While the defense industry has been unable to sustain revenue growth, profitability has been growing. Sustaining an upwards trajectory for profit margins will require scale, the ability to integrate and incorporate new capabilities and the capacity to disrupt the competitive landscape through emerging technologies and by attacking adjacent markets.

Strategy Analytics Defense Industry Performance Profiles 2005-2015 Excel data and associated defense dashboard analysis brings together strategic analysis and commentary on the world’s major defense companies, using publicly available investor financials to detail revenue, income/loss and profitability, spending on R&D and assets for a total of nineteen companies. The snapshot of companies is designed to cover the broad spectrum of tier one and tier two companies and provides a representative, yet comprehensive picture of defense industry performance for calendar years 2005 to 2015.

A snapshot of the defense industry shows revenues peaking in 2008, and while the decline was reversed in 2010, the defense industry has been unable to sustain an upwards trajectory with 2015 revenues dropping 3% year-on-year, mirroring a decline in global defense spending (see the associated analysis on global defense spending trends presented in the Global Defense Spending Outlook 2015-2025 report and associated Global Defence Budget Expenditure Forecast: 2015 - 2025 data model that looks at 93 countries). There is better news in terms of profitability, with the overall numbers showing a sustained growth in year-on-year profitability from 2011 onwards.

Boeing and Airbus have consistently led the group of companies considered in this analysis, by virtue of a strong mix of commercial and defense revenues driven by the airplane platforms of the respective companies. United Technologies is consistently in third position, and similarly to Boeing and Airbus, operates business areas that straddle the commercial and defense aviation sector. The companies considered can be grouped into three broad revenue segments.

  • The top three companies occupy the "upper strata" and are consistently generating revenues above $50 billion, and in the case of Boeing, threatening to burst through the $100 billion barrier.
  • The "middle class" of companies are generating revenues of between $25 billion and $50 billion with Lockheed Martin and Honeywell leading the pack and pushing towards the upper end. General Dynamics, Mitsubishi Electric are near the mid-point of this revenue grouping.
  • BAE Systems, Northrop Grumman and Raytheon are struggling to hit $25 billion but maintain a significant gap over the "lower strata" of companies.

Correlating revenue profiles with profitability presents a different picture.

  • Honeywell is arguably the best performing company overall, occupying a fourth position ranking in terms of revenues while significantly outperforming other companies within this group from a profitability perspective.
  • Lockheed Martin, General Dynamics, Raytheon and Northrop Grumman are also strong performers representing the "middle class" revenue performers and demonstrating profit margins of between 8% and 9% for 2015.
  • Of the "upper strata" companies, United Technologies was the best performer in terms of profitability with Boeing and Airbus ranked 10th and 13th respectively.

Technology remains the differentiator for future global conflict scenarios and this will lead to an emphasis on improving platform and system capabilities in conjunction. Broader trends that dictate an emphasis on border and maritime surveillance, a renewed focus on electronic warfare capabilities, and the implementation of cyber defense into standard TTPs will provide sustainable opportunities over the next ten years.

Sustaining an upwards trajectory for profit margins will require scale, the ability to integrate and incorporate new capabilities and the capacity to disrupt the competitive landscape through emerging technologies and by attacking adjacent markets.