Nervous defense contractors watching elections

Posted on Wed, Nov. 01, 2006
Nervous defense contractors watching elections
By Dave Montgomery
McClatchy Newspapers

After years of surging military spending by the Bush administration and a Republican-led Congress, the nation's defense industry is trying to gauge what life would be like if power on Capitol Hill shifts to the Democrats.

Wall Street analysts have been churning out reports, advising defense contractors about what to expect if Republicans lose control of one or both houses of Congress.

One consensus seems to be that, regardless of who winds up in control after next Tuesday's election, there'll be no draconian shifts that would roll back military budgets significantly.

At the same time, however, newly empowered Democrats could be inclined to take a harder look at defense contractors and major procurement projects while intensifying their opposition to administration policies in Iraq.

Rep. Neil Abercrombie, D-Hawaii, who's in line to take over the chairmanship of a key House Armed Services subcommittee, signaled a tough line during a telephone interview on Wednesday, denouncing the Iraq war as "Rumsfeld's folly."

"I'm not going to let the American military be used for a failed political policy," said Abercrombie, who's pressing for a withdrawal of U.S. troops. Asked when the pullout should begin, he responded: "How about this afternoon."

Political forecasters are widely predicting that Republicans could lose control of the House of Representatives, and possibly the Senate, because of voters' disappointment with President Bush and the war in Iraq.

But Republicans contend that those predictions are premature and believe that a home-stretch campaign blitz led by Bush, first lady Laura Bush and other party leaders could help rescue at least some imperiled incumbents.

Republicans have been in control of the House since 1995 and have held the Senate throughout most of Bush's presidency.

Consequently, Congress largely has embraced Bush's defense policies, steadily increased military spending to well over $400 billion and sustained most major procurement programs, including the Lockheed Martin/Boeing F-22 fighter, Lockheed Martin's joint strike fighter, a new Navy destroyer and the Bell-Boeing V-22 Osprey.

Democrats already have unveiled plans for increased military spending, but they want to shift priorities in a move that could favor some segments of the defense industry at the expense of others.

In what could become a signature issue if they gain power, Democrats hope to boost the Army's budget substantially to better equip soldiers in the field, repair and replace equipment used up or destroyed in Iraq and Afghanistan, and shore up military installations that have lapsed into disrepair because of the cost of the war.

"We believe that a Democratic House would be a strong backer of Army programs - armored vehicles in particular - in order to be seen as doing everything possible to support troops in Iraq," said an analysis by J. P. Morgan Securities Inc., describing Army contractors as "well-positioned" in the event of a power shift.

The report said that large Air Force programs, including satellites and tactical fighters, "could be more vulnerable."

That could constitute ominous news for the Lockheed Martin plant in Fort Worth, Texas, which assembles the F-35 joint strike fighter, and the Boeing plant in St. Louis, which makes the Navy's F/A-18 and the Air Force's F-15.

"These programs are not as directly related to the war in Iraq and are subject to criticism regarding their relative importance," the analysis said.

In another report, analysts for the Prudential Equity Group predicted a "louder debate on U.S. strategy regarding Iraq" if Democrats claim one or both chambers.

"This strategy has been a major driver of defense spending since 2003, so changes in current spending patterns could be effected if the broader strategy changes," the report said.

Rep. Solomon Ortiz, D-Texas, who's expected to become chairman of the armed services subcommittee on military readiness should the Democrats take over, said Wednesday that he advocates possible field hearings to make sure that soldiers are properly equipped and trained.

"Some of the equipment has been completely destroyed to the point that the active Army is using a lot of equipment that belongs to the National Guard," Ortiz said.

Defense contractors are being warned to expect greater scrutiny in the next session of Congress regardless of which party prevails.

Prudential Equity Group analysts did say there might be a "minor positive" for the defense sector if Democrats win the Senate: Arizona Sen. John McCain, a Republican maverick who's clamoring for greater scrutiny of defense contractors, would lose his opportunity to become the chairman of the Senate Armed Services Committee.

Phil Coyle of Sacramento, Calif., a former assistant defense secretary under President Clinton, predicted "a lot more oversight" and less "rubber-stamping" of the president's defense proposals.

"We'll hear all these stories about soldiers who have to use their own cell phones to communicate, buying their own body armor," said Coyle, who was once the Pentagon's chief weapons buyer and is now a senior adviser for the Center for Defense Information, a research center. "I would see more emphasis on making sure the soldiers get what they need, number one, and number two, where is the money going if it's not helping the soldier."

Loren Thompson, a defense analyst at the Lexington Institute, a research center in Arlington, Va., offers a similar assessment.

"In general, the Democrats have adopted the ground forces, and they will be looking in particular at the needs of the Army," he said.

Thompson also thinks that a "traditional aversion" among liberal Democrats to defense spending has begun to dissipate.

"Vietnam is now a fading memory, and, secondly, defense plants are one of the few places in the country where you can find thousands of members of organized labor," he said. "Those are natural Democratic voters, and the party doesn't really have any incentive for attacking the products made at those locations."

Moreover, he said, Democrats don't want to go into the 2008 presidential race sounding weak on defense. "They know if they stick to the old approach they can kiss the White House goodbye," he said.