Global tensions may be sky high and foreign countries may be desperate to increase their military might, but local defense contractors continue to face one of the worst markets in years.
A combination of tight government restrictions on the exports of weapons and technology, plus a severe recession in many markets, are providing a one-two punch.
"Nearly everyone who wants to buy from (U.S. defense contractors) doesn't have any money, and those that do have the money we can't sell to," said Cai von Rumohr, an analyst at Cowen & Co. in Boston.
Like other industries, the local defense industry is feeling the ill effects of the economic meltdown in Asia.
The Asian arms market, estimated by the Stockholm International Peace Research Institute in 1995 to be worth $165 billion a year, has nearly vanished.
In recent months, Thailand has indefinitely postponed its announced purchase of 18 F/A-18 fighter jets. That deal, in addition to its short-term benefits to U.S. defense contractors, was expected to lead to orders for dozens of additional planes into the next century.
The delay and possible loss of the Thai deal is hurting Northrop Grumman Corp., which builds many parts for FA-18s accounting for about 40 percent of each plane at its plant in El Segundo. It is also hurting myriad subcontractors in the L.A. area.
Despite the continuing threat from North Korea, the government of South Korea has suspended plans to buy four AWACS surveillance aircraft from Boeing Co.
While Boeing, L.A.'s largest private employer, will suffer most from the loss of the South Korean deal, Northrop is also being hurt because it manufactures much of the electronics for the AWACS aircraft.
U.S. arms sales to Indonesia, Japan and the Philippines also are down, as is business with Middle Eastern nations, whose defense budgets have been squeezed by falling oil prices.
Since the end of the Cold War, the U.S. Defense Department's annual weapons procurement budget has fallen to around $44 billion, down from more that $100 billion in 1987.
To adjust, defense contractors shifted their sales efforts overseas, even supplying arms to the former Soviet bloc. Northrop Grumman, for example, is currently negotiating to sell FA-18s to the Czech Republic.
The end result is that defense contractors are now more dependent on exports than at any time since World War II. In 1997, U.S. defense firms' export sales exceeded their sales to the U.S military for the first time.
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