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Outlook Mixed for Defense Firms in Year 2000

Kosovo Credited

With Raising Awareness; Cutbacks Still Possible

The 1990s brought much change in the defense industry , layoffs, budget cuts, consolidations, and then a rebirth.

Now that the millennium is here, San Diego defense leaders are ready to pop the cork on new business.

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The reason: the military’s continued move toward the use of commercial technology.

“Kosovo made people more sensitive to the need of more high-tech weaponry,” said Dave Roberts, senior vice president of General Atomics’ advanced technologies group.

This year, G.A. will be producing various electromagnetic systems for aircraft landings and launches on aircraft carriers, under a $60 million U.S. Navy contract awarded last month.

The veteran defense contractor also plans to market two of its newest technologies , a real time synthetic aperture radar system called LYNX, and a computer-based integrated information management system called Spare Parts Production and Reprocurement Support (SPARES).

Meanwhile, General Atomics Aeronautical Systems, Inc., a sister company to G.A., plans to continue the success of the company’s unmanned air surveillance vehicle, the Predator.

1999 A Good Year

“1999 was a very good year and 2000 is shaping up to be better,” Roberts said.

As for the defense industry as a whole, he said it won’t be a booming industry over the next few years.

“I think there’s a general bipartisan opinion that defense definitely needs to be maintained,” Roberts said. “I think you are seeing a growing movement of fighting the new kind of wars. But I don’t think the defense budget is likely to change dramatically.”

Industry leaders polled in the 10th Annual Deloitte & Touche/San Diego Business Journal Economic Outlook Survey had mixed opinions on the economic outlook for the defense/aerospace industry.

Higher Revenues At G.A.

The survey received responses from only two defense-related firms, a statistically insignificant cohort. Those two respondents offered opposing opinions of their industry’s well-being in the new year, with one believing it would fare better in 2000, while the other thought it would be worse.

While the defense industry isn’t expected to explode this year, G.A. is still expecting higher revenues. Roberts predicts his department will increase its revenues by 10 percent, while revenues for G.A. as a whole will be up about 5 percent.

One defense/aerospace respondent to the Deloitte & Touche survey expects a 6 percent to 10 percent jump in company sales, while the other predicts a 6 percent to 10 percent decrease.

Since business will be up for G.A. this year, the company plans to hire up to 30 to 50 more people, mostly engineers and specialized technicians.

Finding qualified people will continue to be a challenge, Roberts said.

“In general we can find people we need but in certain fields like producing software and computerized management systems, those are hard to come by because they are so specialized and there’s a huge demand for them.”

Both industry leaders polled in the survey said they also had difficulty recruiting qualified employees in 1999.

Despite the recruitment problems, Roberts said California is a good place to do business for the defense/aerospace industry.

“Over the last half a dozen years California and San Diego have improved,” he said. “There was a period when it was a very difficult place to do business.”

Political Environment

As for California’s new leadership, Roberts doesn’t think it will greatly impact the industry.

“I think this governor is trying to govern toward the middle, which I think is a good place to be.”

He also said San Diego’s political leadership doesn’t really affect G.A.

“I don’t think city government has an awful lot of influence on us one way or another. We’ve been here a long time and it doesn’t make a heck of a lot of difference to us.”

One of the Deloitte & Touche respondents was satisfied with San Diego’s current political leadership, while the other was very dissatisfied.

Cubic Corp. founder Walter Zable wouldn’t even dream of moving his company out of San Diego.

That’s the word from Bruce Roberts, president of Cubic Defense Systems in San Diego, a Cubic subsidiary which has 700 employees.

“You can use electronic interactions around the world from any location. San Diego is certainly one of the more enjoyable places to do that,” Roberts said.

He said Cubic Defense Systems will use technology to communicate more and more as the company’s international business expands.

In fact, Roberts said a majority of Cubic’s backlog for 2000 will be from international business.

Expanding Capabilities

“It is really a remarkable change in our business area,” he said. “We’ve had to make some interesting changes within our organization. We’ve had to expand the capability of some of our people here.

“We are learning how to be more effective in the international marketplace and that’s critical to our future.”

Roberts said 1999 was a very good year for Cubic and he predicts the same for 2000.

Cubic Defense Systems expects to sign a major contract this year from the Commonwealth of Australia to install an air combat training system in the Land Down Under.

Under a $130 million contract from the U.K. Ministry of Defense, Cubic will deliver two new ground combat training ranges this year, one installed in the U.K. and the second in Canada.

The company has also begun production on its MILES 2000 system, a laser-based training system that allows commanders to conduct direct fire force-on-force training exercises, in which the actions and performance of the soldiers, weapons and vehicles are recorded and analyzed.

Cubic Defense Systems has provided MILES 2000 to the U.S. Army and Marine Corps, as well as to the Royal Netherlands Marine Corps.

Joint STARS

Roberts said Cubic also hopes to continue the successful support of the U.S. Air Force’s Joint Surveillance Target Attack Radar Systems (Joint STARS) data link program, expanding it internationally.

“What we’re seeing is a significant interest in expanding training capabilities, which is driven by some of the (military) readiness issues,” he said.

Roberts said there’s an increasing emphasis on supporting and training soldiers in an urban environment, by combining air and ground capabilities and by combining realistic electronic warfare with air operations.

He said Cubic Defense Systems plans for a 20 percent increase in orders this year.

“I hope that we are aggressively growing. In terms of the industry, there will be increasing opportunity in the training and simulation business,” he said. “How do you as a company be successful in that kind of environment? By spending the time it takes to understand what your customers want.”

As for the aerospace industry, the Aerospace Industry Association expects a decline in sales in 2000 due to a sharp drop in airliner sales.

Sales for the aerospace industry jumped from $148.5 billion in 1998 to an estimated $155 billion in 1999. However, aerospace jobs nationwide dropped 59,000 in 1999.

Sales for 2000 could drop to about $149 billion.

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