Japan to Up Profits at Defense Equipment Makers

Tokyo, Feb. 6 (Jiji Press)--Japan's Defense Ministry will introduce in fiscal 2023 a system to raise profits at Japanese defense equipment makers from their contracts on supply to the Self-Defense Forces in a bid to support the domestic industry.

Under the system, the ministry will set profit margins at up to 15 pct for its defense equipment contracts with the private sector, with the aim of preventing Japanese makers from withdrawing from the defense equipment business.

"Japan's defense industry is synonymous with the country's defense capabilities," Defense Minister Yasukazu Hamada told a meeting of the Budget Committee of the House of Representatives, the lower chamber of the Diet, the country's parliament, late last month, explaining the new profit margin calculation system. Strengthening the foundation of the domestic defense industry is "an urgent task," he said.

Specifically, the ministry will set profit margins of up to 10 pct for each of defense equipment makers by evaluating them based on criteria such as the quality of their products and whether they meet the delivery deadline. It will set additional profit margins of up to 5 pct according to the length of contracts to help the companies deal with rises in material and other costs.

As no market prices exist for defense equipment, the ministry calculates production costs and planned procurement prices, and sets profit margins at 8 pct on average. With material prices tending to fluctuate as it takes time to deliver defense equipment, however, the actual profit margin is low around some 2 pct, prompting an increasing number of companies to pull the plug on the defense equipment business, informed sources said.

[Copyright The Jiji Press, Ltd.]