Strike-one for the defense industry

Posted by John Keller

A week or so I wrote that economic hard times for the defense industry no longer are on the horizon; they're here.

In that blog, entitled "Military business slows to a trickle; now a matter of how hard things will get," I pointed out three things to watch for to get a sense of how hard military business is going to be hit: the presidential election, sequestration, and the 2014 Pentagon budget request.

As for the first item, as you probably know by now, Barack Obama -- bringing his hostility to the military in general and for defense spending in particular -- has been re-elected president.

Strike-one.

Obama is no supporter of military technology development, and his continued presence in the White House bodes ill for the defense industry. We're potentially heading down a slope that perhaps could lead to lows in defense spending that we haven't seen in nearly two decades, perhaps even longer.

Now we wait for sequestration, or across-the-board defense cuts of nearly half a trillion dollars over the next 10 years. The lame-duck Congress might do something th head-off sequestration, but it's not really in anyone's interest to do so -- except for the military and the defense industry.

Letting automatic defense cuts happen absolves anyone of blame for the results. It's a political gift from heaven, if you're in elected office. Sequestration will be the second strike.

Then we have the Pentagon's budget request next February for federal fiscal year 2014. That, perhaps, will be the clearest leading indicator of prospects for the defense industry in the near term. The proposed budget will help sort out winners and losers, and give the industry a hint of the military's long-term technology priorities.

Related stories -- Military business slows to a trickle; now a matter of how hard things will get -- Job losses, reduced government incomes loom as primary threats of defense sequestration -- Rarely before have we seen a bleaker picture for U.S. defense spending.

We're in for a tough slog -- more dire than many have imagined. Over the next couple of years I predict program cancellations, major consolidation in the defense industry, and a noticeable abandonment of the military market by electronic component suppliers.

So what's it mean for us?

First, it means we have to dust off our boots and put our cowboy hats on straight. The defense industry in two or three years is going to look much different from how it is today.

Those who remain in the defense industry must push technological innovation to the limit to provide U.S. military forces with the most capable technology possible at the most affordable prices for the military's most pressing needs, like persistent surveillance and IED detection.

It's possible to do -- I've seen it before -- but it won't be easy, and it won't be painless. The last big defense downturn in the early 1990s during the Clinton Administration saw widespread implementation of commercial off-the-shelf technology or COTS.

No one ever had heard of COTS before then, and what we'll eventually see out of this defense downturn, well, no one's ever heard of what that will be, either. Before we get there, though, there will be casualties and pain.

Still, I'm optimistic that whatever comes out of this defense downturn, we'll be the better for. Remember, out of pressure and heat come things like hard steel and diamonds.