Many Western arms firms couldn't ramp up production capacity in 2022 due to Ukraine war: Report

Many US and European arms companies could not significantly ramp up their production capacity in 2022 due to the Ukraine war, the Stockholm International Peace Research Institute (SIPRI) said in a report on Monday (Dec 4). As per the report, Russia's offensive in Ukraine (which started in February 2022), and geopolitical tensions around the world fuelled a strong increase in demand for weapons and military equipment last year.

"However, despite receiving new orders, many US and European arms companies could not significantly ramp up production capacity because of labour shortages, soaring costs and supply chain disruptions that were exacerbated by the war in Ukraine," the report said. "In addition, countries placed new orders late in the year and the time lag between orders and production meant that the surge in demand was not reflected in these companies’ 2022 revenues," it added.

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Dr Lucie Béraud-Sudreau, Director of SIPRI’s Military Expenditure and Arms Production Programme, said that many arms companies faced obstacles in adjusting to production for high-intensity warfare. "However, new contracts were signed, notably for ammunition, which could be expected to translate into higher revenue in 2023 and beyond," Dr Béraud-Sudreau added.

Asia, Oceania, Middle East see increased revenues

Contrary to US and European arms companies, those in Asia, Oceania and the Middle East saw their arms revenues grow significantly last year, demonstrating their ability to respond to an increased demand within a shorter time frame, as per the SIPRI report.

In 2022, the arms revenues of the 22 companies from Asia and Oceania listed inSIPRI's Top 100 ranking of arms producers and military services providersrose by 3.1 per cent to reach $134 billion. This was the second consecutive year where the Top 100 arms revenues for Asia and Oceania were higher than those for Europe.

Xiao Liang, a researcher with the institute's Military Expenditure and Arms Production Programme, said domestic demand and the reliance on local suppliers shielded Asian arms companies from supply chain disruptions last year.

"Companies in China, India, Japan and Taiwan all benefited from sustained government investment in military modernisation," Liang added.

US arms companies see drop in revenues due to production challenges

Monday's report said that arms revenues of the 42 American companies in the Top 100 fell by nearly 8 per cent to $302 billion in 2022. "Of the 42 US companies, 32 recorded a fall in year-on-year arms revenue, most commonly citing ongoing supply chain issues and labour shortages stemming from the COVID-19 pandemic," the report said.

Nan Tian, a senior researcher at SIPRI said that there was an influx of new orders linked to the Ukraine war and some major American companies, including Lockheed Martin and Raytheon Technologies, received new orders as a result.

"However, because of these companies’ existing order backlogs and difficulties in ramping up production capacity, the revenue from these orders will probably only be reflected in company accounts in two to three years’ time," Tian added.

European firms see modest revenue growth

The SIPRI report further said that European arms firms saw a modest growth in their revenues which rose by 0.9 per cent to reach $121 billion in 2022. "The war in Ukraine created a demand for material suited to a war of attrition, like ammunition and armoured vehicles. Many European producers of these items saw their revenues grow,"said Lorenzo Scarazzato, a researcher with the Military Expenditure and Arms Production Programme.