Irvine’s Meggitt Defense Systems Inc., like other defense contractors, is looking to cash in on another record year.
Orders for Meggitt’s products, which include targets for missile training, were up 18% in 2007. The company, part of Britain’s Meggitt PLC, is looking to do even better this year.
“Things continue to go well for us,” President Roger Brum said.
Meggitt also owns Endevco Corp. in San Juan Capistrano, which is expecting strong business too, Brum said.
Spending for the wars in Iraq and Afghanistan has kept local defense facilities churning nicely for five years now.
Though many thought we’d see a drop in defense spending by now, there’s no sign of pausing, even with the political jockeying over Iraq.
“There was an anticipated decline, but we’re still building,” said Hector Cuellar, president of investment bank RSM Equico Inc.’s capital market group in Costa Mesa, which advises on mergers and acquisitions in the defense industry.
Even if troops begin to withdraw from Iraq, a cutback in military spending is unlikely, according to Cuellar.
This year the government’s core budget for defense, which pays for the basic costs of operating the military, will be about $475 billion, he said.
That’s less than the $600 billion spent last year. But another bill calling for $150 billion for Iraq still is waiting to be passed.
The funding isn’t in question. Instead, Democrats are pushing for a timeline for pulling out troops, something President Bush opposes.
Some Delays
The delay is keeping some orders from going through and could pinch some companies, Cuellar said.
Orders for less critical programs such as missile defense could be pushed back in favor of contracts more relevant to the war in Iraq, he said.
Meggitt’s Brum said he doesn’t expect any slowdown this year. Orders for Meggitt’s products go through many bureaucratic channels, he said, and the orders he has now were initiated a year ago.
A Democratic president could bring a troop drawdown in Iraq with implications for spending. The likely impact would be a decline in the growth of spending, but not an actual reduction, according to debt rating agency Standard & Poor’s.
RSM Equico’s Cuellar said he sees defense spending holding no matter who is elected.
“We learned a lesson after 9/11,” he said. “No one wants to be caught with their pants down.”
Even after troops leave Iraq, the military will have to replace worn-out equipment and vehicles left for the Iraqi military, Cuellar said.
“It may not be until 2010 that the military’s stock is replenished,” Cuellar said.
The Pentagon’s budget has enjoyed a nice ride since coming out of a post-Cold War downturn that started and ended with President Clinton.
President Bush pushed the trend into overdrive.
Companies such as Costa Mesa-based Ceradyne Inc. have benefited from the war and likely will do so after it’s over.
Orders for Ceradyne’s ceramic body armor for troops began to take off when the Iraq war started in 2003. Its stock has risen tenfold in that time with a market value of $1.1 billion last week.
The company has been looking for ways to expand its armor to other military uses.
The Bull, an armored truck Ceradyne has developed with Wisconsin’s Oshkosh Truck Corp. and Virginia’s Ideal Innovations Inc., is showing some promise.
In December, the company said it received its first order for 20 trucks, which will be tested by the Marines against road bombs.
The county’s biggest defense contractor, Boeing Co., says its business should be stable throughout the year.
Work on a communications system is expected to give Boeing’s local operations a boost, according to the company.
The system for planes and warships, known as the Airborne/Maritime and Fixed Joint Tactical Radio System, could be awarded by the end of March.
The technology will give planes and ships the ability to stream live audio and video, share maps and collaborate easier, according to the company.
Boeing already has been awarded a contract for a similar communications system for ground troops.
The company also is hoping to win a Navy contract for its robotic submarine designed to find mines, do reconnaissance and attack other vessels.
Deals among defense companies are expected to stay strong.
Large war chests from major players such as Boeing and Raytheon Co. could lead to buyouts of smaller companies, according to Paul Weisbrich, a senior managing director with RSM.
Companies that specialize in defense electronics and services are likely candidates, he said.
Meggitt Defense said last year it’s eying another local company for a buyout. The company is looking to improve on last year’s revenue, Brum said.
A weak dollar is in Meggitt’s favor. It also could spur buying by other European companies, Cuellar said.
France’s Zodiac SA already owns Huntington Beach-based C & D; Aerospace Group, while Thales SA, also of France, has a venture with Raytheon’s Fullerton operation.
