GUY NORRIS / LOS ANGELES
Fresh upheavals in the US defence industry are being forecast as a result of lessons that have been learned from the Iraq conflict, a surging defence budget, the change to transformational and network-centric operations and a shift to a capabilities-based acquisition policy.
The result is expected to be more consolidation in the supplier chain, the emergence of "unexpected" companies in the top echelons and even the start of a mini-wave of fragmentation.
Defence spending growth began in fiscal year 1998 after six years of decline, and is expected to continue growing throughout the rest of the decade from the current $360 billion to more than $460 billion by FY09, said analysts speaking at the first Speednews aerospace and defence aviation industry suppliers conference in Los Angeles last week.
A prime area for US defence consolidation is the military helicopter business, with Bell, Boeing and Sikorsky competing for a tighter market.
Credit Suisse First Boston aerospace/defence equity research senior adviser Pierre Chao says: "Everybody has just enough business to keep them alive, and the prospect of a lot more business coming up in the future."
The latter prospects, says Chao, have artificially sustained share prices, making reasonable mergers and acquisitions impossible. The "log jam" will only be broken, he adds, by the intervention of a transatlantic tie-up or a major "programmatic decision" against one of the companies.
Boeing Apache programmes vice-president Al Winn says: "I think it will happen. There's just not enough business out there to sustain [Bell and Sikorsky], so we'll just have to see how the V-22 and Comanche settle out. It is kind of amazing that they haven't consolidated," he adds.
The wave of consolidation over the past decade has, meanwhile, created what Chao describes as a three-tiered US defence industry with Boeing, Lockheed Martin and Northrop Grumman in the first tier, Raytheon and General Dynamics in the middle tier, and companies such as ATK, General Electric Aircraft Engines, ITT Defense, L-3 Communications, Textron and United Technologies occupying the third level.
"We've gone from the military-industrial complex to a military-industrial ghetto as civil and military companies have become concentrated on defence. The question is not 'is there going to be more consolidation?', but more like 'is there going to be fragmentation?'," says Chao.
The effect of transformation and system integration is now being felt "deep in the supplier chain" according to Alderman & Company president William Alderman.
Source: Flight International
