The Defense and the Middle East
Editorial by Scott W. Clay, Bishop & Associates Military Consultant

Which country will erupt next? Egypt is in an unknown state, as various groups jockey for ruling position. What if the Muslim Brotherhood emerges in power, as some predict? What will this mean for the U.S.? What it will mean is that unless the Department of Defense (DoD) and the current administration have lost all sense of security, no new weapons, platforms, or systems will be sent to Egypt. Boeing could be the big loser, with billions of dollars currently on order for helicopters, weapons, and upgrades. Other large defense tier one suppliers have major orders or programs with the Egyptian government. These are all in limbo, and will be for the next few months, until a ruling body is established in Egypt.

Libya is the latest country with major riots and fighting in the streets. Few in the U. S. would have guessed of all the other hotspots in the Middle East, that the people of Libya would rise up against the infamous Colonel and his military. Yemen, Bahrain, Somalia, and others are also experiencing rebellions of varying degrees of intensity. The biggest question and largest potential lost investment is in Saudi Arabia. Boeing alone has over $50 billion in weapons orders from the Saudi military. The Saudi royal family consists of thousands of major and minor players, and current and projected oil prices fuel their every move. However, the workers, and even large parts of the police and military, are not from Saudi Arabia, but from the surrounding countries. Their loyalty is unknown, very much like the military in Egypt was thought to be firmly in the control of Colonel Mubarack, as he and most of the modern Egyptian rulers (Nasser and Sadat) had come from the military ranks, but turned out far less attached than anyone thought. Surely he felt the army would rise to his defense against a popular uprising of people armed with little more than modern communication devices. They had no tanks, no heavy weapons, no air support, and very little in weaponry. And yet, the Egyptian government is now in a state of flux, with no real winner appearing yet, and Mubarack is out, with the final governmental makeup to be determined.

So, if the same situation occurred in the much larger, much wealthier Saudi Arabia, would a similar picture appear?  And will the Saudi military remain loyal, if turmoil comes to that country? What about the future of all of those huge contracts? Could a scenario in which the Saudi government spends those billions on housing, hospitals, schools, and other public improvements to keep the people satisfied, mean they will not be buying those 84 new F-15SA fighters, plus billions in other weapons from Boeing?

Libya has never been a friend of the U.S., and it appears this uprising is still in doubt as to its outcome. But most of us are old enough to remember the Iranian revolution against the Shah, and how the “revolution of the people” turned from a supposed democratic uprising to the most tyrannical, restricted, and serious threat America has faced since the Soviet Union came apart. Today Iran is a threat to every country in the Middle East, and also to the U.S., and could already have secret nuclear weapons. How could we know? Our government and all its military contacts, satellites, liaisons, and security forces could not even see or predict Egypt coming apart under a 30-year military dictatorship. And we had great access to Egypt through military equipment and support programs, joint training plans and exercises, and hundreds of American troops, advisors, and contractors in Egypt.  

The point of this is that none of this activity will help the U.S. economy. Gas prices are rising and the predictions are that it could go past $4 per gallon now, even though Egypt is not an oil producer. The price of everything we buy of course is related to oil prices. What does this mean for your company? What products should you be investing in? What programs will be funded in the future? Everyone can read about Joint Strike Fighter and Littoral Combat Ship, the big dollar programs. What about the real “meat and potatoes” of the Defense budget, those hundreds of orders for small programs that are sent out every month to various suppliers, that really drive the defense sector?

Now, more than ever, you need real intelligence and information about what programs have a future and what ones do not. Where do you put your resources, your research, and your assets and how do you gain those programs that are going to be successful? What shows should you attend and how do you get the input from the experts and leaders of these programs? Who can give you an accurate synopsis of what platforms are real and which ones have no chance for build or completion? Whatever happened to Crusader, NLOS, Future Combat Systems, and dozens of other programs that you might have spent millions of dollars on, and got nothing in return? How many of you have been waiting for the payoff on JSF and 787? 787 will probably be built, but how long will you be waiting for the ROI? If you had seen this scenario seven years ago, would you have invested in such a “supplier” unfriendly program? And do you realize that the real potential cancellation of the STOL version of the JSF might mean to the entire program? What will that do to total numbers of F-35s to be built, and more importantly, their cost per airframe? I can remember a sales manager telling a major meeting of company executives that JSF was going to be worth $1 million per year starting in 2004! And they only had one connector on the program.

The DoD is laying down rules and new controls for companies that use mergers and acquisitions to grow their business. Doing business the old way is not going to work, and with the huge deficits and decreasing tax revenue facing the government, DoD budgets are not going to get larger. Also, what happens as troops continue to withdraw from Iraq, and eventually Afghanistan? The Army has already announced a reduction of 27,000 people after 2014, but troops will remain in that arena. The budget cuts, even next year, could be $50 billion or more. What if the administration does what it threatens and eliminates “supplemental” funding programs from the budget?

Major defense suppliers will have to expand their attendance at key conferences and events, briefings, and meetings, and read extensively to stay abreast of the various programs they are working on and supplying components for. Information will be even more important to a successful defense supplier in the years to come. We are doing business in a world that is changing by the minute, and depending on timing and location, your company—and your country—could be one of the winners.