Region could feel defense cuts

By NEMS Daily Journal/AP

In 2003, Navistar Inc. started Navistar Defense, a spinoff company meant to take advantage of the U.S. buildup of its military.
With wars in Afghanistan and Iraq following the Sept. 11 attacks, the defense industry benefited from a defense budget more than doubled to $700 billion and profits nearly quadruple to about $25 billion last year.
But those halcyon days may be over, as Washington looks to drastically cut spending in the wake of the heated debate over the country’s deep debt. And Northeast Mississippi, which has seen a growing share of defense contracts in recent years, could feel the effects.
Congress last month agreed to cut military spending by $350 billion over the next 10 years. If lawmakers aren’t able to forge a new deficit-cutting deal by November, the defense budget automatically will get axed another $500 billion.
For Navistar Defense, which has a plant in West Point that assembles its MaxxPro mine resistant, ambush-protected, or MRAP, armored vehicles, a $2 billion business could be on the line.
The company has provided more than 30,000 military vehicles to the U.S. and its allies over the years, including some 8,800 MRAPs valued at more than $2 billion.
But cuts in the defense budgets could pare future contracts considerably, 10 years after the Sept. 11 attack.
Those attacks forced the world’s biggest and best-funded military to quickly retool itself. It needed to develop technologies, weapons and strategies to find and fight an elusive network of terrorists that seemed more sophisticated and dangerous than ever imagined.
The U.S. spent $1.3 trillion in the 10 years following the attacks chasing al-Qaida and fighting two wars. That was on top of baseline military spending in excess of $4 trillion.
“After 9/11 the floodgates opened,” says Eric Hugel, a defense industry analyst at Stephens Inc.
The defense budget grew from $316 billion in 2001 to $708 billion in 2011. Federal spending on homeland security, which includes everything from airport security to border control, also rose dramatically. Last year dozens of federal agencies, including the Department of Homeland Security, spent $70 billion on such programs, according to the Office of Management and Budget. That’s up from $37 billion in 2003, the first year after DHS was formed.
All that spending was reflected in the soaring performance of the defense industry, led by the top five defense contractors: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon.
In 2001, revenues for U.S.-based defense contractors totaled $217 billion, according to data compiled by the analytics firm Capital IQ. By 2010 revenues had grown to $386 billion. Profits grew more than twice as fast over the same time period, from $6.7 billion to $24.8 billion.
Military spending typically rises during wartime and falls during peacetime. But after Sept. 11, and as the wars in Iraq and Afghanistan evolved, it became clear the country needed to spend money on very different military technologies and strategies.
Fighter jets, missile defenses and other Cold War-era systems designed to deal with the perceived threats of nation-states were less useful. The U.S. military had to increase its ability to find, recognize and track enemies that were scattered in many countries and dispersed among the civilian population.
The U.S. military has turned toward new hardware to protects its troops, including extensive use of MRAPs. While other companies build variations of the vehicles, Navistar has led the way in the number of contracts since 2007.
Unmanned aircraft have been put to use extensively as well. General Atomics’ Predator drones can fire missiles, and they have killed several al-Qaida commanders. Lockheed Martin’s RQ-170 Sentinel reportedly kept watch on Osama bin Laden’s compound as the raid that killed him was taking place.
General Atomics also is providing the Electromagnetic Aircraft Launch System, or EMALS, which will be installed in the newest aircraft carrier. GA received a $675 million contract, and work on the system is being done in its Tupelo facility.
In Columbus, American Eurocopter is boosting employment to some 300 workers to accommodate a $3 billion, 345-helicopter deal for both military and civilian use.
But if the defense cuts are too wide and too deep, defense companies may be left scrambling.
“We’re about to go into the downhill side of the roller coaster here,” said David Berteau, a defense industry analyst at the Center for Strategic and International Studies.