BAE Slips to Third in Weapons Sales on Global Budget Cuts

BAE Systems Plc relinquished its spot as the world’s second-largest arms maker to Boeing Co. in an annual weapons ranking as defense sales fell 5 percent off their peak, a European research institute said.

BAE Systems slipped into third place based on 2011 sales, also trailing leader Lockheed Martin Corp., the Stockholm International Peace Research Institute said in a review that excludes Chinese firms.

Global sales by the top 100 arms-producing companies declined to $410 billion in 2011 as the U.S. and Europe pared spending and political turmoil in the Middle East and North Africa crimped sales. U.S. corporations remained dominant as the Pentagon continued to outspend others.

“Since the late 1990s this is the first time arms sales have dropped,” Susan Jackson, head of the SIPRI’s arms production program, said in an interview. “It wouldn’t surprise me if there isn’t at least a flattening or a further decrease” in 2012.

Still, the top 100 arms companies had a 51 percent run-up in sales since 2002 as the U.S. and Europe increased spending to better equip troops fighting in Afghanistan and Iraq.

Vehicle Purchases

BAE Systems, which reports full-year results on Feb. 21, slipped as the U.S. curtailed vehicle purchases from the company, Jackson said. Analysts expect BAE to post a 6.3 percent increase in 2012 sales, according to data compiled by Bloomberg.

Northrop Grumman Corp., the other top-10 defense company to fall in the SIPRI ranking, slipped to sixth position behind General Dynamics Corp. and Raytheon Co. The change reflected the spin off of shipbuilding activities into Huntington Ingalls Industries Inc.

Declines in defense prospects have companies boosting efforts to secure sales in adjacent activities, including protecting computer systems for governments and companies. “We can see that in increases in mergers and acquisitions in the broad category of cyber security,” Jackson said. The effect on sales is hard to judge, she said.