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Waiting with open arms
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February 20, 1998: 12:48 p.m. ET
Hostilities in Gulf may give high-tech weapons industry much needed boost
From Correspondent Allan Dodds Frank
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NEW YORK (CNNfn) - As preparations for an attack on Iraq escalate, the defense industry's state-of-the-art weapons systems are coming under increasing scrutiny. But while many of these high-tech weapons, including Raytheon's Patriot missiles, have been upgraded since the 1991 Gulf War, the biggest changes have come in the industry that makes them. Of the dozen defense contractors of note that existed seven years ago, only three remain.
While expensive high-tech weapons did their job during Desert Storm, they produced no bonanza for defense contractors. Seven years later, many of the weapons manufacturers themselves are casualties of defense budgets that have been cut nearly in half.
"Since the Cold War ended, there's been a massive downsizing of force and of procurement spending," said Peter Aseritis, defense analyst for CS First Boston.
A dozen or so major defense contractors started the decade facing the choice of consolidating or divesting. Some of the most famous are gone. Among the missing: General Dynamics, Grumman, Hughes, Northrop, Rockwell and Texas Instruments.
Only three majors survive.
"If you look at the industry, it's basically Raytheon, which is very strong in electronic systems and components. Boeing is very strong in aircraft, and Lockheed very strong in both," said Roger Threlfall, defense analyst for J.P. Morgan.
Lockheed Martin dominates, nearly doubling sales in three years to more than $30 billion by combining with Martin Marietta and snapping up the defense portions of nearly two dozen other companies. Boeing became a defense giant by taking over military aircraft and missiles from McDonnell Douglas and Rockwell. Raytheon tripled in defense electronics and weapons systems by acquiring parts of eight different companies, including smart bombs from Texas Instruments.
The big three now could benefit from renewed hostilities in the Gulf triggering public support for even more advanced weapons.
"There are many weapons that are waiting to be proven, many of the new systems that have come on line since the Gulf War. And I am sure that they will be employed because they do continue the tradition of military weapons in the U.S., which is to trade money for lives," said Brett Lambert, vice president of DFI Consulting.
With armed conflict on the horizon and the budget deficit poised to disappear, Wall Street analysts say the prospects for an increase in defense spending are better than they have been in years. That bodes well for the defense industry. 
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