Global defense industry in better shape, says report

BOSTON, Feb. 15 (UPI) -- The global defense industry is in a better shape after the recent economic downturn, which affected both performance and profits of weapons and security equipment manufacturers and suppliers worldwide, a report released Tuesday indicated.

Many of the problems for the defense manufacturers in the United States and elsewhere arose because procurement agencies cut back heavily on expenditure. That situation improved in 2010, leading to stability in the vast armaments sector.

The report by Strategy Analytics indicated that defense industries throughout their 2010 performance were able to check downward trends in revenue generation and in many cases improve their profits.

As the financial crisis spread, defense departments have also had to take a long hard look at expenditure, Strategy Analytics said. The impact of these decisions started to hit the defense industry in 2009, when revenues dropped 11 percent and profitability was nearly cut in half, dropping to less than 3 percent for the first time in seven years.

Analysis from the Strategy Analytics Advanced Defense Systems service report, "Defense Industry Profitability Gains in 2010," indicates that defense industry performance stabilized its financial performance for the year.

"While revenues losses were not reversed in 2010, companies in general managed to slow some growth (of the losses)," said the report.

Profit margins returned to more traditional levels of 4 to 6 percent, said the report.

The publication of the report coincided with the opening Wednesday of the A&D Technology & Requirements 2011 conference in Washington.

The past year's most notable development was a significant increase in defense procurement by Latin American countries, a trend that was helped in a large part by the proactive role played by Russian promoting its arms exports to the region.

A Strategy Analytics analysis of 20 companies, including BAE Systems, Boeing, Cobham, EADS, General Dynamics, Harris, ITT, Lockheed Martin, Northrop Grumman and Raytheon, shows that revenues increased year-on-year by 1 percent in 2010 to reach more than $458 billion. This halted the downward spiral, although not enough to reverse the revenue losses suffered in 2009.

However, profitability improved considerably with year-on-year profits increasing where companies took steps to address the impact of defense budget constraints.

Strategy Analytics spokesman Asif Anwar said, "2009 marked the first time in seven years that defense industry revenues had dropped," yet the industry did manage to stay in the black during the year, "but 2009 year-on-year profits dropped by over 49 percent."

Anwar said, "While revenues losses were not reversed in 2010, companies in general managed to slow some growth. Profit margins returned to more traditional levels of 4 to 6 percent."

Anwar and Eric Higham of the company say the global defense industry continues to face major challenges which, in some cases, are "compounded by political inaction."

"While we do not expect anything spectacular in terms of growth, we believe that the industry will retain an upward growth trajectory this year," said Higham.

Strategy Analytics, Inc. has headquarters in Boston and maintains offices in Britain, France, Germany, Japan, South Korea and China.

Analysts said that in addition to figures cited by the company, regional developments in Central and South American, the Middle East and South and East Asia triggered increased defense-related transactions, many of which remain cloaked in secrecy.