But will the gulf war prove a bonanza for defense contractors? Not likely, experts agree. A few companies may pick up new contracts, but overall spending will drop sharply. This war is being fought almost entirely out of inventory, with little apparent need to replenish weapons. The budget deficit and the end of the cold war translated into a firm agreement last year to cut real defense spending by 25 percent over five years. Consider this from a General Dynamics executive: even if all the tanks and planes in the gulf were destroyed, it would amount to only half of the weaponry slated for mothballs by 1995.
If the war won’t reverse the downward spending trend, it will help determine how dwindling defense funds are doled out. Given that procurement is a morass of pork-barrel polities and interservice rivalries, here are some factors that may shape the prospects for top U.S. contractors:
A joke is going around Washington these days: “Why did those Pentagon toilet seats cost $640? They had top-secret radar guidance and laser designators.” With money tight, the betting is that funding will shift more and more toward high-tech “smart” weapons and electronics rather than new jets and tanks, known in defense circles as platforms. Says a Martin Marietta executive, “The smarter the weapons get, the dumber at least some of the platforms can be.” The apparent success of such weapons as Texas Instruments’ Paveway laser-guided bomb–seen graphically in military videos–is its own best sales pitch. Another case in point is a new “fire and forget” missile under development by Hughes. Defense planners are talking about installing the sophisticated system even on Boeing 737 airframes.
For some weapons, the gulf war represents a first live test after years of development. Chicago-based FMC Corp. built more than 5,000 of the Bradley M2 fighting vehicle during the 1980s, The Pentagon is now considering ordering 1,200 more, a contract that could be worth nearly $1 billion through 1994. The war will give the Bradley a chance to counter criticism that its aluminum shell limits its ability to survive on the battlefield. Similarly, the fate of McDonnell Douglas’s Apache helicopter, an $11.7 million hightech wonder that has been surrounded by maintenance problems, is at stake. Some weapons may have already passed the grade. Lockheed’s F-117A Stealth fighter has performed so ably that some analysts think the military may order 20 to 30 more.
The accuracy of Patriot missiles in knocking down Iraqi Scuds is already boosting interest in defensive antiballistic-missile systems. Congressional officials say President Bush is proposing $4.6 billion for the Star Wars program in 1992. Firms that make the satellites and missiles for these systems are understandably pleased. Says Lockheed’s Mel Brashears, “Offensive overkill is a fine way to deter when you’re looking at someone who thinks like you–the Soviets. But when you look at other parts of the world . . . prudent investment in theater defense makes a lot of sense.” Yet as successful as the Patriots are, debris from hit Scuds can cause ground damage. So expect more funding for a device that gets to incoming missiles sooner–possibly, a high-velocity electromagnetic-gun technology under development by Westinghouse and General Electric.
President Bush could safely cut military spending as long as the cold war was thawing. Now signs the Soviet Union may be sliding back toward totalitarianism could provoke a new U.S. buildup. But don’t count on it. Some analysts predict the accuracy of weapons in the gulf will convince the superpowers to strengthen arms-control measures, even if the Kremlin cracks down at home. So war videos or not, it looks like defense firms have a wobbly trajectory ahead.
Desert Storm may have sent defense stocks soaring, but major firms will still face uncertainty and stiff competition after the war. ..L1.-
Makes electronics for the Patriot missile. Pentagon has asked for speedup in Patriot production, but placed no new orders.
Makes Patriot frame. Profits up, despite delay in key air-defense-system contract.
Makes Tomahawk cruise missile, F-16 fighter and M-1A1 tank, but hit hard by cancellation of A-12 attack plane.
Makes F-15 and F/A-18 fighters. Waiting to see how AH-64 helicopter performs.
Makes F-117A Stealth fighter; vying for contract for the Advanced Tactical Fighter.
