Bombs fall, prospects rise

Contractors: The war on terrorism and the need to replace aging military fleets mean a strong industry.


January 20, 2002|By Robert Little | Robert Little,SUN STAFF

The way John Douglass sees it, all those B-52s leaving vapor trails in the sky over Afghanistan are telling the story of the defense industry's future.

They're in use, for one thing - dropping bombs that need replacing, putting stress on hardware that needs maintaining and repairing. And they're nearly 50 years old, first deployed in the mid-1950s.

"We don't drive 50-year-old cars; we don't have 50-year-old TVs," said Douglass, president of the Aerospace Industries Association. "We think this is going to be an important both political and structural issue for the industry [this] year.

"Indeed, it's going to be kind of a litmus test for both the president and Congress to see where we are going, because the numbers are immeasurably there. The fleets are aging, and something has to be done."

The economy may be stalled, and the federal budget surplus evaporating, but spending for military aircraft, weapons and research is expected to be relatively strong this year.

Much of the nation's military hardware is old, and now much of it is being used and even destroyed. In the defense industry, like no other, war is profitable.

Douglass' association expects sales of aircraft and related products to drop $6 billion this year from the $151 billion recorded last year. But the decline is attributed almost entirely to a falloff in sales of commercial aircraft and parts. The Department of Defense is expected to spend $54 billion on aircraft, missiles, spare parts and related defense products, $5.1 billion more than last year.

In the final months of last year, the president and Congress moved to spend more money buying bombs and missiles, building vehicles and airplanes and developing weapons and surveillance systems. And the more equipment destroyed during the U.S. war on terrorism, the more it will need to buy.

"I think the industry will do better than hold its own; it will out-perform the stock market over the next three years," said Loren B. Thompson, a defense analyst for the Lexington Institute, a Northern Virginia think tank.

"There is such an overhang of aging equipment, we don't have a choice but to start replacing it."

Not all major U.S. defense contractors will remember 2001 as a year when their fortunes rose. Boeing Co. lost a bid to build the Joint Strike Fighter, possibly the most lucrative military contract in history, and its commercial aircraft business plummeted as the fear of terrorism swelled.

Boeing manufactures the popular Joint Direct Attack Munition - bombs dropped with great frequency on Taliban and al-Qaida forces - but the greatest feature of a JDAM is its low price. And inexpensive bombs don't make corporations rich.

For others among the nation's top defense contractors, however, last year might prove to be a significant turning point toward higher profits, analysts say - and few seem poised to score higher than the companies with large operations in Maryland.

Lockheed Martin Corp., based in Bethesda, won the Joint Strike Fighter competition and the right to develop and build more than 3,000 airplanes for the U.S. Air Force, Navy and Marine Corps, and British forces. It announced plans to shed its least profitable division - a telecommunications unit - and its F-22 Raptor jet entered production last year.

Navy missile launchers built by Lockheed Martin's Marine Systems unit in Middle River have been in demand during the recent conflicts. And the unit should learn soon whether it will build $100 million worth of missile launching canisters for Trident submarines as they are converted from nuclear to conventional weapons.

Northrop Grumman Corp., whose largest division is based near Baltimore, merged with Newport News Shipbuilding to become the nation's third-largest defense contractor and its biggest maker of ships. Pentagon officials are considering buying more of Northrop Grumman's B-2 bombers, and the company's Global Hawk unmanned surveillance plane won praise during its debut over Afghanistan.

Northrop Grumman's Electronic Systems sector will design and build the radar systems for Joint Strike Fighter, a job that could keep as many as 500 workers employed. The kind of hardware produced in Linthicum - electronics used for targeting and information - is just the kind of high-tech equipment that analysts expect to drive the development of new military technology.

"What we're seeing is the true need of surveillance and precision strike for these kinds of future weapons systems, and Northrop Grumman is a company that is right at the center of that kind of business," Chief Executive Officer Kent Kresa said in an interview with Bloomberg News.

Northrop Grumman estimates that its revenue will climb from $13 billion last year to $18 billion this year and $20 billion next year.

"We feel very good about our future," Kresa said.

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