billion only just meets Wall Street estimates of $24.1 billion and is “not fully de-risked since it does not contemplate sequestration,” says the report.

Lockheed Martin, the world’s largest defense contractor with $47.1 billion in revenues for 2012 is guiding for higher profits in 2013. It posted an order backlog of $82 billion at the end of 2012 and sells 17 percent of its goods to international companies. Citigroup thinks this percentage will increase to over 20 percent over the next few years.