In-sourcing v. Outsourcing: A Tale of Two Countries

February 18, 2010 by Matthew Potter · Comment
Filed under: BNET

Great Britain and the United States have chosen two different paths to try and save money in their defense spending. Britain is privatizing more…

Tags: chosen two, defense spending, different paths, great britain, money, United States

Current Trends In Defense Spending To Continue

February 2, 2010 by Matthew Potter · Comment
Filed under: BNET

The 2011 defense budget released yesterday remains a "status quo" budget. It has an overall increase in defense spending as part of the largest...

Tags: BNET Government Industry, defense budget, defense spending

Selling Overseas To Make Up For Coming U.S. Defense Cuts

September 14, 2009 by Matthew Potter · Comment
Filed under: Arizona, Bell, Brazil, Business Line, Companies, Congress, Countries, Department of Defense, Events, Federal Budget Process, India, Qatar, Raytheon, Restructuring, Services, States, UAE, development program, logistics, missile defense, production program

Arizona is a top beneficiary of defense dollars. This is primarily due to Raytheon and Bell activities in the state. Raytheon makes missile defense systems and Bell helicopters. Now with the possibility that Obama’s cuts to the defense budgets starting in 2010 and out the companies there are looking overseas for work.

Unfortunately this will be the business plan for all defense contractors if their is a significant contraction in U.S. defense spending. The focus will be on selling systems and support to Asian, South American and Middle Eastern companies. India, Brazil, the U.A.E. and Qatar have already made major investments in U.S. and European equipment and there are several major contracts coming. In 2008 the U.S. already captured two-thirds of the market but overall purchases were the lowest they had been since 2005. If this trend continues due to the global downturn in the economy there may be less opportunity for these sort of sales.

These trends may lead to further consolidation of the defense industry in the U.S. and abroad as domestic and foriegn markets may not be able to support the amount of business built up since 2001 primarily by the United States. This will be the most important factor facing the industry which has not seen this situation since the early Nineties and the end of the Reagan arms build-up.

Tags: bell helicopters, beneficiary, companies india, contraction, defense budgets, defense contractors, defense dollars, defense spending, global downturn, missile defense systems, nineties, obama, Raytheon

Mideast arms race defies economic slowdown

August 27, 2009 by admin · Comment
Filed under: Syndicated Industry News

AMMAN, Jordan, Aug. 27 (UPI) -- With Saudi Arabia spearheading the arms race in the Middle East, defense spending in the region will exceed $100 billion by 2014, according to a study released by Frost & Sullivan.

Tags: amman jordan, amp, defense spending, Saudi Arabia, upi

Some In Germany Upset About EADS’ Performance

August 17, 2009 by Matthew Potter · Comment
Filed under: BNET, Syndicated Industry News

August 7, 2009 -- When there is a monopoly in any industry it can cause issues with the customer base. In Europe due to the decline in defense spending there has...

Tags: august 7, BNET Government Industry, customer base, decline, defense spending, europe, monopoly

English Defense Industry Looking Bleak

July 23, 2009 by Matthew Potter · Comment
Filed under: BAE Systems, Business Line, Companies, Contract Awards, Countries, Department of Defense, England, Events, Military Aviation, Scotland, Services, VT Group, production program

It is true that the United States defense budget does dominate the world’s spending on arms and equipment but the U.K. has always had large spending plans as well. Now that the U.K. government of Gordon Brown is facing massive deficits due to social spending and attempts at stimulating their own economy since the global recession began twelve months or so ago defence spending may get a little tight. There has already been discussion of canceling some large programs as well as cutting back on general spending. Like in the U.S. ending these kind of programs will lead to more job losses on top of those already gone in the civilian economy.

That is why stories like this one about the U.S. military buying BAE Systems artillery pieces that will be made in the U.K. will become more common. When you are relying on foriegn sales to keep up jobs for six months at a time it is not a good sign. There are bigger programs at risk for the U.K. such as the Eurofighter or A400M transports. The government is scrambling to maintain the new aircraft carrier contract as the jobs at Scottish shipyards are key to that part of the nation’s economy.

There is no doubt that the U.S. will also see a fall in defense spending as the pressures of debt, health care reform and other priorities will limit the money available from the Obama Administration’s budget.

Tags: a400m, aircraft carrier, artillery pieces, bae systems, carrier contract, civilian economy, defence spending, defense budget, defense spending, eurofighter, global recession, gordon brown, health care reform, job losses, new aircraft, no doubt, obama, priorities, shipyards, twelve months

European Union Limits Offsets

July 2, 2009 by Matthew Potter · 1 Comment
Filed under: Business Line, Events, production program

Offsets are the practice of when one country buys a system or services from a company in another they require that company to invest in their economy. They are not uncommon in the defense business. Right now India especially has very strict offset rules that have led to some controversy.

The European Union announced yesterday some rules to make offsets more targeted and defense related among its member countries. In the past some country’s have requested offset investment in their civil economy rather then in defense work. Normal procedure is to buy services, parts or maintenance related to the contract awarded.

The new rules require that the offsets be defense related. They also limit the total value to no more then equivalent to the awarded contract. Most often offsets are some percentage of the value so these rules are not to onerous. The EU has moved recently to tighten up competition among the various countries penalizing Italy for favoring their own internal industry over other available sources for example.

The offset rules announced will probably have limited effect since many of the projects are already shared among a variety of suppliers such as the Typhoon. If there is a decline in defense spending and the number of large contracts available there will probably be more efforts to expand competition and restrict protectionist policies.

Tags: civil economy, Contract Awards, controversy, decline, defense business, defense spending, european union, India, Italy, member countries, offsets, protectionist policies, total value, typhoon

Michingan Economy Losing Defense Dollars As Well

June 22, 2009 by Matthew Potter · Comment
Filed under: Business Line, Congress, Contract Awards, Department of Defense, Events, Michigan, Restructuring, Services, States, logistics, production program

Michigan is seeing its car based economy erode quickly with the bankruptcies of Chrysler and General Motors and now word is that the defense dollars flowing to the state are down as well. Crain’s Detroit Business is reporting that defense contracts fell by almost a third compared to the same period last year. One of the problems faced seems to be that the U.S. Defense Department is putting work out to bid but then not awarding the contracts. This may be due to a reassessment of needs by the new Administration, or just changing the timing of the work.

Michigan has one of the highest unemployment rates in the country with no real changes on the horizon that will turn that around. Defense dollars were offsetting some of the losses in civil industry and the state has aggressively gone after them. It is expected that in the next few years to be some major cuts to defense spending and this may exacerbate the problems the state is experiencing.

Tags: bankruptcies, chrysler, defense contracts, defense dollars, defense spending, detroit business, economy, general motors, horizon, losses, new administration, reassessment, unemployment rates, year one

A400M Talks Continue

June 15, 2009 by Matthew Potter · Comment
Filed under: Boeing, Business Line, Companies, Congress, Contract Awards, Countries, EADS, England, Events, Military Aviation, Restructuring, Spain, Turkey, commercial aviation, development program, logistics

With the Paris Airshow coming up there is a great deal of pressure on EADS to be able to announce some good news at the premier showcase for their products. The company is looking at some severe issues on the military side with their major program the A400M facing push back from its customers.

This medium transport program is at a critical juncture as the nations looking to buy it have the right to end their deals and demand several million dollars worth of payments back from the company. England has been the most negative on the project as their budget problems overall are forcing an entire re-look at military procurement. Some of the other smaller countries such as Spain and Turkey have been more positive.

Now it is reported that talks between EADS and its customers have been extended once again to try and work something out. The hope is that more defense work will be able to balance off the decline in the civil aviation market driven by the world’s recession. Unfortunately like Boeing is facing EADS may have to deal with some major cuts to plans for U.S. defense spending. The FY 2011 budget may continue the large cuts to defense programs that Obama’s first one did.

Tags: a400m, aviation market, Boeing, budget problems, civil aviation, critical juncture, decline, defense spending, EADS, England, military procurement, military side, million dollars, paris airshow, recession, showcase, spain, transport program, turkey

England Looking At Harder Line On Typhoon Buy

May 12, 2009 by Matthew Potter · Comment
Filed under: Business Line, Companies, Contract Additions, Countries, EADS, England, Events, Germany, Military Aviation, Restructuring, Saudi Arabia, Spain, production program

Update — It was reported on Monday that the expected penalties and cancellation fees related to the UK’s buy in this round for the advanced aircraft will be over two billion pounds ($3 billion or so). This amount of money may make it more feasible to purchase the aircraft. While penalties are capped at the two billion figure there would still be termination fees. The economic effect of ending the program would also be substantial as there are several thousand jobs in the UK that rely on the program. The decision on this effort will not be easy for the Brown Government already facing a dire financial situation.

As we wrote about previously England’s budget struggles are causing it to rethink the upcoming contract buy of Typhoon fighters. If England does not participate fully in the third option then either the other countries will have to renegotiate the prices most likely to a higher number. England does have the option of ending their participation in the multi-national contract but would have to pay substantial termination fees that might end up higher then the cost of buying the aircraft.

The interesting thing is that it was England worried that some of the other participants may have left the contract that worked to have the high fees put in the contract. England is trying a third option where most of there scheduled buy will go to Saudi Arabia rather then to them allowing some savings. The Brown government like Obama in the U.S. is facing trying to pay for a large economic stimulus package as well as increased social spending. This has put pressure on a military budget already suffering from the combined campaigns in Iraq and Afghanistan. Like Obama is doing one way to save money is to end large procurement programs to save defense spending. They can either be stopped in development or less units can be bought, like the F-22. Unfortunately the less you buy the more they cost so total savings may be limited.

If England does renege on this contract there will be significant future issues with their partners and for the Eurofighter consortium.

Tags: afghanistan, campaigns, consortium, defense spending, economic stimulus package, England, Iraq, military budget, money, national contract, obama, participants, participation, procurement programs, Saudi Arabia, termination fees, typhoon

England Bets on Gates

December 8, 2008 by Matthew Potter · Comment
Filed under: BAE Systems, Business Line, Department of Defense, England, Federal Budget Process, IT, Military Aviation, commercial aviation, development program, logistics, production program

Many of the major English defense contractors rely on a great deal of American business. The biggest is BAE but there are many other companies selling goods and services to the Pentagon. Several have purchased US companies to expand their reach. There was concern with the Obama administration cutting back heavily on defense spending, but as The Times reports with the retention of Secretary Gates that concern has been alleviated somewhat. The major outstanding contract that is important to the UK and Europe is the KC-X contract. Taken away from EADS due to protest the hope is that the company will win it on the recompete. Many jobs in UK rely on building the wings for the tanker aircraft and it was a blow when the protest was upheld.

Tags: american business, defense contractors, defense spending, EADS, europe, gates, jobs, pentagon, tanker aircraft, wings

President signs defense budget

October 26, 2008 by Matthew Potter · Comment
Filed under: Congress, Federal Budget Process

The last step for any of the appropriation bills passed by Congress is the approval of the President. This year after going through the House and Senate, and then Conference; before finally being rolled into a large omnibus spending bill the defense bill was signed by President Bush in early October. Last week he signed the companion Authorization Bill. The Authorization Bill comes out of the House and Senate Armed Services committees and specifies what the money given in the Appropriation Bill can buy. This is the largest Defense budget in US history, and based on comments by Congressional Democrats looking forward to a Democratic President may be the peak. Read more

Tags: acquisition programs, appropriation bill, appropriation bills, authorization bill, barney frank, bills passed by congress, congressional democrats, defense budget, defense spending, democratic president, franks, industry news, investment accounts, omnibus spending bill, operations and maintenance, pentagon, president bush, representative barney frank, senate armed services, weapons programs

Australian health care system awards IBM contract

October 23, 2008 by Matthew Potter · Comment
Filed under: Australia, Contract Additions, Contract Awards, IT, logistics, medicine

IBM was awarded a contract to extend their services in support of the Australian health care system. The $70 M (Australian) effort will provide internet transactions in support of all aspects of the system by connecting doctors, patients, hospitals and pharmacies. IBM provides the mainframe and support services necessary for the system to process the transactions. This is yet another illustration that IT support and services are a big part of all government and defense spending.

See the press release at Networkworld.com.

Tags: australian health care, defense spending, doctors, health care system, hospitals, illustration, internet transactions, mainframe, pharmacies, press release

India steadily increases defense spending

September 13, 2008 by Matthew Potter · Comment
Filed under: England, India, Military Aviation, S&T, development program, logistics, production program

The headline on this article in the Daily Telegraph is a little misleading once you read it. India is on a path to more then double defense spending in the next twenty years, where it will be higher then the current UK’s budget. For India to exceed Britain’s budget it would take the UK holding spending steady, and actually adjusted for inflation, reducing it. It is certainly possible to imagine that the UK, and the US for that matter, may have to reduce spending as the budgetary reality catches up to them regarding the cost of social services and deficit spending. The other point of the story the money that India is putting into updating and modernizing their military by moving to buying advanced Western weapons rather then relying on Russian and indigenous producers is probably more important then the amount of spending.

The article by David Blair and Thomas Harding can be found here.

Tags: budget, daily telegraph, david blair, defense spending, India, inflation, money, next twenty years, producers, social services, thomas harding, weapons

Defense spending to continue in 2009

September 9, 2008 by Matthew Potter · Comment
Filed under: Lockheed Martin

Lockheed Martin’s CFO, Bruce Tanner, gave an interview to CNNMoney.com. His key point is that with either the election of Senator Obama or McCain there will be no real downturn in defense spending. Many have felt that the Democrat might slash defense spending in order to pay for the other programs he has proposed. The last two Democratic administrations, Carter and Clinton, are not well remembered within the Department of Defense due to their reduction in funding. Both of these administrations cut back heavily on spending, especially in the area of investment for new weapon systems. Read more

Tags: cfo, Congress, defense spending, democrat, democratic administrations, Department of Defense, downturn, key point, Lockheed Martin, mccain, MDA, new weapon, senator obama, tanner, terrorism, U.S. Army, war in afghanistan, weapon systems

New Survey Says Workforce Woes to Continue for Aerospace and Defense Industry

March 20, 2010 by Business Wire Defense: Contracts News · Comment
Filed under: Syndicated Industry News

DALLAS--(BUSINESS WIRE)--Expected increases in retirement eligibility rates of existing workers, and documented increases in voluntary attrition rates of younger workers, combined with weak demand for future contracts (work) has Aerospace and Defense companies facing the most challenging business environment in recent history, according to a new workforce survey by AVIATION WEEK and sponsored by Hitachi Consulting. Not since the historical drop-off in defense spending after the Cold War has the