News

As
Defence budgets come under fire, defence companies are deploying new
tactics to protect their profits. Britain is cutting military spending
by 8% over four years and Germany has similar ideas. And after growing
by more than 10% in recent years, America’s annual budget of some $700
billion—nearly half the world’s total—is unlikely to rise after 2011. It
might even fall. Robert Gates, America’s defence secretary, said in May
that “the gusher has been turned off,” and recently announced that $100
billion would be cut over five years from “overheads” at his
department.

Defence companies have to cope not only with reduced
budgets but with a shift in policy and technology, which will also mean
fewer orders for expensive pieces of kit. Last year Mr Gates cut some
badly performing big projects. And America may yet change from “cost
plus” contracts, in which the government shares the risk of financing
big projects, to more fixed-price awards, like the deal for a new
airborne refuelling tanker, shortly to be awarded to either Boeing or
Europe’s EADS.

Some big programmes are still going strong. The
F-35 multi-role fighter jet is worth over $380 billion in America and
should contribute around 15% of the profits of Lockheed Martin, its main
contractor. But such projects are exceptions. So defence companies will
be looking hard... >>>