This website reports on a recent speech by the CEO of one of the world’s biggest defense contractors whining about the entirely mythical “sudden and serious cuts” that the sequestration deal, which almost certainly isn’t going to happen anyway, would make in defense spending.
Senior executives of major defense companies rarely seek publicity. They also seldom openly criticize their customer, the Department of Defense, or the organization that provides that customer with funds, the U.S. Congress. So it is noteworthy when Robert Stevens, the outgoing CEO of Lockheed Martin feels it necessary to publicly warn of the consequences of sequestration, not just for his company or the defense industry but for the U.S. military and the nation’s security…
The U.S. defense industry is one of the most heavily regulated sectors of the U.S. economy. Companies in this sector must abide not only by the rules and regulations that apply to all other businesses but the special contracting and reporting requirements imposed by Congress and the Pentagon. Walmart does not have to provide detailed cost data to its customers or certify the prices charged by its vendors but defense companies do. General Motor’s customers do not get to tell the company how to design cars, make changes to that design while the cars are going down the production line or, having signed a contract, decide to change the terms of the agreement or even cancel the order entirely just for that customer’s convenience. But the Department of Defense can.
For all this aggravation you might think that defense companies earn extraordinary profits. Sadly, such is not the case. The top 20 defense companies in terms of dollars on contract have an average 2011 profit margin of 2.85% and an operating margin of 6.22%. This compares to the Dow 30 average of an 11.64% profit margin and operating margin of 16.04%. Return on assets was 3.84% for the top 20 defense contractors and 10.95% for Dow 30 companies. Return on equity for defense contractors for 2011 was 21.01% and 22.41% for Dow companies. The total revenues of the top 100 defense companies from Pentagon contracts were less than total revenues for Walmart or Exxon alone.
The injustice of it all almost brings tears to your eyes, doesn’t it? Companies that get hundreds of billions of dollars from taxpayers actually have to file reports saying how that money is being spent! And they have to make their products the way the Pentagon tells them to make it! And they make so little money that it’s hardly worth it! Why, for the last decade they’ve only made close to $25 billion a year! Who can live on such a pittance? Maybe we can start a telethon or a bake sale to help support this terribly oppressed industry. Who’s with me?