San Diego Trade Show Shines Light On Shrinking Defense Budgets
Monday, February 4, 2013
SAN DIEGO Getting a customer's attention at the West Coast's largest military technology trade show, crowded with competitors, means standing out. That's what the military camouflaged tent display does for Haskell-Denke Labs. The Florida-based company sells military antennas. Some are portable. Some are not.
The ongoing dance over deep federal spending cuts is more than just a Washington DC curiosity for the nation's defense industry. Cutbacks dominated discussions at the West Coast's largest military trade show in San Diego last week.
"Some look like cones and Christmas Trees, some look like the old TV antennas that everyone is familiar with," said co-founder Mike Haskell.
The company has made military antennas for 26 years.
"We sell to General Dynamics, Raytheon, L-3, Lockheed Martin, Northrop Grumman, and quite a few others," said Haskell.
Those are the big boys in the defense industry, but there are many other companies as well.
Just a short distance across the hall, Jon Erwin showed off his company's star product. He works for Worldwide Technology Incorporated, A St Louis company with a $5 billion sales sheet last year. The firm turns tractor trailer shipping containers into portable and durable computer farms.
"As we walk into the mobile data center, you notice we have a slightly raised floor. That's because we have a vibration isolation system," said Erwin.
Servers are solidly bolted in, but the inside shell of the container sits on shocks.
"We have self contained air conditioning," said Erwin. "If you are in the desert, or someplace like that, it's not pulling air from the outside. It's re-circulating the air and cooling it."
The product is designed to function in a harsh environment. But the company that makes the containers may find the harsh environment of shrinking defense budgets too much to handle. Just the possibility military of spending cuts is causing defense contractors to retrench.
"If you don't know how to plan, you don't know how to execute. And that really makes a big difference, regardless of what it is," said Erwin.
The fiduciary uncertainty has been fueled in part by the "s" word. Sequestration represents across the board spending cuts that slice deeply into the Pentagon budget.
Retired Vice Admiral Terry Blake spent about eight years as the Navy's chief financial officer. Things are changing for a military that fed on a $530 billion budget in 2011 and that budget will shrink, according to Blake. Changes are in store for the military and for the companies that helped build the military machine.
"We've just gone through a decade of sustained real growth, and now we've got this downturn, which everybody is aware of, so the decision will be, is the system we currently have in place, good enough?" said Blake.
Nearly $9 billion in cuts are possible in this fiscal year alone. And Blake said contractors will be challenged to stay flexible.
"If they need to, can they reinvent themselves?" asked Blake.
But flexibility can mean different things to different companies. Datron World Communications in Vista, California makes military radios, but their 300 worker staff is shrinking. The current funding climate means they are out-sourcing work.
"When we don't have the business in the pipeline, then we idle our workers, is basically what's happening," said Mark Potter of Daytron. "Yeah, yeah, so its pretty catastrophic actually."
And that is something economists don't like to hear.
"About one fifth to one quarter of the economy in San Diego County is either directly or indirectly tied to the Pentagon," said Erik Bruvold, President of the National University System Institute for Policy Research.
Defense spending, he said, totaled $23.7 billion in the region last year. Taking a $1.7 billion bite out of that pie could derail the region's tepid economic recovery, according to Bruvold's analysis.
"We are expecting some okay growth, nothing great to write home about. It'll feel for the average San Diegan. Iif sequestration goes through, like we're basically in a recession."
So the pain will be felt by the local community, but it will be most acute for those who rely on defense dollars to make a living.
Mike Haskell doesn't need one of his high tech military antennas to sense that the coming years will be difficult.
"We just hunker down, weather the storm and try to develop new products and make the situation even better for tomorrow's soldier," said Haskell.
Smaller companies can't rely on deep pockets to wait for military spending to rebound, according to Haskell, because they have to find new markets or risk falling by the wayside.
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