Team Infidel
Forum Spin Doctor
New York Times
December 26, 2006
By Leslie Wayne
These are very good times for military contractors. Profits are up, their stocks are rising and Pentagon spending is reaching record levels.
The only cloud might seem to be what the Democratic takeover of Congress could mean for their business. After all, this is an industry that has generally supported the Republican Party by sending about 60 percent of its political contributions to Republican candidates.
But, even so, few in the military industry are worried. Next year’s Pentagon budget is expected to exceed $560 billion, including spending for Iraq. And, sometime this spring, President Bush has indicated he will seek an additional $100 billion in supplemental spending in 2007 for Iraq and Afghanistan.
And no one expects Democrats, in the last two years of the Bush administration, to make major changes, especially with the war continuing. Democrats are sensitive to the charge of being “soft” on defense, and are expected to use their control of the Senate and House Armed Services Committees to establish their military bona fides for the 2008 presidential election. This would include Senator Hillary Rodham Clinton of New York, who is an increasingly vocal member of the committee.
“I wouldn’t look for Democrats to make cuts in the defense budget,” said Michael O’Hanlan, a military expert at the Brookings Institution. “You didn’t hear a lot about the defense budget in the last campaign and the Democrats know that you don’t mess with the top line.”
Still, the industry can expect some harsh scrutiny. Senator John McCain, the Arizona Republican who has lead the efforts to tighten oversight of military contractors and programs, moves up to become the ranking Republican on the Senate Armed Services Committee.
He promises to keep up his relentless criticism of how the Pentagon spends its billions — he has already written the incoming secretary of defense, Robert M. Gates, to lay out some of his complaints.
On the House side, the incoming Democratic chairman, Ike Skelton of Missouri, has said he wants to resurrect the committee’s investigations and oversight subcommittee, which the Republicans disbanded in 1995. And he wants to hold hearings on missile defense and other space-based weapons systems that many Democrats have questioned.
While Democrats and Senator McCain may cause individual companies some pain through attacks on specific programs and weapons systems, the billions that have been supporting the industry are expected to continue unabated, and perhaps even increase.
“I think the Democrats will be on good behavior as long as the war continues and we have 150,000 troops in Iraq,” said Paul Nisbet, an analyst with JSA Securities in Newport, R.I.
Evidence of the industry’s good fortune is reflected in the stocks of major contractors over the last year. At the end of 2005, the Lockheed Martin Corporation, the largest contractor, was trading around $62 a share. Now Lockheed is around $92 a share. Over the last year, Boeing, which holds the No. 2 position, saw its shares rise from about $66 a share to around almost $89 a share. Meanwhile, Raytheon stock has risen from around $39 a share to more than $53 a share in the last year and General Dynamics has gone from the high $50s a share to almost $74 a share over the same period.
“We certainly don’t foresee any change,” said Thomas Jurkowsky, a spokesman for Lockheed Martin. “You certainly cannot deny that there is a lot of uncertainty in the world — North Korea, Iran, Iraq. The Democratic Congress will see the reality of the dangerous world we live in, and will make decisions accordingly.”
Democrats are typically loath to cut programs that could affect unionized workers. The fact that so many of the Pentagon’s weapons are build by unionized work forces — the backbone of the Democratic Party — is another reason why Democrats are expected to keep the money flowing.
“The unionized workers in defense plants are a natural constituency of the Democrats,” said Loren Thompson, a military analyst at the Lexington Institute in Arlington, Va. “There is not too much advantage for Democrats to attack weapons programs.”
Still, some programs are not expected to fare well. Among those considered vulnerable are large Air Force programs that are not directly related to the war in Iraq — satellites, missile defense and tactical fighters, for example.
Already, the incoming Senate Armed Services Committee chairman, Carl Levin, has said it is a mistake to purchase more missiles until tests can determine whether the missile defense program works.
Also worrisome to the industry is that the incoming Democrats — specifically, Mr. Levin — have indicated that they are supportive of efforts to more closely scrutinize contractors on the issues of mismanagement and cost overruns. In a postelection news conference, Mr. Levin expressed support for Mr. McCain’s efforts and even listed industry oversight as one of his top priorities.
“We need to put much more emphasis on the oversight process, to make sure that the American people are getting a proper return on their tax dollars and that Pentagon activities are lawful and transparent,” Mr. Levin said.
This comes as some of the most important and costly weapon systems the Pentagon is acquiring have fallen years behind in development and billions over budget — grist for Congressional scrutiny, especially from Mr. McCain.
In fact, Mr. McCain, even before stepping up to the No. 2 position on the committee, began to make his presence felt. Just this month, the Air Force, under pressure from Mr. McCain, announced it was rewriting some of the rules for a contest between Airbus and Boeing for a contract potentially valued at $200 billion to build a new fleet of aerial tankers, which allow military planes to be refueled in midair.
Mr. McCain’s past scrutiny of this contract led to the jailing of two top Boeing executives and the early retirement of an Air Force secretary.
Mr. McCain wrote Mr. Gates, the incoming defense secretary, to complain about a lack of open competition in the tanker bidding process, which led to rewriting of the bidding rules. The tanker program would be a record order of commercial jets — the Air Force plans to buy some 530 commercial jets over the next three decades and adapt them for use as flying gas stations.
Mr. McCain would have wielded even greater influence had he become chairman of the full Senate Armed Services Committee.
“These contractors clearly are relieved,” said Danielle Brian, executive director of the Project on Government Oversight, a nonprofit that has been critical of Pentagon practices. “These reforms won’t be the No. 1 priority for the committee, but it will be an important priority.”
December 26, 2006
By Leslie Wayne
These are very good times for military contractors. Profits are up, their stocks are rising and Pentagon spending is reaching record levels.
The only cloud might seem to be what the Democratic takeover of Congress could mean for their business. After all, this is an industry that has generally supported the Republican Party by sending about 60 percent of its political contributions to Republican candidates.
But, even so, few in the military industry are worried. Next year’s Pentagon budget is expected to exceed $560 billion, including spending for Iraq. And, sometime this spring, President Bush has indicated he will seek an additional $100 billion in supplemental spending in 2007 for Iraq and Afghanistan.
And no one expects Democrats, in the last two years of the Bush administration, to make major changes, especially with the war continuing. Democrats are sensitive to the charge of being “soft” on defense, and are expected to use their control of the Senate and House Armed Services Committees to establish their military bona fides for the 2008 presidential election. This would include Senator Hillary Rodham Clinton of New York, who is an increasingly vocal member of the committee.
“I wouldn’t look for Democrats to make cuts in the defense budget,” said Michael O’Hanlan, a military expert at the Brookings Institution. “You didn’t hear a lot about the defense budget in the last campaign and the Democrats know that you don’t mess with the top line.”
Still, the industry can expect some harsh scrutiny. Senator John McCain, the Arizona Republican who has lead the efforts to tighten oversight of military contractors and programs, moves up to become the ranking Republican on the Senate Armed Services Committee.
He promises to keep up his relentless criticism of how the Pentagon spends its billions — he has already written the incoming secretary of defense, Robert M. Gates, to lay out some of his complaints.
On the House side, the incoming Democratic chairman, Ike Skelton of Missouri, has said he wants to resurrect the committee’s investigations and oversight subcommittee, which the Republicans disbanded in 1995. And he wants to hold hearings on missile defense and other space-based weapons systems that many Democrats have questioned.
While Democrats and Senator McCain may cause individual companies some pain through attacks on specific programs and weapons systems, the billions that have been supporting the industry are expected to continue unabated, and perhaps even increase.
“I think the Democrats will be on good behavior as long as the war continues and we have 150,000 troops in Iraq,” said Paul Nisbet, an analyst with JSA Securities in Newport, R.I.
Evidence of the industry’s good fortune is reflected in the stocks of major contractors over the last year. At the end of 2005, the Lockheed Martin Corporation, the largest contractor, was trading around $62 a share. Now Lockheed is around $92 a share. Over the last year, Boeing, which holds the No. 2 position, saw its shares rise from about $66 a share to around almost $89 a share. Meanwhile, Raytheon stock has risen from around $39 a share to more than $53 a share in the last year and General Dynamics has gone from the high $50s a share to almost $74 a share over the same period.
“We certainly don’t foresee any change,” said Thomas Jurkowsky, a spokesman for Lockheed Martin. “You certainly cannot deny that there is a lot of uncertainty in the world — North Korea, Iran, Iraq. The Democratic Congress will see the reality of the dangerous world we live in, and will make decisions accordingly.”
Democrats are typically loath to cut programs that could affect unionized workers. The fact that so many of the Pentagon’s weapons are build by unionized work forces — the backbone of the Democratic Party — is another reason why Democrats are expected to keep the money flowing.
“The unionized workers in defense plants are a natural constituency of the Democrats,” said Loren Thompson, a military analyst at the Lexington Institute in Arlington, Va. “There is not too much advantage for Democrats to attack weapons programs.”
Still, some programs are not expected to fare well. Among those considered vulnerable are large Air Force programs that are not directly related to the war in Iraq — satellites, missile defense and tactical fighters, for example.
Already, the incoming Senate Armed Services Committee chairman, Carl Levin, has said it is a mistake to purchase more missiles until tests can determine whether the missile defense program works.
Also worrisome to the industry is that the incoming Democrats — specifically, Mr. Levin — have indicated that they are supportive of efforts to more closely scrutinize contractors on the issues of mismanagement and cost overruns. In a postelection news conference, Mr. Levin expressed support for Mr. McCain’s efforts and even listed industry oversight as one of his top priorities.
“We need to put much more emphasis on the oversight process, to make sure that the American people are getting a proper return on their tax dollars and that Pentagon activities are lawful and transparent,” Mr. Levin said.
This comes as some of the most important and costly weapon systems the Pentagon is acquiring have fallen years behind in development and billions over budget — grist for Congressional scrutiny, especially from Mr. McCain.
In fact, Mr. McCain, even before stepping up to the No. 2 position on the committee, began to make his presence felt. Just this month, the Air Force, under pressure from Mr. McCain, announced it was rewriting some of the rules for a contest between Airbus and Boeing for a contract potentially valued at $200 billion to build a new fleet of aerial tankers, which allow military planes to be refueled in midair.
Mr. McCain’s past scrutiny of this contract led to the jailing of two top Boeing executives and the early retirement of an Air Force secretary.
Mr. McCain wrote Mr. Gates, the incoming defense secretary, to complain about a lack of open competition in the tanker bidding process, which led to rewriting of the bidding rules. The tanker program would be a record order of commercial jets — the Air Force plans to buy some 530 commercial jets over the next three decades and adapt them for use as flying gas stations.
Mr. McCain would have wielded even greater influence had he become chairman of the full Senate Armed Services Committee.
“These contractors clearly are relieved,” said Danielle Brian, executive director of the Project on Government Oversight, a nonprofit that has been critical of Pentagon practices. “These reforms won’t be the No. 1 priority for the committee, but it will be an important priority.”