Political and economic currents are making local defense contractors uneasy.
Ongoing contracts from previous presidential administrations have allowed the industry,a big manufacturing employer in Orange County,to remain stable this year.
But the military preferences of the Obama administration could end up taking business away from Southern California companies.
Already, the government has spent record amounts of money to bail out banks and stimulate the economy, leaving less in the pot for defense contracts. Declining tax revenue could put further strain on the budget.
“There are attempts to reduce the deficit by cutting in other areas and defense spending might be one of those,” said Esmael Adibi, a Chapman University economist.
In the past decade large defense projects and the wars in Iraq and Afghanistan have fueled military spending.
Last year the Pentagon’s general budget was about $500 billion, with an additional $150 billion spent for the wars in Iraq and Afghanistan.
Many believe equipment used in Iraq will need to be replenished for Afghanistan and feel politicians likely won’t reduce spending in this area.
But others think the administration is moving away from big-ticket fighter jets and missiles toward more high-tech cyber security. What this move could mean for the county’s local defense contractors still is up in the air.
Shifting Attention
Many of the larger contractors, such as Bethesda, Md.-base Lockheed Martin Corp., Chicago’s Boeing Co. and Waltham, Mass.-based Raytheon Co., have been looking to acquire companies that specialize in cyber security.
“There’s a ripple effect with defense contractors wanting to be more on the tech side of things,” said John Hennessey, a vice president with Costa Mesa-based investment bank McGladrey Capital Markets LLC, a unit of Kansas City, Mo.-based H & R; Block Inc.
Programs for intelligence, security and information gathering, such as unmanned planes, radar and satellite systems, stand a better chance of getting funding, according to industry watchers.
Locally, Boeing’s Future Combat Systems program in Huntington Beach, which is designed to enhance battlefield intelligence with robotic sensors and combat vehicles, already has faced the chopping block.
Defense Secretary Robert Gates cut the vehicle portion of the program, which represented about $87 billion of the $160 billion allocated for it, saying the vehicles weren’t fit to handle the roadside bombs in Iraq.
Boeing is the largest defense contractor in the county with about 9,200 workers. It’s also the fourth largest employer in the county overall, according to Business Journal data.
Gates also said Boeing had too much control over the dozens of suppliers it worked with. In the meantime, he’s encouraged opening up bids for contracts to develop a more effective vehicle.
About 50 OC suppliers are working with the program, including Hunting-ton Beach-based System of Systems Integration Labor-atory, which handles modeling and simulation, computers and software and testing.
The program is set to run through 2015. San Diego-based SAIC Inc., which has offices in Huntington Beach, Fountain Valley, Brea and Seal Beach, is a lead contractor.
Other components of the Future Combat Systems program that rely on sensors for surveillance, reconnaissance and communications for unmanned planes and robotic fighter planes are set to remain intact.
Boeing has been planning for a flattening of the defense budget for some time, a spokesman said. The company has said it could offer less expensive weapons based on existing technology to meet budget constraints.
It recently lost its place as the second-largest contractor with the Pentagon to Los Angeles-based Northrop Grumman Corp. Lockheed Martin remains the largest, while Boeing now is the third largest.
Boeing also took a hit when it lost a $35 billion contract to build a refueling tanker for the military to Northrop Grumman.
Now the contract is up in the air and may still go to Boeing.
Other key Boeing programs based in Huntington Beach include C3 Networks, which integrates communications software for the military, and the Joint Tactical Radio System program, which works on enhancing the military’s radios with data and video feeds.
Boeing’s Scan Eagle,funding for unmanned planes,should stay intact.
Defense contractors won’t be completely shut out of the government’s economic stimulus programs.
Of the government’s $782 billion stimulus package, about $60 billion is accessible for defense contractors and is separate from the Pentagon’s budget, according to Hennessey.
Unlike most Pentagon contracts that tend to run about five years, ones doled out from the stimulus package would be shorter, he said.
The contracts, which have yet to be figured out, likely will be made to help the working class or enhance technology.
About $1 billion is slotted to improve the security of airports, of which $700 million will be spent on improving explosive detection systems. The other $300 million will go toward upgrading systems.
John Wayne Airport is one of 17 airports chosen to receive the upgrade, which will move detection systems from remote vans to locations closer to the baggage areas.
Contractors will be chosen to design and improve the systems. It’s not clear who locally might benefit.
