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Budget Truce Gives Defense Cos. Chance for Wins

The defense industry seems to be holding its own as 2016 begins.

Because of a major deal struck in Congress, military contractors will not have to carve up a drastically shrinking defense-spending pie, at least not in the near term.

World events of the next 12 months could drive military spending higher. U.S. commanders seem to have plenty of trouble spots to worry about, from the Middle East to the South China Sea.

San Diego and the defense industry go back a long way. The county has long been a base for the U.S. Navy and U.S. Marine Corps. During World War II, San Diego manufacturers supplied the military with bomber aircraft, flying boats and more.

During fiscal 2015, the Defense Department spent an estimated $7.6 billion on procurement in San Diego County, according to a study released in September by the San Diego Military Advisory Council. The Pentagon sent $24.8 billion to the county in total. The latter number includes military and civilian employee pay and benefits, retirement benefits and veteran benefits.

Those numbers were in danger of decline. With a budget deal reached in late October, however, military contractors caught a break from sequestration, the 10-year program of budget cuts meant to reduce the deficit. The break lasts for two years, fiscal 2016 and 2017.

The bigger local contractors ought to keep busy in 2016.

General Atomics Aeronautical Systems Inc. should continue to get contracts for unmanned Predator family aircraft, and logistics deals to keep them operating. The 2016 defense budget bills were being finalized as this issue was going to press. Early reports on the omnibus spending bill had the privately held Poway business getting more orders for Reaper aircraft than previously anticipated. Reaper is the heavier model of the Predator that the U.S. Air Force flies.

Northrop Grumman Corp. (NYSE: NOC) seemed to be on course to introduce its Triton unmanned aircraft to the Navy fleet. Its unmanned aircraft program managers are based in Rancho Bernardo.

General Dynamics NASSCO could be on track to get a contract for a fifth expeditionary warfare support ship for the Navy in 2016. The Navy plans to sign contracts for new oilers and amphibious ships soon. The shipyard has a good deal of commercial work to get it through the year. General Dynamics trades on the New York Stock Exchange as GD.

Other firms along the waterfront, including BAE Systems San Diego Ship Repair, will continue to provide maintenance and upgrades to Navy ships. Rust and corrosion are timeless concerns.

ViaSat Inc. (Nasdaq: VSAT) will likely continue to produce advanced military radios and provide services to U.S. government customers.

Small subcontractors will keep busy, and doubtless there will be events in 2016 that surprise us all.

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