Weapon Demand Surge: Why Aren’t Profits Soaring for US and EU Firms?

The considerable surge in demand has not yet been mirrored in these companies' profitability yet.

Must Read

Girish Linganna
Girish Linganna
Girish Linganna is a Defence & Aerospace analyst and is the Director of ADD Engineering Components (India) Pvt Ltd, a subsidiary of ADD Engineering GmbH, Germany with manufacturing units in Russia. He is Consulting Editor Industry and Defense at Frontier India.

Despite Russia’s full-scale invasion of Ukraine in 2022, the aggregate revenue from the sale of weapons and military services of the 100 top defence corporations in the world declined by 3.5% in 2022 compared to 2021. This information was obtained from a report issued on Monday, December 4, by the Stockholm International Peace Research Institute (SIPRI). These businesses brought in a total of $597 billion in revenue.

Analysts have observed that the decrease in revenue is mostly associated with American enterprises. According to the ranking, 42 representatives from the United States earned 7.9 per cent less in 2022 than the previous year.

The European companies that made it into the top 100 saw a marginal increase of 0.9% in their revenue. Manufacturers of weapons from Asia and Oceania had their sales climb quicker, by 3.1%, and for the second year in a row, they beat their European counterparts in terms of overall yearly income. Asian companies earned $134 billion, while European companies earned $121 billion. 

Xiao Lyan, a researcher in SIPRI’s programme on military expenditures and arms production, says that businesses from China, India, Japan, and Taiwan have profited from continued government investments in modernising armed forces. The governments have made these investments in these countries.

Regarding individual businesses, the Turkish aerospace company Baykar, responsible for producing Bayraktar drones, holds the record for the highest revenue growth. During the year 2022, it almost doubled its revenue.

To meet the substantial increase in demand, businesses that specialise in less technologically difficult items were able to boost their production quantities more expediently. Among the companies that might be noted is the Turkish company Baykar. Diego Lopez da Silva, a senior researcher at SIPRI, explains that Baykar debuted in the top 100 when the company’s revenue from the sale of weapons surged by 94%.

A slight increase of 1.1% in the cumulative growth of four German weapons producers included in the list. Rheinmetall, Hensoldt, and Diehl can achieve a six to thirteen per cent rise in revenue. During the same period, ThyssenKrupp, on the other hand, experienced a 16 per cent decrease in revenue from the sale of weapons in 2022 compared to the previous year.

Global Arms Trade Set for Surge: SIPRI Predicts Substantial Revenue Growth

Why did the increased demand during the Ukraine conflict not result in an instant increase in weapons makers’ revenue? SIPRI explains this phenomenon for several different reasons. Because of a lack of available labour, rising prices, and disruptions in the supply chain, most American and European businesses could not rapidly grow their production capacity. These issues were made worse by the conflict that was taking place in Ukraine. Because there is a brief gap between orders and deliveries, the strong increase in demand has not yet been reflected in the profits of these companies. Additionally, many countries placed new orders at the end of the year.

A high increase in the number of new contracts and orders that have not been fulfilled both point to the possibility that global income from the sale of weapons could significantly expand in the years to come, as stated by the International Institute for Peace Research (SIPRI). When moving to producing weaponry for high-intensity warfare, several corporations that manufacture weapons encountered challenges. On the other hand, new contracts have been signed, mainly for the delivery of ammunition. According to Lucy Béro-Sudre, Director of SIPRI’s Arms and Military Expenditure Programme, this is projected to increase revenue in 2023 and subsequent years.

Russian Defense Industry Under Scrutiny: SIPRI Points to Opaque Reporting

“Rostec” and “United Shipbuilding Corporation” are the only two Russian “Holding Companies” that made it onto the SIPRI top 100 for the year 2022. Researchers believe that this is due to the opaque nature of the Russian defence sector and the absence of currently available data. In the year 2022, the aggregate revenue these two companies generated from the sale of weapons experienced a twelve per cent fall. However, the lack of data did not deter the SIPRI analysts from taking potshots at the comments made by the Russian authorities regarding the increase in the manufacture of weapons. SIPRI analysts say that the inconsistency can be partially explained by considering high inflation rates and a drop in the shipment of Russian armaments.

The experts in the paper mention several more aspects. First, the payments made by the government to the corporations that manufacture weapons in the form of bank loans may have been delayed or cut, as has been the case in Russia on multiple occasions in the past. Secondly, businesses could list the restoration work they did on weapons from the Soviet era as new manufacturing while doing so. The money that would be generated by such effort would be lower than that of actual new output.

Companies such as “Almaz-Antey” and “Tactical Missile Weapons Corporation” are not considered in the SIPRI report because of the opaque nature of the reporting. According to the report’s authors, these companies produce categories of technology that are in high demand due to the war, such as air defence systems and missiles.


Please enter your comment!
Please enter your name here


More Articles Like This