Less than a year after political changes in Eastern Europe and the Soviet Union sent the defense industry reeling under the threat of dramatic cutbacks, executives and analysts say the crisis in the Persian Gulf has provided military companies with a tiny glimmer of hope.
"If Iraq does not withdraw and things get messy, it will be good for the industry. You will hear less rhetoric from Washington about the peace dividend," said Michael Lauer, an analyst with Kidder, Peabody & Co. in New York.
Acutely conscious of the public relations problems for an industry that finds bad news in peace and good news in threats to the national interest, many defense industry officials are reluctant to talk publicly about the industry's improved prospects. But many say that Iraqi President Saddam Hussein's invading forces of more than 100,000 troops and 350 tanks has altered the defense-spending equation.
The possible beneficiaries cover the spectrum of companies in the defense industry.
One is Bethesda's Survival Technology Inc., which manufactures special syringes filled with antidotes for nerve gas. In the past three days, U.S. military officials and allied countries have asked the company to provide information on how many syringes it would be able to supply on short notice, said its president, James H. Miller. No other U.S. firm makes the antidote, which may be needed by U.S. soldiers in the Persian Gulf, he said.
"The whole basis for this company is the protection of soldiers on the battlefield. We have maintained a supply of commercial and raw materials so we could maintain production in case of an emergency," Miller said. Survival Technology's stock, responding to Gulf developments, reached a 52-week high yesterday, closing at $12 a share, up $1.37 1/2.
Industry giants Raytheon Co. and General Dynamics Corp., which have traditionally supplied weapons to Saudi Arabia and Israel, also figure to fare well because of a Bush administration decision to expedite Saudi arms requests, analysts said.
Many industry officials credit the Iraqi invasion with playing a major role in saving the B-2 stealth bomber on the Senate floor last week.
In addition, President Bush's decision to use his emergency powers to bypass congressional limits on the sale of F-15 fighter aircraft to Saudi Arabia is expected to help McDonnell Douglas Corp., which makes the planes.
Lauer predicted that Litton Industries, which supplies the Navy with large combat ships, including anti-aircraft Aegis cruisers, will benefit as well.
Michael R. LaTronica, an analyst at Labe Simpson Co., is telling investors the Iraq crisis could help Grumman Corp. by prolonging funding for the company's mainstay aircraft, the F-14 fighter, which is slated to be killed in 1992. "The F-14 remains the only fighter in the arsenal that is combat proven by U.S. forces," LaTronica said. "Successful deployment would clearly not hurt the chances of getting additional funding."
Despite the more optimistic mood in the defense industry these days, executives and analysts say there is no chance that the Iraq crisis will return the United States to the heyday of the Reagan administration's defense buildup, given the massive federal budget deficit and the expected size of the savings and loan rescue.
No officials of defense companies interviewed said they had put cutbacks, layoffs or restructurings on hold. Emerson Electric Co. announced this week that it plans to proceed with a plan to spin off its defense business, which has been hurt by declining sales in recent months.
The military also is proceeding with some of its plans to adjust to new budget constraints. Yesterday, nevertheless, some industry officials, who only a few weeks ago were resigned to significant cuts in the defense budget, were saying they think they might have a fighting chance to argue for slower reductions when Congress returns next month and the House considers a bill to cut $24 billion from the Pentagon's proposed $307 billion budget for next year.
Industry officials said they think the Pentagon's pro-defense argument -- that although the U.S. military faces a smaller threat, it is a more unpredictable one because of the proliferation of sophisticated weapons throughout the world -- will find a more receptive audience.
The Gulf crisis "lends more credibility to the Pentagon's argument that the world isn't at peace now, just changed," said Jacques S. Gansler, a former deputy assistant secretary of defense and a member of the faculty of the John F. Kennedy School of Government at Harvard University.
Even if the Gulf crisis does not ultimately affect the overall level of cuts in the Pentagon budget, it is expected to intensify the debate over how the funds are spent and to fuel congressional complaints that the Pentagon puts far too much money into glamour weapons, like stealth aircraft and the Strategic Defense Initiative, and not enough into workhorse equipment like aircraft and ships to transport troops.
Staff writer Lori Silver contributed to this report.
Supplies Navy combat ships and electronics for naval aircraft. Also has oil exploration services operation.
Supplies Saudi Arabia with Abrams battle tanks. Saudi Arabia had indicated interest in up to 700 M-1 tanks, and the Iraqi crisis might ease potential congressional opposition to the increased sales.
Supplies radar warning equipment, jammers and sonar systems to Middle East countries including Israel, Saudi Arabia, Egypt and Turkey.
Supplies Hawk anti-aircraft missiles to Israel and Saudi Arabia. Discussing sale of Patriot missile system to those countries.
Some analysts say the Iraqi invasion saved the B-2 bomber on the Senate floor.
Supplies F-15 fighters to Saudi Arabia. Several countries in the Middle East have expressed interest in the Apache anti-tank helicopter. Some analysts are wary of McDonnell Douglas because, like Boeing Co., it has a large commercial aircraft division.
Analysts expressed some concern that its commercial engine business, along with that of General Electric Co., would suffer if an oil crisis slowed the commercial aircraft business.