Companies Profiting the Most From War

(Source: msn)

National security and warfare are big business. The U.S. government spent $598.5 billion, over half of its discretionary budget, on military and weapons technology in 2015. The 100 largest arms-producing and military services companies across the globe sold an estimated $370.7 billion worth of arms that year.

In its latest annual report, Top 100 Arms-Producing and Military Services Companies, the Stockholm International Peace Research Institute (SIPRI) estimated arms sales for companies around the world using financial documents and reports of sales to national ministries and departments of defense. 24/7 Wall St. reviewed the 20 companies with the largest arms sales in 2015.

U.S.-based companies continue to dominate the defense market, a trend that is unlikely to change meaningfully any time soon. Virginia-based Lockheed Martin's arms sales totaled $36.44 billion in 2015, by far the most of any company. Booz Allen Hamilton rounds out the list of 20, with $3.9 billion in military-related sales that year. U.S.- and Western Europe-based companies account for 82.4% of arms sales by the 100 largest military procurement companies.

Aude Fleurant is programme director of the Arms and Military Expenditure Program at SIPRI. In an interview with 24/7 Wall St., she explained that because U.S.-based arms manufacturers are so numerous and account for such a large share of global defense spending, “what is happening in the U.S. will influence the [military procurement] trends as a whole, as a general rule.”

Because these companies -- in many cases even foreign arms makers -- sell primarily to the U.S. Department of Defense, sales patterns are closely linked to budgetary decisions in the U.S. The 2011 Budget Control Act, for example, resulted in a dip in global military spending.

According to Fleurant, shifting budget priorities, which often change dramatically after an election or economic event, add a level of uncertainty that is especially challenging for the defense industry. Not only are fighter jets, submarines, and highly destructive weapons available only to governments and armed forces, but also these defense products often require decades to design, assemble, and test.

The great length of procurement cycles, scale of product capabilities, limited access to defense markets, as well as the risk of sudden budgetary changes mean defense companies are under enormous pressure to find deals among the already very limited pool of customers. According to Fleurant, the level of uncertainty and these pressures are currently higher than usual. She highlighted relatively small export markets as major targets of companies looking to make up lower revenues.

According to a recent report by the Congressional Research Service, developing nations continue to be the main focus of arms sales. Countries without large arms industries rely heavily on exports from powerful nations, primarily the United States and Russia. From 2011 to 2014, the United States and Russia dominated the arms market in the developing world. Over that period, the United States made nearly $115 billion in such agreements, nearly half of the total value of military deals. Agreements with Russia totalled $41.7 billion.

To identify the companies profiting the most from war, 24/7 Wall St. reviewed data provided by the Stockholm International Peace Research Institute in its annual SIPRI Top 100, a review of the the largest arms-producing and military services companies by arms sales. Due to a lack of sufficient data, SIPRI excluded Chinese companies from the report. Employment data, profit figures, and arms sales as a percentage of total sales also came from the SIPRI report and are for the 2015 calendar year. Other company-specific data were obtained from annual financial reports.
 

Lockheed Martin Corp.
> Arms sales: $36.44 billion
> Total sales: $46.13 billion
> Profit: $3.61 billion
> Employees: 126,000

Maintaining its position as the world’s largest defense contractor, Lockheed Martin's revenue from arms sales totaled $36.44 billion in 2015. The company’s reach into military and defense technology is difficult to overstate. Lockheed and its subsidiaries manufacture many of the U.S. military’s workhorses, including the F-16 and F-22 fighter jets, the Black Hawk helicopter, and the Vector Hawk unmanned drone. The company also designs and manufactures air-to-air missiles and missile defense systems.

Like many other major defense contractors, Lockheed’s biggest customer is the U.S. government -- accounting for 78% of the company’s 2015 net sales, the vast majority of which came from the DoD.


Boeing
> Arms sales: $27.96 billion
> Total sales: $96.11 billion
> Profit: $5.18 billion
> Employees: 161,400

Chicago-based Boeing is not nearly as dependent on federal spending as other major U.S. contractors. Less than one-third of Boeing’s 2015 revenue of $96.11 billion came from its defense, space, and security operations. The remainder was attributable to Boeing’s commercial airplane business. Of the revenue generated from defense contracts, 62% came from sales to the U.S. DoD.

Like many large U.S. manufacturing companies, including top government contractors, widely expected higher military spending under President Trump will certainly help Boeing. Favorable outcomes under Trump are not guaranteed, however. While the Air Force signed deals with Boeing last year to design parts of Air Force One, for example, Trump, citing concerns over cost, called for the deal to be cancelled.


 

BAE Systems
> Arms sales: $25.51 billion
> Total sales: $27.36 billion
> Profit: $1.46 billion
> Employees: 82,500

Some 93% of BAE Systems’ $27.36 billion in 2015 revenue came from defense contracts. The company manufactures a range of military equipment, including war ships, munitions, amphibious combat vehicles, and fighter jets. BAE is the company behind the Harrier jet, capable of take-off with a short runway, as well as vertical landings. Cyber security and intelligence services also comprise a small share of the company’s business.

Though BAE Systems is headquartered in the U.K., deals with the British government comprise less than a quarter of the company’s annual revenue. BAE’s biggest clients are in the United States, with corporate and government contracts comprising over a third of the company’s total 2015 revenue. BAE’s other major markets include Australia and Saudi Arabia.


 

Raytheon
> Arms sales: $21.78 billion
> Total sales: $23.25 billion
> Profit: $2.07 billion
> Employees: 61,000

Waltham, Massachusetts-based Raytheon is known for its missiles and missile defense systems. According to the company, 13 countries use primarily Raytheon air and missile defense. This January, the U.S. Navy awarded Raytheon a $235 million contract to supply missiles for Aegis cruisers and destroyers.

Raytheon purchased cybersecurity provider Websense in 2015 for $1.9 billion. The deal was an indication of the growing threat of cyberattacks, as well as Raytheon’s effort to diversify and move into commercial markets and away from dependence on defense contracts.


Northrop Grumman Corp.
> Arms sales: $20.06 billion
> Total sales: $23.26 billion
> Profit: $2.0 billion
> Employees: 65,000

Northrop Grumman was awarded in October 2015 the highly coveted $80 billion contract to supply the U.S. military with 100 long-range strike bombers. The deal is the biggest from the Pentagon in more than a decade. The B-2 Spirit stealth bomber is the predecessor of the newly named B-21 Raider.

The company's 2015 arms sales, valued at $23.26 billion, included $1.8 billion for the F-35 fighter jet program, $1.1 billion for the E-2D Advanced Hawkeye early warning aircraft program, and $947 million for the Saudi Arabian Ministry of National Guard Training Support program.


General Dynamics Corp.
> Arms sales: $19.24 billion
> Total sales: $31.47 billion
> Profit: $2.97 billion
> Employees: 99,900

General Dynamics manufactures and sells a range of military equipment, including ammunition, amphibious vehicles, armoured vehicles, and combat tanks. In addition, General Dynamics owns Bath Iron Works, a naval shipyard that is currently under contract to build the U.S. Navy’s new Zumwalt Class DDG-100 destroyer. The ship costs approximately $4 billion.

Well over half of General Dynamics’ revenue comes from arms sales, the vast majority of which are through contracts with the U.S. DoD. Only 13% of the company’s 2015 revenue came from contracts with foreign governments.

Airbus Group
> Arms sales: $12.86 billion
> Total sales: $71.48 billion
> Profit: $3.0 billion
> Employees: 136,570

Europe’s largest aircraft manufacturer, Airbus Group, has three divisions: commercial, defense and space, and helicopters. The company is the largest helicopter manufacturer in the world, with a 47% market share. Most of helicopters the company sells are for military purposes. Other military related products include cybersecurity technology development as well as fighter jet and unmanned drone manufacturing.

Despite ranking among the world’s largest defense contractors, less than a fifth of Airbus’s 2015 revenue were weapons related. The company also manufactures a range of non-military satellites, and it delivered 635 commercial aircraft in 2015.


United Technologies Corp.
> Arms sales: $9.50 billion
> Total sales: $61.05 billion
> Profit: $4.36 billion
> Employees: 197,200

A major conglomerate with interests in a range of industries, United Technologies reported over $61 billion in sales in 2015, only 16% of which came from defense contracts. Still, the company ranks as the eighth largest defense contractor in the world. The company’s aerospace division develops and manufactures a range of military technology, from submarine stealth composites to fighter jet ejection seats. Pratt & Whitney, a United Technologies subsidiary company, manufactures engines used in military aircraft worldwide, including the F-22 Raptor and F-16 fighter jets. Pratt & Whitney accounted for $4.23 billion of the company’s total 2015 sales.

United Technologies’s commercial subsidiaries include air conditioning unit manufacturer Carrier and Otis, the world’s largest elevator installer and maintainer.

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