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Local defense contractors score billions
Military industry in Arizona supplies key equipment for war
Publication: The Arizona Republic; Date: April 7, 2008
by Max Jarman
President Bush's $515.4 billion 2009 defense budget, now before Congress, bodes well for Arizona's more than 6,000 military contractors and subcontractors.
The spending package, the largest since World War II, funds most major programs and does not include any significant cuts.
The 2009 budget is a boon to scores of small businesses that do subcontract work.
It's also generous to the state's major defense contractors.
There is $2.3 billion for missiles made by Raytheon Corp. in Tucson, $800 million for the Boeing Co. to remanufacture Apache Helicopters in Mesa and $728 million to upgrade Abrams tanks with new engines built by Honeywell International Inc. in Phoenix.
"There is plenty of work for everyone," said Brad Curran, an aerospace and defense-industry analyst in the San Antonio office of military-research firm Frost & Sullivan.
The 2009 budget takes effect Oct. 1 and represents a $35 billion, or 7.5 percent, increase over 2008's $479.5 billion plan.
Curran believes the high level of military spending will continue for the next few years.
"We're fighting two wars, honoring all of our existing commitments and trying to equip our forces for the future," he said.
As the Department of Defense works to modernize the U.S. military, Curran believes the Arizona operations of companies such as Boeing, Honeywell, General Dynamics, Raytheon and rocket-builder Orbital Sciences Corp. are in a particularly good position to benefit.
"The government is going to be paying for a lot of engineering, and those are the companies that do that type of work," he said.
Ed Wheeler, president of Honeywell's Phoenix-based defense and space business, agrees.
"We expect the money spent on engineering will be particularly heavy," said Wheeler, whose unit is part of Honeywell Aerospace in Phoenix, which generated about $5 billion in sales last year.
Military expansion
Some analysts predicted sharp military-spending cuts after the Democrats took over Congress last year. But Curran notes that in some cases the Democrats have been more willing to fund critical defense programs than the Republicans.
Plans to expand the U.S. Army by 65,000 people and the Marine Corps by 27,000 by 2011 also will help the defense budget.
Curran predicts no major cutbacks this year and believes Congress' commitment to a strong military will continue no matter who occupies the White House next January.
Besides the $515.4 billion 2009 budget, the U.S. Department of Defense is requesting another $70 billion to finance the wars in Afghanistan and Iraq. That number could swell to $170 billion and include billions to repair and replace equipment. The $480 billion basic 2008 budget had $190 billion in war costs added on.
The so-called equipment resets benefit many Arizona companies that make components for repaired or replaced equipment.
Mesa's ATK Medium Caliber Gun Systems makes cannons for the Apache helicopter and Bradley fighting vehicle and is busy repairing and replacing equipment damaged in Iraq.
Chandler high-tech armor maker ArmorWorks is churning out body armor and making replacement armor for ground vehicles.
ArmorWorks is now doing about $150 million a year in business with the military.
New supply lines
As the military looks to become more efficient, it is looking for commercial products that can be adapted for military use.
Honeywell, for example, modified a ground-awareness system developed for commercial aircraft that allows helicopters to maneuver in Iraqi sandstorms.
The government also has opened the bidding on some projects to foreign companies.
European defense contractor BAE Systems, which last year acquired another Valley armor maker, Armor Holdings, has been the successful bidder on a number of U.S. military contracts.
Earlier this year, the U.S. Air Force awarded an up to $40 billion contact for a fleet of new air-refueling tankers to French aerospace giant EADS N.V.
The Airbus parent beat out the Boeing Co. of Chicago, which has protested the award.
The 2009 defense budget provides $900 million in funding for the new tanker, but some members of Congress are calling for an investigation into why the contract went to an overseas group.
Arizona companies such as Honeywell and Hamilton Sundstrand are major contractors under both EADS and Boeing proposals and gain no matter which plane is selected.
"The big damage to us is a delay," Honeywell's Wheeler said.
Honeywell is involved in dozens of defense programs that include making cockpit systems for most new military aircraft. Honeywell also makes the engines for the Predator unmanned aerial vehicle, which gets $750 million.
While Scottsdale's General Dynamics C4 Systems lost out last year with the scuttling of a $2 billion project it oversaw, it makes out well in 2009. The budget provides $853 million in funding for the Joint Tactical Radio System, a next-generation reprogrammable voice and data radio, for which General Dynamics C4 Systems is a major contractor.
General Dynamics, Raytheon, Honeywell and other large Arizona defense contractors are keenly aware of the cyclical nature of the defense business. Defense spending decreased under the Clinton administration, which scrapped funds for a number of big Reagan-era defense programs.
"There could be some hard decisions to make," Wheeler said, noting that for now they have been left for the next administration to make.
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