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Revenue from sales of ;weapons are falling...

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155 millimeter shells are in very high demand on the Ukrainian front.

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The world's largest arms production and military services companies reported revenue down 3.5% in 2022 from the previous year. They sold $597 billion worth of arms in 2022 compared to $619 billion in 2021, according to data compiled by the Stockholm International Peace Research Institute (SIPRI).

However, everything suggests that these figures will start to rise again in the coming years. Indeed, the significant increase in demand for weapons following Russia's invasion of Ukraine in February 2022 has not yet been reflected in revenues.

We really expected an increase in the turnover of American and European companies, but that is not at all what we observed, recognizes Lucie Béraud-Sudreau, director of SIPRI military spending and arms production program.

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The report reflects sales for 2022, a year marked by the end of pandemic-related lockdowns and obstructions in supply chains. Even if large orders have been placed, there is often a long time between the request for weapons and their delivery by manufacturers, explains SIPRI. However, it is only after delivery that revenues are recognized by companies.

There is a temporal effect, notes Dr. Lucie Béraud-Sudreau. The increase in military spending in 2022 has been phenomenal. But it may take time before the budget that was passed translates into new orders for the industry. And the turnover only increases when the finished product is delivered to the customer.

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In addition, the industry must have the capacity to meet demand by increasing its production. However, labor shortages, rising production costs and supply chain disruptions have hampered this capacity.

Lockheed Martin, for example, has received orders to produce missile systems to replace those given to Ukraine. These orders added to a backlog worth $150 billion. Due to long production cycles and difficulties in ramping up production, the company does not expect to see an increase in arms revenues in the near term.

Despite falling revenues, American companies still largely dominate the list of the world's 100 largest arms sellers, with US$302 billion in sales in 2022. That's 51%. of total Top 100 arms revenue.

The only Canadian company in the ranking, CAE, reported sales of $1.4 billion in 2022, up 7.7% from 2021.

SIPRI data shows marked regional differences.

It was mainly American and Russian (and to a lesser extent Western) companies that recorded a drop in their revenues linked to arms sales, while companies in Asia, Oceania and the Middle East rather experienced significant increases.

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If these companies have succeeded in doing well, it is because they have been able to adapt to demand. This is the case, for example, of companies based in Israel and South Korea, two countries which are in a permanent state of alert, and whose production capacity is therefore more reactive than that of other countries.

South Korea's largest company, Hanwha Aerospace, reported an 8.5% drop in sales, dragging down the country's total sales (-0.9%), but two other companies, LIG ​​Nex1 and Hyundai Rotem, experienced very strong growth.

Revenues grew the most in the Middle East region. Armament revenues for the seven largest companies in this region increased 11% to $17.9 billion in 2022.

These companies often use less sophisticated technologies or rely on local suppliers, which has allowed them to avoid disruptions to supply chains.

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A Turkish-made Bayraktar TB2 drone.

It's the case of the Turkish company Baykar, which produces the Bayraktar TB2 drone, very popular since the Russian invasion in Ukraine, notes Lucie Béraud-Sudreau.

These drones are manufactured, in part, with components that are purchased off the shelf, so they are not necessarily specific components that must be produced expressly for them, illustrates the researcher. It's easier to increase production when all these components are already available.

His sales allowed Baykar to enter the first time in the Top 100, with revenue increasing 94%, the fastest growth rate of any company in the ranking.

Full order books and a wave of new contracts suggest that global arms revenues could increase significantly in the coming years.

As an example, the American company MBDA (32nd in the ranking) received orders for weapons worth US$9.5 billion in 2022, which is 65% more than the total of 2021. Saab (ranked 39th) reported order intake totaling $6.2 billion, representing an increase of 35% from the previous year.

The drop in total revenues in 2022 could therefore mask a potential substantial recovery in the years to come, estimates SIPRI.

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