* US contractors hit by huge sequestration budget cuts
* Shift toward overseas expansion to compensate
* Overall revenue fall still limited, some hopes of easier
* Lockheed expecting solid rise in foreign revenues
By Andrea Shalal-Esa
PARIS, June 21 The fallout of U.S. defence
budget cuts was plain to see at this week's Paris Airshow in a
range of scaled back displays that in the past were packed with
a crowd-pleasing array of U.S. military hardware.
Lockheed Martin Corp, whose F-35 radar-evading jet
is the biggest weapons programme ever, conspicuously left the
mockup of the fighter which normally graces Europe's premier
industry meeting at home in favour of a billboard picture.
Yet there was also further evidence of a shift towards
previously neglected markets in Asia and the Middle East, where
economies and defence budgets are still growing strongly, which
the industry says will allow it to weather the downturn.
The talk of the show among its U.S. participants was about
how well they seem to be riding out the biggest defence cuts in
a generation - and how next year's federal budget may prove more
forgiving than had been feared.
"The other shoe hasn't dropped yet," said Tom Captain, head
of aerospace and defense at the Deloitte consulting group, told
Reuters at the air show. "The question is, will it ever?"
U.S. defense budgets are being cut by hundreds of billions
of dollars after more than a decade of strong growth, but the
top 20 global defense companies reported only a 1.3 percent drop
in combined revenues in 2012.
The uncertainty over revenues at home is taking a toll on
investments, but executives also say big backlogs, strong
international demand and commercial orders have alleviated the
worst effects of the sequestration that kicked in in March.
Some companies like Northrop Grumman Corp skipped
the show entirely, a reflection, some argued of the industry's
shift in geographical priorities.
Lockheed Martin Corp, Boeing Co, Raytheon Co
and others are rapidly building up offices in countries
including Saudi Arabia, Brazil and India, where military
spending is increasing.
Lockheed made about 17 percent of its $47 billion of revenue
abroad in 2012, or $8 billion, and the company's senior vice
president for corporate strategy and business development, said
it will "absolutely" exceed this year's goal of 20 percent.
"We're moving much more aggressively in the international
domain," Pat Dewar told Reuters at the airshow. "We're going
global in a much bigger way."
Industry executives are growing impatient about the
inability of U.S. lawmakers and the Obama administration to
resolve their differences over future budget levels but Captain
said lawmakers were proceeding with fiscal 2014 budget plans as
if further cuts would be avoided.
He said companies specialized in next-generation precision
strike and intelligence, surveillance and reconnaissance would
perform better in coming years than those that saw big gains
from ground vehicle demand in the Iraq and Afghanistan wars.
But Marion Blakey, president of the Aerospace Industries
Association, which led an intense, but unsuccessful campaign to
avert the $500 billion in across-the-board budget cuts, said
many companies were scaling back investments because they still
did not know how deep the cuts would finally go.
The first batch of cuts under sequestration took effect on
March 1, but many lawmakers and government officials still hope
to avert or reduce those planned over the next decade.
"Companies continue to hold back on investment. The
uncertainty makes it impossible to move ahead in as aggressive
and robust a way as they normally would," Blakey told Reuters.
Mark DeYoung, chief executive of Alliant Techsystems Inc
, said the sequestration cuts and lack of clarity over
funding made companies more cautious about investing in new
technologies, which could have a rippling effect across the
economy, limiting jobs and growth in coming years.
ATK reduced its investment plans by 10 to 15 percent during
the most recent planning cycle, and further reductions may
follow, depending on what happens this year, DeYoung told
Reuters at the air show.
"There's uncertainty about making investment and having a
return on that investment, so it makes you be more cautious," he
said. "As we get through this year and see how sequestration is
actually going to be implemented, it may help -- or it may make
companies feel the need to pull back even further."
William Swanson, chief executive of Raytheon Co,
said he remains focused on things he can control, including
delivering weapons on time at the promised cost.
But he can't hide his frustration about what he considers an
unprecedented level of uncertainty about U.S. budget levels.
"Every meeting I have, people want to talk about
sequestration. That's what sucks all the oxygen out of the
room," he said.