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US armament manufacturers hit by inflation

Price increases of up to 7.5 percent on estimates of 2.2 percent make deals difficult

Rising labor costs and fuel expenditures are having a major economic impact on the US arms industry. Many companies, as well as large Groups, are struggling to sign new contracts with the US Department of Defense. It's all because of the rising cost of weapons and military systems that must balance the Pentagon's budget with market values.

It is enough to look at the situation of Lockheed Martin, which has been negotiating with Washington for a long time to define the sale of the next batch of F-35 fighter jets. With prices high, it is difficult to agree on new long-term contracts with the government. According to internal sources, quoted by the American media, the order should have been finalized already some months ago also with the suppliers of the components. 

All this is happening because of inflation forecasts. The economic availability for the defense sector in 2022 is 715 billion dollars, based on an estimated price increase of +2.2%, but companies are dealing with increases of +7.5%. In short, actual prices have gone far beyond Washington's projections.

Suffice it to say that fuel was projected to rise 10%, but the cost of crude oil has been +55% over the past 12 months. Typically, we protect ourselves from such escalating price increases through so-called cost-plus agreements. This time the protection was diluted by delays in passing the budget for fiscal year 2022, and that left contracts and spending based on a 2.2% inflation rate. Negotiations continue.

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AVIONEWS - World Aeronautical Press Agency