September 24, 2013 defense-aerospace.com

(Source: Forbes.com; published Sept. 23, 2013)

Five Reasons Defense Companies Need to Start Getting Out of Defense (excerpt)

It’s hard to change when staying the same seems to be working. After listening to warnings of impending doom for the better part of a decade, defense contractors find their share prices at record levels, their margins largely intact, and their dominance of the global arms market growing. So they aren’t showing much urgency about diversifying. Instead, they are buying back stock and raising dividends — the typical behavior of companies that think they are headed for a rough patch ahead, but nothing fundamental in the way of change.

That’s an understandable response, given the performance-driven incentive structure within which industry executives operate. Wall Street wants to hear about the fourth quarter, not the lay of the land four years from now. But such short-term thinking explains why only one of the original Dow Jones 30 industrials (General Electric) is still in the index. It also explains why my hometown of Plymouth, Massachusetts — once home to the world’s biggest rope factory, shipbuilders and textile mills — no longer makes much of anything.

Nothing lasts forever, and that includes the geopolitical forces that forged the modern defense industry in the Cold War. America got along just fine without a big, dedicated military-industrial complex for most of its history, and there are reasons to suspect we are gradually headed back to that state.

Each of the five major factors driving demand for military technology are now pointed downward, a situation that has never existed before in the industry’s history. If defense companies don’t get more aggressive about hedging their bets, they could be headed for a bleak future. (end of excerpt)


Click here for the full story, on the Forbes website.