Arms companies earn less despite booming weapons demand

Crises and wars are keeping the world on edge — yet arms sales by the top 100 weapons companies fell in 2022. The peace research institute SIPRI explains why.

Arms sales have been booming for years, thanks to the many flashpoints all over the world. But this trend came to a halt in 2022 — albeit only temporarily. This is according to the latest report from the Stockholm International Peace Research Institute (SIPRI), which focused on the 100 largest arms-producing companies in 2022.

According to the SIPRI Top 100 Arms-producing and Military Services Companies 2022 report, the companies generated a total of almost $600 billion (€550 billion) from the sale of weapons and military services. That was a huge sum, but revenues shrank noticeably, by 3.5%, compared to 2021.

This is first decline since the SIPRI list of the top 100 arms companies was established in 2015. "Despite the volume of new orders, which reached record levels for many companies, revenues fell, especially in the USA," said Xiao Liang, one of the report's authors.

Falling US arms sales due to production problems

Many US and European defense companies were unable to increase their production capacities due to labor shortages, rising costs, the consequences of the coronavirus pandemic and supply chain disruptions, exacerbated by the Russian war against Ukraine.

Most of the weapons supplied to Ukraine were from European and US stocks, which did not generate much revenue for the industry. Another reason is the focus of the largest arms companies on expensive systems such as aircraft, ships and missiles. But according to Liang, the military equipment "that was most in demand due to the war in Ukraine was not necessarily more expensive but rather armored vehicles, ammunition and artillery."

Above all, the 42 US defense companies on the list saw their revenues fall significantly by 7.9% to $302 billion. They accounted for 51% of the total armaments revenue of the top 100, but SIPRI assumes that longer-term orders will have a positive impact on the balance sheets in the coming years.

Modest sales growth in Europe

The arms sales of the 26 European-based companies in the top 100 rose by 0.9% to $121 billion in 2022. The war in Ukraine created a demand for material "suitable for a war of attrition, such as ammunition and armored vehicles," according to the SIPRI study. Many European manufacturers of these goods were able to increase their revenues, such as the Polish arms company PGZ, which increased its revenues by 14% and thus "benefited from the military modernization program that the country is pursuing."

The revenues of the four German defense companies in the top 100 of 2022 amounted to $9.1 billion, an increase of 1.1% compared to 2021. The only German company with a decline was ThyssenKrupp, whose sales fell by 16% to $1.9 billion because the company delivered fewer ships than in the previous year, according to SIPRI. The order of German companies in the top 100 ranking were Rheinmetall at 28th place, ThyssenKrupp at 62nd, Hensoldt at 69th and Diehl was 93rd.

Russian arms production a mystery

Due to a lack of data, SIPRI was unable to comprehensively assess the revenue development of Russian companies. This is one of the reasons why only two Russian companies were included in the list: Rostec (10th place) and the United Shipbuilding Corporation (36th). Their combined turnover fell by 12% to $20.8 billion. Russia's lack of transparency is not new, but the country's defense output has become even more opaque since the invasion of Ukraine, the SIPRI report noted.

"Russian companies were prevented by their government from disclosing all information because it could call into question the official narrative about their war efforts in Ukraine," Liang told DW.

Meanwhile, firms in Asia, Oceania and the Middle East recorded significant growth. "Companies there often have to contend with very difficult security conditions and are confronted with a kind of permanent state of war, like Israel or South Korea," said Liang. This is why these companies have a "perpetual production capacity," and they can ramp up production quickly when there's a sudden increase in demand.

Furthermore, some companies in China, India and Turkey are supported by their governments with long-term modernization plans. Liang mentions another advantage they have.

"Many suppliers there come from the domestic market. Most of the demand is also domestic to supply their own military. This helps these countries to mitigate the impact of global supply chain disruptions," he said.

The defense sales of the 22 companies from Asia and Oceania listed in the ranking rose by 3.1% to $134 billion, the second year in a row when revenues in Asia and Oceania were higher than those in Europe.

Eight Chinese companies are included in the list, three of them in the top ten. The arms revenues of all eight companies amounted to $108 billion and accounted for 18% of total global arms sales. This makes them the second-largest share of total sales by country after US companies.

Turkish drone manufacturer with fastest growth

The Middle East recorded the largest percentage rise in sales of all regions in 2022. The revenue of the seven companies based there climbed to $17.9 billion, an increase of 11%. According to SIPRI findings, companies from this region benefit from their specialization in less technologically sophisticated products. They are in a position to "increase production more quickly in response to rising demand."

This is particularly true for the four Turkish companies, whose total revenues grew to $5.5 billion — 22% more than in 2021. SIPRI highlighted the Turkish company Baykar with its drone production, which has now been included in the Top 100 for the first time (76th place) after its sales increased by 94% — the fastest growth of any company in the ranking.

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