An analysis of the profitability of major defense aerospace contractors

Abstract

This study is a comparative analysis between the profitability of defense and commercial aerospace business. Corporate data including profit measures and the volume of defense business were collected for a 22 year period from 1961 to 1982. The methodology uses regression analysis with the percentage of defense business and the percentage of capacity utilization within the aerospace industry as the explanatory variables for profit. Finally, a brief analysis of risk is included to provide a framework within which to compare these profit levels. Briefly the findings indicate; that defense contracting has, on the average, been less profitable than commercial; that contractors earn more on defense contracts during periods of increased capacity utilization, and that defense contracting involves higher risk. The author concludes that government acquisition managers must be continuously aware of the implications of these findings for individual contractors as well as for the entire defense industrial base.