Defense electronics content to continue growing, but GEIA warns of wild cards

TYSONS CORNER, Va. — Pentagon spending for military electronics will continue to edge up at a compound annual growth rate of 0.2 percent over the next 10 fiscal years, predicts the Government Electronics & Information Technology Association (GEIA) of Arlington, Va. Group experts, however, caution that "wild card" factors could disrupt this optimistic scenario.

Nov 1st, 1999

Defense electronics content to continue growing, but GEIA warns of `wild cards`

By John Rhea

TYSONS CORNER, Va. — Pentagon spending for military electronics will continue to edge up at a compound annual growth rate of 0.2 percent over the next 10 fiscal years, predicts the Government Electronics & Information Technology Association (GEIA) of Arlington, Va. Group experts, however, caution that "wild card" factors could disrupt this optimistic scenario.

Electronics spending in the three major Defense Department accounts of procurement; operations and maintenance (O&M); and research, development, test, and evaluation (RDT&E) should rise from $47.7 billion to $48.7 billion by 2009, GEIA experts predict.

The GEIA — part of the Electronic Industries Alliance — uses the current fiscal year, FY-2000, which began Oct. 1, as its baseline.

Over the same period, for the first time in nearly a decade, total defense spending would rise at a rate of 0.3 percent from $280.2 billion to $286.7 billion. These figures are all expressed in constant FY-2000 dollars

Assuming the continuation of current modest inflation rates, the top line number would grow to $362.8 billion in FY-2009 current dollars, according to GEIA predictions.

The findings were presented Sept. 22 at the organization`s annual forecast conference in Tysons Corner, Va. Richard Wieland, a project manager and business analyst in the Arlington, Va., office of Raytheon Systems Co., who headed the study team, spelled out some of the assumptions behind the projections.

The principal assumptions center on continued health for the U.S. economy and continued U.S. military commitments in support of multinational peacekeeping operations. Any reduction in those commitments — or domestic actions such as a sweeping cut in income taxes — would amount to what he calls a down side potential.

Within the three major DOD electronics accounts, procurement shows the largest growth: from $22.6 billion to $24.9 billion, again as measured in constant FY-2000 dollars. The driving factors here are the "big ticket" weapons platforms, such as the Navy`s new nuclear aircraft carriers and Virginia-class attack submarines, the Joint Strike Fighter, the Army`s Crusader artillery system, various missile defense programs, and space-based surveillance systems, Wieland explains.

For example, the GEIA forecast assumes the Air Force will buy all 339 planned F-22 fighters, Wieland says. The Air Force has invested $20 billion to develop the aircraft, and officials that the F-22 fighter will cost about $200 million apiece in production.

Congress has been less that decisive about what to do about the program, whether to proceed to procurement or kill it, and last month again deferred the issue.

The F-22 is particularly crucial for the electronics industry since, by GEIA`s estimates, electronics accounts for about 40 percent of the cost of advanced fighter aircraft. This represents business worth $80 million per aircraft or more than $20 billion over the life of the program.

A positive factor for the electronics industry is the continuing quest among all the military services for what has become known as information superiority, the use of electronics communications and information processing techniques to optimize the lethality of weapons. This requires advanced hardware and creates markets for services and other supporting activities, Wieland says. The GEIA forecast envisions modest growth in the electronics content of the operations and maintenance budget, from $6.5 billion to $7.1 billion, over the 10-year period.

The electronics content of research and development continues the decline identified last year — from $18.5 billion to $16.7 billion over the period. Wieland says he regards that as normal. The military services have become increasingly reluctant to make major front-end commitments for technology development and have come to rely instead on commercial off-the-shelf technology and partnerships with industry, he says.

Another factor identified in the GEIA study is the international climate, particularly the dominance of U.S. military forces in the post-Cold War era, which eats away at the leverage the Defense Department has had in the past with Congress and the voting public. Using 1998 figures from the Washington-based Center for Defense Information, the group notes that the United States now accounts for more than a third of the entire world`s military spending.

At a reported $281 billion for that year, U.S. military spending was more than four times that of runner-up Russia with $64 billion. Further back in the pack are France with $44 billion, Japan with $41 billion and China and the United Kingdom with $37 billion each. The total for the top 40 countries is just slightly more than $700 billion.

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