6. Arms production

Summary

Global arms production is increasing. Arms sales by the 100 largest arms-producing companies in the world (excluding China)—the SIPRI Top 100—amounted to $315 billion in 2006, an increase of 9 per cent in nominal terms and 5 per cent in real terms. Forty-one US companies accounted for 63 per cent of the combined arms sales of the Top 100, while 34 West European companies accounted for 29 per cent. Generally, companies specializing in armoured vehicles—in demand by the USA for the conflict in Iraq—and in expanding sectors, such as military services and high-technology electronics and communications, had the biggest increases in arms sales in 2006. Russian companies also experienced high growth rates during 2006, primarily in aerospace and air defence.

There were 53 significant mergers and acquisitions in the North American and West European arms industry in 2007. Three of these were cross-border deals within Europe and 16 were transatlantic deals. Almost all the transatlantic mergers and acquisitions were between British and US companies. Most of the merger and acquisition activity was related to military services or to subsystems, especially electronics and aerospace. Seven acquisitions had values over $1 billion. Four of these were domestic US acquisitions, two involved the acquisition of US companies by a British firm, and one the acquisition of a British operation by a US company.

In Western Europe, 2007 saw major naval consolidation deals in France and the UK, both actively encouraged by the respective government. The French state-owned shipbuilder DCN took over the naval operations of Thales in a deal worth $714 million, while in the UK BAE Systems and VT Group agreed a joint venture amalgamating their surface shipbuilding and service operations.

There was a continued political push within the European Union (EU) in 2007 to promote a more integrated intra-EU arms industry and market. The European Defence Agency (EDA) agreed two strategy documents, one on building a European defence-technological and industrial base and the other on a military research and technology strategy. The European Commission proposed two directives, one to open up intra-EU arms procurement, the other to relax export control regulations for intra-EU arms transfers.

The Russian Government continued to consolidate the arms industry into large state-owned conglomerates. In 2007 the United Aircraft Corporation (UAC)—which amalgamates most of Russia’s civil and military fixed-wing aircraft production—commenced operation and two new conglomerates were created: the United Shipbuilding Corporation (USC)—which consolidates the shipbuilding sector—and Rostekhnologii—which amalgamates military and civilian manufacturers and raw materials suppliers with Rosoboronexport, the state arms export agency.

Dr Sam Perlo-Freeman (United Kingdom) is a Researcher with the SIPRI Arms Production Project.

Elisabeth Sköns (Sweden) is Leader of the SIPRI Military Expenditure and Arms Production projects.