Deloitte Study Finds Budget Cuts Are Hurting Defense Contractors

By Kalen Smith, Big4 Blogger

A new study by Deloitte has shown that cuts to defense budgets in the United States and Europe are negatively impacting defense contractors throughout both continents. Revenues of the world’s leading arms makers have dropped by more than 1% between January and June. This contraction followed a 2011 decline in revenues of more than 3%. Deloitte said that they are likely to decline over the rest of the year as governments continue to cut spending.

Defense revenues for the world’s 20 largest defense and aerospace companies have dropped by more than $1 billion in the first half of 2012. This is an indication for the global defense contracting industry as a whole, as these firms collectively make up nearly three quarters of defense spending.

Tom Captain is the head of Deloitte’s global aerospace and defense analysis division. Captain said that the global defense industry will probably continue to contract for the foreseeable future. He said that there isn’t enough work to sustain the current budgets, so these firms will need to begin reallocating their budgets to the commercial sector to encourage future growth.

However, commercial revenues have increased as more companies are producing aircraft than ever before. This has helped most firms maintain higher overall revenues over the course of the last year.