Despite the war in Ukraine: arms manufacturers' sales decline

Despite the ongoing conflict in Ukraine, you might be surprised to learn that the profits of the globe's leading defense firms took an unexpected dip in 2022. Research conducted by the Stockholm International Peace Research Institute (SIPRI) revealed that the combined sales of weapons and military services by the top 100 defense companies amounted to approximately 549 billion euros (or 597 billion USD), showing a 3.5% decrease compared to the previous year.

Diego Lopes da Silva, a SIPRI researcher, noted that this decrease was unexpected given the geopolitical tensions and the Russian invasion of Ukraine. He explained that the decline was likely due to a time lag between the demand shock caused by the war and the ability of companies to boost production and meet demand effectively.

The U.S. defense industry, which accounted for 51% of the total profits in 2022, faced significant challenges in the form of supply chain problems and labor shortages caused by the coronavirus pandemic. As a result, U.S. sales saw a 7.9% decline, still making up a substantial portion of the industry's overall profits.

In contrast, Russian defense companies faced their own challenges, with profits plummeting by 12% to roughly 20.8 billion USD. According to Lopes da Silva, this decline was due to both Western sanctions and delayed payments from the Russian state. The latter also made it more difficult to collect accurate data, resulting in only two Russian companies being included in the report.

Defense firms based in the Middle East, Asia, and Oceania managed to respond more swiftly to increasing demand because the weapons systems manufactured there tend to be less complicated than those produced in the U.S. Turkish arms companies, such as Baykar, which is recognized for its drone production, experienced a significant boost in demand due to their products' use in various regions, including Ukraine.

Although defense companies experienced a decline in profits in 2022, there is no indication of a demand slowdown. According to Lopes da Silva, incoming orders and backlogs are steadily growing, suggesting that military spending will continue to rise and eventually bring about increased profits for the defense industry. Even companies like AFP and the USA's defense contractors can expect some uptick in profits as a result.