Defense contractors may see leaner times

Stephen Manning
L.A. Times
October 16, 2008

WASHINGTON — There are few industries whose fortunes are so closely tied to government as military contractors, companies that provide the Pentagon with everything from fighter jets to janitors. And for the last eight years, business has been very good.

But with that government customer now ailing, the boom times are likely to end.

• A d v e r t i s e m e n t

Long-term problems loom for the industry — rising Pentagon costs for items other than weapons, calls for military contracting reform by both men vying for the White House and uncertainty over how massive government expenditures to prop up the economy will affect military spending, by far the largest discretionary portion of the federal budget. With the Treasury pouring hundreds of billions of dollars into rescue plans, there is suspicion that Washington’s appetite for expensive military programs will diminish.

“No one really yet knows when or to what extent defense spending could be affected, but it’s unrealistic to think there won’t be some measure of impact,” Boeing Co. Chief Executive W. James McNerney wrote in an Oct. 2 e-mail to company employees in which he warned that the plans could “crowd out” defense funding.

Major military contractors are scheduled to report their quarterly earnings next week, and with military spending still robust, there are few forecasts of an immediate downturn for the industry, which has enjoyed record profits in recent years. But analysts say leaner times are ahead.

“They see the writing on the wall that the budgetary environment is going to get tighter,” said Michele Flournoy, president of the Center for a New American Security and a Defense official in the Clinton administration.

FULL ARTICLE

This article was posted: Thursday, October 16, 2008 at 3:07 pm

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