* Companies urge more dialogue with Pentagon
* Helicopter market said particularly vulnerable
* Companies discouraged by fresh delay in armed helicopter
By Andrea Shalal-Esa
NATIONAL HARBOR, Maryland, Jan 10 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
"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.