After years of predictions of a downturn that never materialized, US defense companies are now bracing in earnest for leaner times, lower profit margins and tougher negotiations about government contracts. Defense Secretary Robert Gates has launched a major efficiency drive to trim $100 billion out of the Pentagon’s bloated overhead accounts from 2012 to 2016. The Pentagon expects growth of 1% after inflation in its 2012 budget, but much of that will be eaten up by rising personnel and health costs, leaving far less money for weapons programs than during years of double digit growth after the September 11, 2001 attacks. That has left industry executives with a growing sense of apprehension about the future, especially given the end of combat operations in Iraq and yawning deficits that have even some normally hawkish Republican lawmakers calling for cuts.
Recent news of delays in the U.S. Army’s multibillion-dollar ground combat vehicle program and an even bigger US Navy warship program deeply unsettled industry executives.

December 8th, 2011
Paul Smith
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