THE ORLANDO SENTINELApril 29, 2001 Sunday
WEAPONS MAKERS ON DEFENSIVE
MILITARY CONTRACTORS WORRY ABOUT 'REFORM' IN BUSH BUDGET
By Richard Burnett of The Sentinel StaffAmerica's defense contractors may not have gotten the George W. Bush they wanted.
While they generally applaud the return of a Republican to the White House after eight years of Democratic rule, the nation's military contractors are genuinely nervous about the Bush administration's first Pentagon budget.
Ironically, they're even more worried than during the Clinton administration about possible spending cuts in major weapons programs.
Such cuts could have major implications for Central Florida, where many of those programs sustain thousands of jobs and generate hundreds of millions of dollars in annual revenue. The Orlando area has the largest defense presence of any region in Florida, which typically ranks among the top 10 states in the value of the defense contracts that flow its way.
Though Bush campaigned on a platform of a strong national defense, conventional wisdom suggests that the president simply can't have Reaganera-type Pentagon budgets while pursuing his $1.6 trillion tax cut and additional spending in areas such as education.
"It seemed at first the defense industry had every reason to believe their fondest dream was coming true with Bush winning," said Barry Render, a business professor at Rollins College and a former aerospace engineer. "But if he's really committed to this tax cut, something's got to give. Even if the defense budget does increase some from what it was during the Clinton time, it can't go up as much as the Pentagon wants. There's simply not enough money."
During his campaign, Bush touted "reform" in defense spending -- considered by many a code word for budget cuts -- but he offered no specifics then and has yet to offer any, analysts say.
Bush does have Defense Secretary Donald Rumsfeld conducting a "top-to-bottom review" of all U.S. defense spending, setting off speculation that some big-ticket weapons programs could be vulnerable to cutbacks.
Systems such as the V-22 Osprey, the Crusader advanced artillery and the F-22 stealth fighter have been mentioned as potential cost-cutting candidates to surface during the review."A lot of contractors are scared of all this talk, because they just don't know which weapon systems the ax might fall on," said Ivan Eland, director of defense policy studies for the Cato Institute, a Washington think tank usually critical of big defense spending.
Many contractors are hesitant to talk at all.
"It is way too early in the process to speculate," said Jim Fetig, spokesman for Bethesda, Md.-based Lockheed Martin Corp., which has several thousand jobs and, potentially, billions of dollars in future defense work at stake in Central Florida alone. "There's a major review going on at the Defense Department and, until it is complete, there's not much we can say."
So far, Bush's preliminary budget proposal of $310.4 billion represents a $14 billion increase from the current Pentagon budget, or $11 billion when adjusted to account for inflation. At least $6 billion of that increase is earmarked for military raises, housing and other personnel needs -- a top Bush priority. The proposal doesn't include money for another Bush priority -- a multibillion-dollar national missile-defense program -- because the administration is still trying to put a price tag on the project.
Even so, the president and the Pentagon remain far apart on military spending issues: The Defense Department says the Bush plan falls $30 billion short of what it needs to fulfill its various global missions.
MILITARY CUTS MEAN JOB LOSSES
Bush also faces the usual economic argument from the defense industry -- that big military cuts mean big job losses and big trouble for lots of local economies. This time, however, the message may carry even greater weight because of the nation's current economic slump.
While the slowdown has triggered tens of thousands of layoffs in other high-tech sectors, the defense industry's work force has remained relatively strong. In some cases, defense companies are even hiring as others are firing.
Microchip giant Cirent Semiconductor in Orlando, for example, is cutting more than 400 of its 1,700 jobs, citing a slump in sales to personal-computer and telecommunications customers. Meanwhile, Lockheed Martin's Orlando missiles unit is midway through hiring 200 engineers for various defense programs.
Such hiring is not an indication that Lockheed Martin expects a bonanza from the Bush defense budget. "That hiring is related to the business we already have on hand," Fetig said. "Each one of our business units is hiring or laying off to size its work force according to the current business volume."
Other Central Florida defense contractors -- from Harris Corp. in Melbourne to Litton Laser Systems in Apopka -- are anxiously watching the national budget debate.
Many of them build major subsystems, components or individual parts for big-ticket Pentagon "platforms" such as the Joint Strike Fighter, the F-22 Raptor, the V-22 Osprey and the AH-64 Apache Longbow helicopter.
Northrop Grumman Corp.'s Melbourne unit is the prime contractor for a major program: the E-8C Joint STARS Reconnaissance Aircraft, which can monitor and track enemy ground troops from long range.
At Cape Canaveral, Boeing Co.'s Delta rocket unit and Lockheed Martin's Titan/Atlas operations launch military satellites into orbit.
Overall, the region ranks high among the nation's top defense-spending markets, with scores of companies specializing in missile electronics, information technology, training simulators, space launches, lasers and other defense-related technologies.
In addition to the Lockheed Martins and Boeings of the world, Central Florida is home to many smaller defense companies that can feel the effects of budget decisions made in the White House and in Congress.
"From what we've seen, training systems are among the first things to be cut in tight budget times," said James P. Exter, vice president and general manager of Metters Industries Inc.'s Orlando manufacturing division, a simulator maker that employs almost 100 people. "But we do hope the budget purse strings are loosening on that now and some of the funding will be restored."
POLITICS PROTECTS BUDGET
Despite contractors' fears, tax-cut pressures and defense-reform reviews, don't look for the Bush team to do any serious curtailing of Pentagon spending, some analysts say.
"These weapons systems are spread out over as many political districts as possible, and it is a political business to retain them," said Eland, the Cato Institute analyst. "So Bush is going to have a heck of a time killing any one of them."
If anything, some of the big-ticket items -- such as the nationwide anti-missile shield project -- are likely to gain.
"Without question, there is going to be an increase in spending on national missile defense," said Alise Frye, director of national security analysis for Taxpayers for Common Sense, a Washington, D.C.-based watchdog group. "But I'm not positive we will see the elimination of any major acquisition projects. We may see some of them scaled back, but not likely canceled."
She said some of Bush's defense-reform rhetoric has appeal -- such as junking the perceived need for a military capable of fighting two major conflicts simultaneously. It is not clear what would replace that Cold War-inspired approach, though any substitute would probably focus instead on handling threats from "rogue nations," Frye said.
"Much of that discussion of rogue nations is exaggerated," she added, "and certainly won't justify Cold War-sized defense spending."
If nothing else, the Bush administration has succeeded in generating a lot of contradictory perceptions of its defense plans, said John Pike, defense analyst and director of GlobalSecurity.org, a government-policy studies organization.
"At one time or another, I have seen reports saying that most major weapons are going to be canceled -- then, later, more reports saying that every blue-sky weapons system that anybody ever dreamed of is going to be funded," he said. "Obviously, it can't all be true."
Pike said he anticipates the Bush team will do a lot of tap dancing to get congressional funds for most every major program.
That would mean restructuring and extending weapons programs over longer periods, which reduces spending in the short term but costs more in the long run, he said.
"So nobody in the defense business is thrilled, but nobody
goes hungry," Pike said.
"I expect the Bush team will take the path of least resistance, because all
other alternatives seem to run into some real problems for them."
Copyright 2001 Sentinel Communications Co.
