As the Pentagon Shifts Spending Priorities, Some Defense Contractors Gain While Others LoseJuly 21, 2009
 As the Pentagon shifts many of its spending priorities on weapons to fight insurgencies instead of conventional wars, some top defense contractors will benefit from the new direction while others are already feeling the pain. Lockheed Martin, the world's largest defense contractor, posted its second straight quarter (year-over-year) profit declines within days of the Senate vote to end the F-22 fighter jet program, the Washington Post reported. The company has also taken a hit with the cancellation of a satellite program and the derailed deal to build a new fleet of presidential helicopters. The cancellations will cut about $2.5 billion from its $80 billion order backlog, according to the Washington Post article [free with registration]. Lockheed's CFO, Bruce Tanner, noted that the impact from the F-22 cancellation wouldn't be felt until 2012 when the final delivery of the jet fighter is to be made. The program's suppliers, however, are likely to feel the pinch much sooner. Tanner hopes the impact of the F-22 will be softened as the company shifts to meet demand for other types of military aircraft -- like the C-130J and C-5 cargo planes. Meanwhile, the Pentagon's new procurement priorities are helping Northrop Grumman challenge Boeing as the country's second-largest defense contractor, according to an article in The Wall Street Journal. [LINK: http://online.wsj.com/article/SB124770227436448533.html] Boeing has also been hurt by its focus on making jet fighters and took a hit after the restructuring of the U.S. Army's $200 billion Future Combat Systems modernization program. Northrop, however, has positioned itself to build cyberwarfare technology and unmanned aerial vehicles -- both of which have garnered growing attention and funding. "I think Northrop came out pretty well," Ronald Sugar, the company's CEO, told the Journal. "We've spent the last five or 10 years positioning the company for this eventuality." Northrop has moved slowly from being a military aircraft manufacturer to focusing on "electronics, information and intelligence," Sugar added. Elsewhere, the Pentagon is turning to the less expensive and more versatile F-35 Lightening II jet fighter from Lockheed, and Northrop is a major subcontractor on the project providing, among other things, components such as radar technology. Northrop has also suffered some cancellations, including the missile-defense program that could have generated billions of dollars over several years, the article noted. (U.S. Air Force photo/Senior Master Sgt. Thomas Meneguin (released)) |
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