Defense contractors are reaping the benefits through increased profits from the government’s plan to sharply increase related expenditures in the five years through fiscal 2027.
Mitsubishi Heavy Industries Ltd. posted nearly 100 billion yen ($689 million) in business profits in its aircraft, defense and space division in fiscal 2024, up about 38 percent from the previous year.
At a news conference to announce the company’s financial results on May 9, Chief Financial Officer Hisato Kozawa said orders have been piling up for defense equipment.
“We received more orders than anticipated in fiscal 2024 as well (as the previous year),” Kozawa said. “Orders are exceeding our current production capacity.”
Mitsubishi Electric Co.’s defense-related division reported 28.4 billion yen in operating profits in fiscal 2024, sharply up from 1 billion yen in the previous year, and expects a further increase in the current fiscal year.
IHI Corp. said its defense business will likely achieve an operating profit margin of 10 percent about four years earlier than its original target of fiscal 2030.
Industry officials have long said that they can barely make money on defense equipment because orders essentially come only from the government.
Many suppliers withdrew from the market around 2020 as business conditions worsened.
However, the government’s plan to raise defense outlays to 2 percent of the nation’s gross domestic product by fiscal 2027 reignited the industry.
Defense expenditures over the five years from fiscal 2023 are expected to jump by 50 percent from the preceding five-year period.
Contractors may receive an additional tailwind from the Trump administration, which wants other nations to pay more for their national defense.
In March, Elbridge Colby, before taking office as U.S. under secretary of defense for policy, said Tokyo must spend 3 percent or more of its GDP on defense.
Kentaro Maekawa, senior analyst at Nomura Securities Co., said order intake may further increase if Japan decides to provide more support to the U.S. military, for example.
“As things now stand, I cannot see anything that could put a dent in companies’ defense-related sales,” Maekawa said.
AloJapan.com