STAR WARS DOLLARS Defense contractors line up early to get in on a coming space-age bonanza.
By Peter W. Bernstein

(FORTUNE Magazine) – THE BIG PAYOFF is still years away, but defense contractors are already shooting for Star Wars business. Competition for $1.4 billion allocated last year is so red hot that over 60 companies, including most of the biggest defense contractors, recently bid on ten $1-million contracts to evaluate future technologies for the Strategic Defense Initiative, Star Wars' official name. The ten winners included Hughes Aircraft, Lockheed, Martin Marietta, McDonnell Douglas, Rockwell International, and a small Alabama company, Sparta Inc. Among the losers: General Electric and IBM. The contracts are important because they position the winners for a bigger piece of the action later. Says Air Force Lieutenant General James Abrahamson, who heads the Pentagon Strategic Defense Initiative Organization: ''If you didn't get one, you'll be a little bit behind the power curve.'' Star Wars, of course, is still largely just a twinkle in Ronald Reagan's eye. In 1983 the President outlined his goal of making nuclear weapons ''impotent and obsolete'' by constructing a defensive shield on the ground and in outer space. The Administration has requested $3.7 billion for Star Wars in its latest budget, but Congress will probably slash the request to $2 billion or so. Future funding will depend on overcoming myriad obstacles, including opposition from the Soviet Union, congressional skepticism, and countless technical hurdles. But experts expect that the U.S. could be spending more than $10 billion a year on Star Wars in the 1990s. One big winner so far is Boeing Aerospace. Boeing lost on its bid for one of the $1-million study contracts, but last August the company snared a $289- million, five-year Star Wars contract to work on a tracking system--still a piddling sum for a company that last year got about $4 billion of its $10.3 billion in revenues from the Defense Department. The Boeing device, which would be installed in a modified Boeing 767 aircraft, would use infrared technology to track incoming missiles and warheads. The other big project in Boeing's Star Wars galaxy is for development of a so-called designating optical tracker, which would rocket into space moments after the Soviet Union launched intercontinental ballistic missiles. Lockheed's biggest Star Wars contract was recently scaled back. Since 1982 the company has been developing a tracking system with the code name Talon Gold. Lockheed received a $105-million contract for the project last year, but Abrahamson, needing budget cuts, recently restructured the contract, knocking the award down to some $30 million. Tests will now begin in 1987, a year earlier than originally planned. In addition, Lockheed has for years been doing some work on developing a mirror for a space-based laser system that is an integral part of Star Wars. A bevy of other defense contractors have smaller pieces of the action. LTV is developing a missile that would home in on warheads and destroy them as they reenter the earth's atmosphere. This is known as terminal defense because it seeks to destroy warheads in the final minutes before they hit. McDonnell Douglas and General Electric are working on other missile-zapping systems. Security analysts don't expect an impact soon on these companies' earnings. Says Wolfgang Demisch, an aerospace analyst with the investment firm of First Boston: ''Star Wars isn't going to be a profit producer for any contractor for the rest of the 1980s.'' But Demisch doesn't think the delay will necessarily keep the market from bidding up stocks of companies that land small contracts with great potential.