Arms makers lament uncertainty, urge clarity to make investments

Thu Jan 10, 2013 9:01pm EST

Related Topics

* Companies urge more dialogue with Pentagon

* Helicopter market said particularly vulnerable

* Companies discouraged by fresh delay in armed helicopter program

By Andrea Shalal-Esa

NATIONAL HARBOR, Maryland, Jan 10 (Reuters) - U.S. defense industry executives on Thursday said they were cutting costs and continuing to invest in new weapons technologies as budget pressures mounted, but said the Pentagon also needed to spell out its requirements more clearly.

Leanne Caret, vice president and general manager of Boeing Co's vertical lift division, underscored the importance of an open dialogue between the U.S. Defense Department and its top suppliers in the current budget environment, especially since there were fewer new programs for companies to bid for.

"It's absolutely critical that we choose our investments ... wisely, both in terms of the programs that we support, as well as those investments that will allow us to have corporate survival as we go forward," Caret told industry and military officials at an annual aviation conference hosted by the Association of the U.S. Army (AUSA).

She urged military leaders to be candid with the industry about their requirements and fiscal realities, even if those conversations were sometimes difficult.

Boeing, Sikorsky Aircraft, a unit of United Technologies Corp, and weapons makers are bracing for additional across-the-board cuts to the Pentagon budget after lawmakers last month failed to remove the threat of $500 billion in cuts to defense spending over the next decade.

Company executives say uncertainty about defense budgets and delays in getting new procurement programs started have dampened their ability to hire workers and make needed investments.

Defense Secretary Leon Panetta on Thursday ordered the U.S. military services to freeze civilian hiring, delay maintenance work and reduce other spending, acknowledging for the first time that the additional cuts - on top of $487 billion already being implemented - were increasingly likely.

The situation is particularly grim in the helicopter market, where the cancellation of several programs over the past decade, and delays in getting others started, has sparked concerns about the loss of skilled workers and critical design skills.

Many helicopter makers were discouraged this week when an Army official said he did not expect a final Pentagon decision on whether to go ahead with a new armed helicopter until spring, which could delay the bidding until 2014.

A separate Air Force contest for a new rescue helicopter also initially looked promising to industry, but only one firm, Sikorsky, ultimately bid for the work after its rivals dropped out, arguing that the rules were slanted to favor Sikorsky.

Samir Mehta, president of military systems at Sikorsky, said his company had invested $50 million to develop its new X2 helicopter, the fastest helicopter ever built, and was putting even more money into a larger military prototype, the S-97.

But he said there was a limit to how much any company could invest in new technologies given competing demands for resources within their parent corporations, and uncertainty about Pentagon programs.

"We can only do that to a certain point on our own," Mehta told Army officials at the conference. "We need engagement; we need to know what your requirements are going forward."

Mehta said companies were increasingly looking for orders from foreign governments and commercial customers to help underwrite technology developments in the helicopter market.

Steve Mundt, a former Army officer who works for the North American unit of Europe's EADS, urged participants to speak out against curbs on government participation in industry conferences that were imposed last year after reported excesses in a few cases. The measures have sharply decreased attendance at conferences such as the one hosted yearly by the AUSA.

"We're under attack," Mundt said. "We cannot allow congressional politics or something else to prevent industry and the (defense) department from meeting."

He also took aim at the Pentagon's slow procurement process and cumbersome certification procedures, arguing that investment in new technologies would likely be driven more and more by commercial and international customers.

Mundt urged Pentagon officials to continue funding new weapons development programs despite current budget pressures, warning that fewer opportunities would have "rippling effects" on the U.S. industrial base, investment and the workforce.

Mehta agreed, noting that the biggest companies would survive a downturn in Pentagon spending, but many small and medium-sized suppliers were exiting the defense business and shifting to focus more on commercial products.

"We're fighting for our suppliers to put their best and their brightest talent on our programs, and every time they turn on the news, and every time they see the dysfunction and the lack of predictability in investment ... that makes them a little less willing to take on that risk," he said.

Mike Petters, chief executive of Huntington Ingalls Industries Inc, told reporters at a separate event that he was also concerned about thousands of smaller suppliers that build parts for aircraft carriers and other warships.

He said more than a year of uncertainty had taken its toll on many of those suppliers, where some parts are already only built by one company. Negotiations about the next aircraft carrier, due to be completed this year, would reveal whether other suppliers had already exited the business, he said.

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article