For Defense Industry, the Good News Is That Slack Times May Be Coming to End
By: The Economist July 23, 2014
Arms-makers are going through a lean period. Some big contracts, such as ones to make bombers, trainer aircraft and drones, are still up for grabs in America, the world’s biggest spender. But it and other rich-world governments, struggling to curb their deficits, are trying ever harder to get the most bang for the fewest bucks.
The revenues of 17 of the top 20 American weapons-makers shrank in 2013. American-led wars in Iraq and Afghanistan had helped to push global spending to a record $1.7tr in 2008. Since then it has plunged by $100bn, according to IHS Jane’s, a consulting firm.
The good news for arms-makers is that the worst is probably over. America’s Congress has partly reversed automatic cuts it had imposed to deal with a ballooning deficit. In Europe the rate of decline is slowing. Growing wealth in emerging economies and new threats in Syria, Iraq and the South China Sea are encouraging rapid spending growth in Asia, the Middle East and Latin America. In all, the market for military kit (excluding Russia and China, mainly closed to Western firms) is set to bottom out next year.
Although the Pentagon’s budget is as big as that of the next 15 defence ministries combined, its coffers are no longer bottomless. It wants more “make do and mend”, upgrading existing equipment.