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Last Updated: Tuesday, 15 April, 2003, 07:43 GMT 08:43 UK
War: Boon or bane for defence firms?

By Mary Gahan
BBC News Online business reporter

Tomahawk cruise missile being fired
The war could lead to new orders for Tomahawk missiles
Warthog A-10 tankbusters, JDam smart bombs and Bradley fighting vehicles are now part of everyday vocabulary thanks to their starring role in the Iraq war.

They make up some of the military might that has been displayed on the world's television screens night after night.

Thousands of Iraqis and more than 100 members of the coalition forces have died in the fighting.

And that loss of life makes individual defence companies reluctant to talk about making money from this war.

HUMAN COST OF WAR
Iraq: At least 1,254 civilian deaths*, more than 2,320 military deaths**
US: 112 dead (including 27 in non-combat accidents, 6 to 'friendly fire', 2 under investigation), 2 missing
UK: 30 dead (including 16 in non-combat accidents, 5 to 'friendly fire')
Media: 12 dead, 2 missing
Sources:
*Former regime, **US military

But the fact is that pictures of military technology in action have dominated TV schedules for weeks.

"It's a showcase," says John Douglass, President of the Aerospace Industries Association in the US.

"Some people don't like the fact that it's a showcase, others aren't bothered by that."

As the war unfolded on TV, he says, people were able to see for themselves the effectiveness of American and British military technology.

"After the last Gulf war there was a surge of interest in buying the products that performed well."

Matt Schroeder, a research associate at the Federation of American Scientists, agrees there could be a benefit for some manufacturers: "CNN is one of the best marketing tools for the defence industry in that it could boost sales.

"When countries see the US delivering precision munitions with accuracy it's going to have an impact.

"A country may be very impressed with the way the F-16 is performing in the Gulf."

Post-war windfall

However effective the weaponry, there is no guarantee that defence manufacturers will suddenly start filling their order books.

Big defence spenders such as Kuwait might decide they have no need for the latest weapons.

Bradley fighting vehicles in Iraq
Depending on the cost of the war it could cause the department of defence to slow down production of equipment to the forces
John Douglass, Aerospace Industries Association
"One of their primary threats in the region will vanish so they will be reluctant to continue to spend the sorts of amounts they have done on US weapons," says Mr Schroeder.

And some of the best equipment will not be for sale.

"Wars are bad for business, even for the defence sector," insists Keith Hayward, head of economic and political affairs at the Society of British Aerospace Companies (SBAC).

But he agrees there are some short-term winners because many of the munitions used in Iraq have to be replaced - from cruise missiles and precision-guided bombs to standard ammunition.

"Tomahawks are made by Raytheon and in the immediate aftermath they will be re-supplying, so if you are doing that sort of stuff you will probably find yourself getting a post-war windfall.

"And Boeing's smart-bomb kits - they're producing these as fast as they can and they have a more immediate return."

Cutting budgets

The big question is: What will happen to defence spending over the longer term?

The US government estimates that, in 2001, US and foreign countries agreed sales of conventional arms worth $16bn (10bn) to developing nations. The US was the lead supplier with agreements worth $7bn.

A10 Warthog plane
Sustained tension would be best for the defence industry
Keith Hayward, SBAC

In the same year, US and foreign countries actually delivered $14.4bn of arms to developing nations.

But these figures are dwarfed by the US government's defence budget which could reach $450bn this financial year.

Mr Hayward's concern is that defence budgets in both the US and the UK will be cut - and the cuts could be greater than any slight increase in spending as a result of the war.

"The biggest market, the biggest budget in town is the US but even before the war questions were being asked about the US defence budget, questions about its sustainability.

"The UK's got some fairly ambitious projects including the new aircraft carrier.

"There are all sorts of assumptions about the way in which the UK economy will perform - if you throw in the cost of a big, major conflict you cannot predict the way in which defence budgets and programmes will pan out," says Mr Hayward.

The same is true of the US: "Depending on the cost of the war it could cause the department of defence to slow down production of equipment to the forces.

"We're hoping that won't happen but we'll have to wait and see," says Mr Douglass.

Cold War effect

Even if defence spending holds up, there is another drag on the aerospace industry - the downturn in passenger air travel.

"The civil side is in deep trouble.

"A few years ago Boeing was building 600 plus aeroplanes a year, this year we're expecting 250-300 aeroplanes and we know that Airbus has had to significantly reduce its production plans.

"There are approximately one year's worth of production of civilian aeroplanes parked in the [Californian] desert.

"So people that begin to fly again will bring these out of the desert first," Mr Douglas says.

In the UK, BAE Systems has its own set of problems.

It has reported net losses in the past three years, and it took a charge of 750m in 2002 to cover cost overruns on its Nimrod aircraft and Astute submarine contracts.

Since the last Gulf war, the biggest defence companies have tended to become bigger and cross national boundaries.

"War won't necessarily accelerate this," says Mr Hayward.

"What the industry is looking at long term is another difficult set of structural uncertainties."

If war cannot guarantee a boost for defence production and spending then what is the best climate for the weapon makers?

Mr Hayward points to the build-up of arms that took place during the Cold War.

"Sustained tension would be best for the defence industry."


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