Defense Firms Brace For Slowdown Under Obama

Defense Firms Brace For Slowdown Under Obama (NSI News Source Info) December 31, 2008: Arizona defense contractors who have prospered during the Bush presidency are bracing for a slowdown under President-elect Barack Obama. Combined, the approximately 1,000 Arizona companies that do business with the Department of Defense annually pump more than $12 billion into the state's economy. Business has more than doubled in the past eight years for those companies as the U.S. defense industry has ballooned to an estimated $700 billion in 2009 from $261 billion in 2000. Although substantial budget cuts are unlikely, experts believe a slowdown in the growth of defense contracts is inevitable. Jim Albaugh, chief of Boeing Co.'s Integrated Defense Systems unit, sees defense budgets flattening as the result of mounting budget pressure. Albaugh foresees the possible postponement of certain future weapons programs. Boeing has about 4,500 employees in Arizona, primarily manufacturing Apache Longbow helicopters for the Army. Ron Grabe, manager of Orbital Sciences Corp.'s Launch Systems Group in Chandler, is concerned about the increasing scrutiny of defense programs. Obama has promised to end the war in Iraq, which has been putting $10 billion a month into U.S. defense contractors' pockets, and to revamp the way contracts are awarded. Although Obama is committed to maintaining adequate funding to bring U.S. military capabilities into the 21st century, there will likely be increased scrutiny of defense spending, particularly for high-ticket programs involving exotic weapons and equipment. He has pledged to examine every defense program for relevance and cost and to apply greater scrutiny to the contracting process. During his campaign, Obama specifically mentioned the $33 billion missile-defense program as an area for potential cuts. A recently released Arizona State University study found that the program contributed $193 million to the state's economy in 2007 and supported almost 2,000 jobs. Although Boeing is the prime contractor on the program, most of the work in Arizona is being done by Orbital and Raytheon Missile Systems in Tucson. The Obama administration also will make the decision on two major contracts that were awarded and later rescinded. They are a $40 billion contract to replace the Air Force's aging fleet of air refueling tankers, and a $6.2 billion contract to replace about 375 Kiowa Warrior helicopters. The tanker contract was awarded to a partnership between Northrop Grumman and Airbus' European parent EADS N.V. It was later rescinded as a result of protests from rival bidder Boeing. Both companies were bidding for a new contract when the government temporarily called off the competition. Local defense firms such as Honeywell Aerospace and Hamilton Sundstrand are major contractors on both proposals. Boeing estimates the contract could mean $40 million a year for its Arizona suppliers and 1,100 new jobs for the state, while Northrop Grumman asserts it would mean 1,000 jobs and $80 million a year to Arizona's economy if it won the contract. Boeing also is bidding to replace the Kiowa Warriors, a contract that could have a huge impact on Arizona. A contract for the new armed-reconnaissance helicopters was awarded to Bell Textron but was rescinded in October because of extensive delays and cost overruns. Boeing lost out to Bell in the initial bidding and plans to make another run at the contract. The helicopters would be produced at the Mesa plant where Boeing now makes the Apache Longbow helicopters. Jeffrey Dodson, manager of state and local government relations for Boeing, noted that winning the armed-reconnaissance helicopter contract win would be a huge boon to the company's Mesa's operation. Obama has vowed to make bidding on government contracts more transparent and competitive to reduce problems such as those experienced with the tanker program and the armed-reconnaissance helicopter. He wants to draw new players into the mix instead of handing out contracts to the usual players. Obama wants to restore the government's ability to manage contracts by rebuilding the corps of officers who oversee contracts and by ordering the Justice Department to prioritize prosecutions that will punish and deter fraud, waste and abuse.