November 28, 2007
As the Iraqi War continues, business is booming for defense contractors. According to Michael Brush"s article on MSN Money, War means a windfall for CEOs, the military buildup has caused defense-contractor revenue to double, triple, and even more during the past five years, and executives at these companies have received huge bonuses and stock windfalls as share prices have jumped.
For defense contractors, these are the gravy days. What happens to these contractors, particularly the smaller players, when war ends and times are lean? That depends. News stories from Iowa and New Mexico illustrate the possibilities, something these companies should think about earlier rather than later.
The Waterloo, Iowa, Courier published an article about the city of Waterloo and the Environmental Protection Agency (EPA) taking aim at the contaminated Chamberlain Manufacturing site. The defense contractor shuttered the site 13 years ago. Collapsed roofs, trees sprouting through the concrete alleys, and twisted and snarled piping where scrap metal collectors ripped generators or air conditioning units from their foundations have turned the 22-building complex into a blight that has driven down property values and raised safety concerns among neighboring homeowners.
City Council members are expected to open bids Dec. 10 on the first phase of a project to tear down Chamberlain's buildings. Meanwhile, the EPA is working with Chamberlain Manufacturing to investigate, clean up, and contain hazardous chemical contaminants found underground.
The company has a long history that peaked in prosperity during the Vietnam War, when more than 800 workers earned a living manufacturing bombs for the U.S. According to the Courier article, Andrew Chamberlain started Waterloo Rope Belt in 1906. The company rebuilt cream separators and processed repair parts. It became Chamberlain in 1929 and grew to one of the world's leading manufacturers of metal washer wringers. The firm later manufactured aluminum awnings, refrigerator shelves and projectile metal parts.
Courier files show the company had about 550 employees in its manufacturing and research and development divisions in 1990, when workers designed and built warheads for the Patriot missile. The weapon was made famous as Gen. Colin Powell showed off its pinpoint accuracy at news conferences during the 1991 Persian Gulf War. Declining defense contracts led Chamberlain eventually to shut down in August 1994.
What could Chamberlain have done differently? Perhaps the answer can be found in an article published in August 2005 by the Albuquerque Journal, Miguel Rios, a former Sandia National Laboratories physicist, left the labs in 1985 to found Orion as then-president Ronald Reagan ramped up the Strategic Defense Initiative. Dubbed "Star Wars," the SDI was a plan to build space-based defensive weapons to protect the country from Soviet nuclear missiles.
Orion quickly got a foothold in the Air Force's local research, providing data acquisition and other assistance for studies of weapon transport, reliability, aging, and other aspects. It also provided support staff for studies of proposed SDI systems, such as lasers. And within three years, the company had grown to $2.4 million in annual revenues.
As the Cold War nervousness dissipated, SDI was scrapped and the Soviet Union teetered toward collapse, research turned toward counterproliferation, and Orion followed suit. "As the Cold War ended, the charter of the labs changed," Rios said.
As national defense industry attention turned to peacetime activities, such as space exploration and energy, the company turned its testing and evaluation skills toward those ends. Much of its work, however, remained entrenched in weapons research, such as a major testing and data acquisition contract at the Navy's bombing range in Puerto Rico, which has since closed.
By the mid '90s, the company was bringing in revenues of $14 million per year. But a nationwide defense industry slowdown in the peaceful late-1990s left many Cold War-era contractors scrambling for work as national lab staffs and defense spending shrank. Orion saw its revenues plummet to $7 million in 1997.
"We really had to diversify," Rios says, describing how the company acquired an environmental engineering firm and experimented with computer networking and other nondefense technologies alongside other Albuquerque companies that found themselves in the midst of a shakeout.
Orion's revenues stabilized in 1998, Rios says, and have grown since then. It has since spun out a networking subsidiary, Orion Information Technologies, and is also commercializing a software technology licensed from Sandia.
Diversification, agility, forward-thinking & sounds like a much better long-range plan than putting all your eggs in the defense basket, no matter how cushy that basket is at the moment.