Budget cuts could hurt defense contractors

Christopher Werth Jan 27, 2012

Jeremy Hobson: The Defense Department has outlined a plan to cut $500 billion from its budget over the next decade. For some context, that’s about the same amount the Pentagon spends every year. The cuts would come from slashing the size of the military and reducing war spending. And they’d have a big impact on companies that make equipment for the military.

As Christopher Werth reports from London, those companies are already looking overseas for new customers.

Christopher Werth: Take Lockheed Martin: yesterday, the defense contractor announced it’s making less money. That’s a concern because the company is currently in charge of what could turn be the most expensive military program in U.S. history.

The F-35 stealth fighter is the only new, state-of the-art fighter jet under development in the Western world. The Pentagon estimates the overall cost of the program could cost $1 trillion. Critics say it will go down as a boondoggle.

But to share the costs, Gareth Jennings, a defense analyst at IHS Jane’s, says Lockheed’s plan has always been to market more of the plane’s abroad, and the new defense cuts makes that even more important.

Gareth Jennings: The more export customers there are for this aircraft the cheaper the unit price for the U.S.

Last month, Japan said it would buy 42 of the new jets. No surprise, South Korea says it’s considering the F-35.

Jennings: Once one country goes for a fifth generation fighter, it’s almost kind of one-upmanship then, and neighboring countries will want the F-35 also.

As for whether the sales will risk the U.S. military’s technological advantage, Jennings says foreign buyers may not have access to all the new jet’s most sophisticated features.

In London, I’m Christopher Werth for Marketplace.

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