Tough Times Ahead For US Weapon Makers

November 30, 2011Sectorby EW News Desk Team

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Top US weapon companies will need to cut production costs, increase export sales, and acquire more commercial contracts over the next few years, as uncertainty continues to mount over the extent of any US defense budget cuts.

According to Reuters on Wednesday, chief executives of numerous US weapon companies told their investors this week that the defense industry could no longer depend on US government military spending for their businesses, with $600 billion in defense cuts expected over the next 10 years, on top of some $489 billion in cuts that is already being absorbed.

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"It's been a great ride," said Rockwell Collins Inc Chief Executive Clay Jones at a conference hosted by Credit Suisse and Aviation Week. "But the ride's over.”

Rockwell Collins is a flight-controls supplier and subcontractor on many key weapons programs, with an annual turnover of over $4.665 billion. The company said that with government orders declining, commercial sales would now account for a growing share of its revenue.

Similarly, overseas sales are also expected to fill the void for other US weapon makers. According to Raytheon Co Chief Executive Bill Swanson, there has been a strong demand for US-made weaponry in the Middle East and Asia, with numerous contracts for the company in the works to be completed.

"We got a lot of activity in the pipeline," said Swanson, pointing to Saudi Arabia, Taiwan, Kuwait, Turkey and Oman as work in progress. Additionally, Raytheon is also eyeing new orders from India, Brazil and other countries in South America.

The Pentagon is expected to trim defense spending over the next 10 years in order to meet deficit reduction targets as a result of the Budget Control Act, which Obama signed on 2 August this year.

The Pentagon's No. 2 budget official, Mike McCord, admitted at the conference that while the White House had yet to order the Pentagon to revise its fiscal 2012 and 2013 budget to reflect another $50 billion in cuts, it would be difficult, if not impossible, to do that in the few weeks before the budget documents must be completed.

"We're a little bit in the dark like everybody else is about the future of sequester," said McCord.

"Sequestration is bad," added the US Navy's No. 2 acquisition official, Vice-Admiral Mark Skinner, referring to the additional budget cuts required due to the failure of a congressional "super committee" to agree on at least $1.2 trillion of deficit reduction.

The cuts would affect all Pentagon programs across the board and could result in violations of existing multi-year contracts, he said.

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