Military Contractors Optimistic Despite Spending Slump

2/26/2012
By Dan Parsons

A consensus is emerging among military leaders and Pentagon suppliers: If the Defense Department’s financial outlook doesn’t worsen, the budget reductions that the Obama administration proposed for 2013-2017 will be manageable.
Industry concern about a budget collapse has been greater for suppliers of the U.S. Army, which is scheduled to downsize considerably over the next five years as thousands of troops withdraw from combat zones. But contractors still can expect a healthy market for ground-war equipment.
“The Army has been through all of this before after major wars,” said retired Army Gen. Gordon R. Sullivan, president of the Association of the U.S. Army.
“Army leadership knows what they want to do with the dollars they see. You heard the chief [of staff] say that and acquisition folks. I don’t think the mood has been dampened at all by the budget news,” he said last week at AUSA’s winter symposium.
Gen. Ray Odierno, Army chief of staff, echoed that message in a keynote address that capped off the four-day event.
“For 236 years, the Army has continued to overcome challenges,” Odierno said. “Today, we face another challenge.”
The themes heard in every speech, PowerPoint presentation and panel discussion at the AUSA symposium: Army programs must be “cost-effective,” “cost conscious” “emphasize commonality and efficiency,” and forces will “smaller and leaner.” 
Officials assured contractors that the Army is serious about adopting an “agile” procurement process to replace buying practices that add unnecessary time and cost of weapon systems. 
On the exhibit hall floor, even small manufacturers with niche products, though often referred to as the most vulnerable category of the industrial base, seemed unfazed. “Everyone has a realistic view of what’s going to happen,” Sullivan said. “I haven’t seen much if any hand wringing.”
Cacy Bouck, a service technician for Blue Ox, a commercial supplier of tow bars for heavy vehicles based in Pender, Neb., said the company was attending the AUSA show to establish contacts with both the Army and other, larger contractors. The company is looking for opportunities to sell its 40,000-pound tow bar for use on military vehicles. “Right now, we’re trying to get our foot in the door to some larger contracts,” he said. ”
He said he is cautiously optimistic about the market. “It seems a little slow to me and some of the guys I’ve talked to,” he said. “Not many people are spending a lot of money these days. The people I’ve talked to are not horribly worried, but there is a concern.”
Commercial firms such as Blue Ox illustrated another major theme of the conference: A desire by the military to use of commercial technology, modified for the battlefield, in order to reduce the overhead costs associated with technological development. The Army is eyeing off-the-shelf surveillance systems that use $25 cell-phone cameras to protect military bases and monitor whole cities for hours at a time. Many of the technologies that are being evaluated at the network integration evaluations (NIE) events at White Sands Missile Range, N.M., are commercial, off-the shelf systems. 
In the coming months the Army plans to evaluate commercial helicopters as potential replacements for its armed aerial scout aircraft, the Kiowa Warrior. Acquisition officials said at the conference that existing vehicles might be considered as possible alternatives to building a new infantry fighting vehicle to replace aging Bradley systems.
“The only thing that could potentially ruin everything is sequestration, it’s the big problem looming over everyone’s head,” Sullivan said, referring to automatic Pentagon budget cuts of about $500 billion over 10 years that Congress would have to enforce in January unless a deal is reached to avert them.

Topics: Business Trends, Doing Business with the Government, Defense Department, DOD Budget

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