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Posted at 12:00 PM ET, 10/28/2010

Defense contracting clouds on the horizon

By Peter Galuszka

One wouldn't know it from the midterm election campaigns, but dark clouds are forming over Virginia and much of Maryland, too.

One barometer check is in this morning's Wall Street Journal, which rounds up quarterly performance reports from several large defense contractors, including General Dynamics, Northrop Grumman (soon to move its headquarters from Los Angeles to the Old Dominion) and Bethesda's Lockheed Martin.

In a nutshell, the short-term performance of the three was mixed, with General Dynamics's quarterly profits up 14 percent and Northrop Grumman's up 1.4 percent, while Lockheed took a profit hit.

The future farther out is murkier. As the war in Iraq winds down and Afghanistan remains uncertain, Falls Church-based General Dynamics saw a quarterly slide in its combat systems group, its second biggest.

Northrop Grumman has put on the block its Newport News Shipbuilding unit employing 20,000 workers. Key reasons are that the metal-bending shipyard, which NG bought a few years ago, does not fit with the firm's otherwise information-technology-based units.

There's plenty of uncertainty in the Navy's 30-year plan for new ships, and questions remain regarding whether it will continue to need up to six nuclear-powered aircraft carriers and 40 or more attack submarines if threats tend to be from covert terrorists acting in small groups. Plus, there have been questions about quality control at the facility.

One new type of ship is being pushed by competitor Lockheed Martin, the Littoral Combat Ship (one can see lots of ads for the vessel in some Metro subway stops), designed as a late-model amphibious assault vessel. But Lockheed faces competition from Australia's Austral Ltd. for more of them. Funding uncertainties also remain for the new F-35 strike fighter that is supposed to serve the Navy, Marine Corps and Air Force.

The political mood, of course, is cut, cut, cut, and defense offers an inviting place to do so. Oddly, national defense has not been a focal point of midterm election campaigns, which have emphasized the anemic economic recovery, deficit spending and health care.

Democratic Sen. Jim Webb of Virginia, who is a Naval Academy grad and served as Navy secretary, says that defense needs to be an important post-election focus.

It may very well be, but it is likely that the news for many living in Virginia and Greater Washington won't be good.

Peter Galuszka blogs at Bacon's Rebellion . The Local Blog Network is a group of bloggers from around the D.C. region who have agreed to make regular contributions to All Opinions Are Local.

By Peter Galuszka  | October 28, 2010; 12:00 PM ET
Categories:  HotTopic, Local blog network, Maryland, Montgomery County, Va. Politics, Virginia, development, economy, guns, health care, military  
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Northrop Grumman has for several years been pushing to differentiate itself in the C4ISTAR space. Its shipyard acquisition was clearly one of those corporate moves which at the time had a sound and predictable revenue stream plus likely ways to cross-sell C4ISTAR product into the naval space. Recent tensions plus cancellation of the DDG-1000 program suggest the best move is a quick sale to let someone else rationalize the operations and combine it into a bigger, more commercially viable entity.

Defense however always manages to rebound quicker than expected - if indeed proposed reductions in new program spend can be made to stick. The United States defense budget is much higher than many other combined and one of the key benefits for the US military on the ground is access to war-fighting equipment beyond the skill (or finances) of other opponents.

All it will take is someone to raise the spectre of a new international security bogeyman for the funds to flow again.

Posted by: jeffreybradford | October 28, 2010 3:07 PM | Report abuse

Considering Northrup Grumman and Lockheed Martin were the LARGEST contributors to Babs Mikulski's elections campaigns (not only THIS year, but mostly all of her last 34 past years!) you'd think she would have SOME influence in establishing good will in having THEIR business in our STATE, wouldn't you? She sure took their money fast enough!

It's time to retire Babs. She does NOTHING for our Business community. Especially for Defense contracting!

My dad worked for DOD, in 1969, was an engineer for development of ARPANET, Defense Communications Agency, and in his very early years in Baltimore, worked for Martin Marietta, before is was Lockheed Martin!hahaha! (I'm a baby boomer)

Posted by: CountytaxpayingCHNII | November 2, 2010 12:39 PM | Report abuse

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