It's quite difficult to go beyond that, but it's possible. Improved cash flow should encourage contractors to make capital investments right now. But even in the long term, the government covers all the depreciation costs of capital assets in defense contracts. In the case of more specialized equipment, the government reimburses all costs incurred if the equipment has a useful life of more than one year, as long as the contractor can demonstrate that the equipment “can only be used to support the final product purchased by the government”.
In other words, the government spends a large amount of hard-earned taxpayer money on research and development and on capital assets for contractors. Defense companies can be classified according to their role and size in the industry, from giant “prime contractors” to agile startups. Defense contractors in Japan operate under strong government guidance, and only now can they contemplate selling overseas. Contractors consider that inflation, the delay in the approval of congressional spending bills, and the inadequacy of defense spending in general are factors that inhibit the strengthening of the industrial base. Despite periodic criticism of contractors' profits, data shows that defense is far from being the most profitable sector, and recent drops in margins have even raised concerns about lack of investment.
Not only that, but the Department of Defense study highlights that investment in research and development “generates revenues, benefits and money for defense contractors. The global defense contractor industry encompasses research, development, production and support of military aircraft, weapons, warships, land vehicles, and advanced defense technologies. I keep seeing that everyone says that the pay of a defense contractor engineer sucks, but I personally know someone who earns almost 6 figures in school. The challenge for defense contractors is to integrate these rapidly evolving technological fields into reliable military products.
Therefore, if a suicide bomber attacks an area where contractors spend their hours off, the contractors injured in that incident are likely to be entitled to compensation. The Office of the Undersecretary for Defense Acquisitions and Maintenance, Pricing and Contracting released a study last month detailing the effects of its contract funding policies and benefits on the financial health of the defense industry. The military can trust the Veterans Administration and contractors can trust the Bases Act of defense. The defense industry outperforms its commercial counterparts in eight of the nine key financial metrics of business success, largely because the defense industry receives preferential government treatment because of the national security issues that underpin much of defense production.
The defense industry depends on an extensive supply chain of specialized suppliers who provide materials, components and services at different levels, below those of prime contractors. As Japan moves towards a more “normalized” defense posture (although in principle it remains defensive), its regulations are likely to continue to be relaxed in a measured manner, opening up opportunities for both the Japanese industry to go abroad and for foreign industry to collaborate on Japan's programs.
