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Election holds little prospect of staving-off declines in U.S. defense spending

Think the upcoming U.S. presidential election could reverse downward trends in military spending? Well, guess again; it won't, says Clay Jones, chairman and CEO of avionics at defense electronics designer Rockwell Collins in Cedar Rapids, Iowa.

Jones was somewhat vocal last month at the Farnborough International Airshow in Farnborough, England, and was quoted as saying he expects the U.S. defense budget to shrink in 2013 and 2014 no matter who wins the election-incumbent President Barack Obama or Republican challenger Mitt Romney.

Jones made his defense budget predictions in an interview at Farnborough published in the Aviation Week Show News daily edition.

Obama has shown clearly that compared to previous U.S. presidents, he's no major supporter of the U.S. military, defense technology development, or continuing military operations in the field. Granted, his administration can claim credit for eliminating terrorist mastermind and al-Qaida leader Osama Bin Laden, but its aftermath made the operation to kill Bin Laden look almost like a political stunt, with widespread accusations made later that the Obama Administration leaked sensitive U.S. military secrets for political gain.

Since Obama and those in his administration appear to be lukewarm to military issues, there's a feeling in the defense industry that an Obama loss come November has potential to turn future defense budgets around. We're not talking about a return to George W. Bush-era spending levels, but many hope a Romney victory at least could halt expected downward trends in military spending.

That hope is somewhat elusive, says Jones, who is in a particularly good position to predict not only future defense budgets, but also future spending for commercial aviation. Rockwell Collins specializes in military and commercial avionics, communications equipment, and many other kids of electronic equipment, and earns more than half its revenue from selling military equipment.

"As important as the election is, I'm not sure it's going to make a world of difference in defense spending," Jones told reporters covering Farnborough. That's a sobering prediction for those anticipating a Romney victory might return near-term defense spending to recent levels.

"I think there could be more sympathy to retaining a higher level of defense should Romney be elected," Jones told reporters at Farnborough. "But the situation with the [budget] deficit is unchanged."

Jones predicts, moreover, that the U.S. defense budget will decline in federal fiscal years 2013 and 2014, and level off in 2015. Federal fiscal year 2015 begins on 1 Oct. 2014.

U.S. defense contractors are likely to continue making profits from sales to the Pentagon over the next several years, but also are expected to push for growth in spending for military hardware and software outside the U.S. in an effort to maintain revenue levels. We can already see that happening in programs like the one announced last month where Lockheed Martin will earn billions of dollars upgrading early model F-16 jet fighters operated by the Royal Thai Air Force.

If Jones is right, the U.S. defense industry is looking at about two and a half more lean years for domestic military spending. That could mean 27-plus months before defense contractors will be clear about their directions for the future, that long before any major new defense programs have a chance at getting started, and that much longer for the American defense industry to hedge its bets and keep its powder dry.

As so many are fond of saying, it's time to strap in tight, because the next two or so years will be a long and bumpy ride for the defense industry.


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