Surge in US military spending

In the two and a half years since the 11 September 2001 attacks, the United States has fought wars in Afghanistan and Iraq, and overall defence spending has risen dramatically.

    The world's only superpower is unmatched in military terms

    Such developments have contributed to a steady increase in revenue for major US defence contractors, according to several government watchdog groups.

    In 2003, the five largest defence contractors all generated significant boosts in revenue from prime government contracts, according to figures from the Department of Defence.


    At the top of the list was Lockheed Martin, a Maryland-based company whose $21.9 billion in defence contracts marked a 28% increase from the previous year.

    That revenue spike of nearly $5 billion was more than the Pentagon awarded Halliburton for reconstruction projects in 2003.


    "With the Pentagon budget at $400 billion per year and counting, plus a new Department of Homeland Security with a $40 billion per year budget, plus wars in Afghanistan and Iraq that have cost $180 billion to date, these are lucrative times to be a military contractor"


    Michelle Ciarrocca, 
    analyst, World Policy Institute

    "In general, the times have been really good for defence contractors," said Eric Miller, senior defence investigator at the Project on Government Oversight, a watchdog organisation in Washington.


    Times have been so good, in fact, that US companies that produced most of the planes, missile systems and precision guided bombs used by the military in Iraq and Afghanistan are benefiting too much from war spending, according to a report published in February by the World Policy Institute (WPI), a research group at New School University.


    "With the Pentagon budget at $400 billion per year and counting, plus a new Department of Homeland Security with a $40 billion per year budget, plus wars in Afghanistan and Iraq that have cost $180 billion to date, these are lucrative times to be a military contractor," co-author Michelle Ciarrocca said in the report.


    Prime contracts


    While companies such as Halliburton and Bechtel earn billions of dollars on reconstruction contracts for Iraq, defence contractors that supply the military with the weapons of war have reaped the benefits of a military budget that has soared during the Bush administration, the WPI report said.


    The Pentagon's top three contractors split more than $50 billion in prime contracts in 2003, a fact some defence analysts attribute to the US "war on terrorism".


    "They've gotten billions of dollars in contracts from the Pentagon since the war on terrorism began," said Frida Berrigan, a senior research associate at the Arms Trade Resource Centre, part of the World Policy Institute.


    The Pentagon’s top three contractors split more than $50 billion in prime contracts in 2003, a fact some defence analysts attribute to the US "war on terrorism".

    There is disagreement over how much these major companies have gained financially from the wars in Iraq and Afghanistan.

    Critics of the defence industry point to the thousands of high-tech missiles and precision-guided bombs dropped by occupation forces, particularly the US, during the combat phase of the war in Iraq.


    Many of these weapons are expensive to make and will be replenished with money from the 2005 defence budget.


    During the major combat phase of the Iraq war, for instance, the US military launched over 800 Tomahawk cruise missiles at Iraqi forces, according to figures provided by the US Navy.


    At a cost of approximately $569,000 a piece, replacing these missiles will generate a hefty sum of money for Raytheon Systems, the Pentagon contractor for Tomahawks, roughly 90 of which were launched during Operation Enduring Freedom in Afghanistan.


    In addition, occupation forces launched over 19,000 guided munitions in Iraq, most of which came from the US military, according to a report on Operation Iraqi freedom published by the US Central Command Air Forces on 30 April 2003.


    Smart bombs


    Occupation forces dropped over 7000 GBU-12 laser guided bombs during the war, a weapon also produced by Raytheon.

    Another widely used system was the Joint Direct Attack Munition (JDAM), a guidance tail kit that converts unguided bombs into "smart bombs".

    Boeing Corp is the JDAM contractor, which cost roughly $20,000 per unit, according to statistics from the US Air Force.


    "They’ve really ramped up production to replace what was expended in Afghanistan and Iraq," Berrigan said of the JDAM tail kits.


    Missiles launched in Afghanistan
    and Iraq have to be replaced

    Some defence industry experts, however, dismiss the notion that major defence contractors greatly profited from the use of such weapons, calling them small potatoes in the overall revenue of companies such as Lockheed Martin and Boeing.


    "By far the majority of the benefit from the increase in defence spending has come from things other than [weapons systems used during Iraq and Afghanistan]," said Paul Nisbet, a defence analyst for JSA Research, Inc.


    Rather, Nisbet said, the need to boost the inventory of weapons, ships and aircraft that suffered from "atrophy" during the smaller defence budgets of the 1990s is what accounted for most of the revenue increases of military contractors in the last two years.


    "When you have a huge [defence] budget that has gone south for so many years, it takes a lot of defence spending increases to make up for what had been going on," said Nisbet, who owns stock in Lockheed Martin.


    Budget growth


    Even without the estimated $150 billion in supplemental spending for the wars in Iraq and Afghanistan, the defence budget has grown significantly during the Bush administration.


    While the budget was around $310 billion in 2001, the figure increased to $343 billion in 2002 and approached nearly $400 billion this year, according to the Centre for Strategic and budgetary Assessments, a non-partisan Washington research group.


    With the portion of the $87.5 billion supplemental approved by Congress for military operations in Iraq and Afghanistan, the 2004 defence budget is more than $460 billion.


    Nisbet said the US helicopter fleet needs to be updated and more war ships must be built to make up for a drop off in production during the 1990s.


    "Our helicopter fleet is probably in the range of 30 to 40 years obsolete," he said.


    The US helicopter fleet is ageing
    and needs to be updated

    Furthermore, companies like Northrop Grumman, the third largest US defence contractor, are securing contracts to build relatively new weapons systems such as the unmanned predator drones that were effective in Afghanistan and Iraq.


    Northrop Grumman is the prime contractor for the Global Hawk Unmanned Aerial Vehicle (UAV).

    President Bush proposed $12 billion for UAV development for 2004 through 2009. Northrop Grumman earned $11.1 billion in prime defence contracts in 2003, a company record.


    There is also a $10.3 billion proposal for development of a missile defence program in the administration’s 2005 defence budget, of which Lockheed Martin would be heavily involved in, according to the report from the World Policy Institute.


    While the wars in Iraq and Afghanistan may not have been the largest contributing factor to the across-the-board revenue increases for defence contractors, they helped facilitate the kind of nationwide support for defence spending that covers the aforementioned weapons programs, Nisbet said.


    In the post-9/11 era, the Bush administration has been able to push through larger military budgets that might never have gained congressional support without the "war on terrorism", he added.


    "It certainly garnered public opinion in favor of a strong military," he said.


    Large defence budgets, however, have contributed to the rising federal deficits, something that could end up hurting the defence industry over a longer period, said Harlan Ullman, a defence expert at the Centre for Strategic International Studies, a Washington thinktank.


    "I think what you’re going to find is a huge squeeze on major defence contractors," Ullman said.

    SOURCE: Aljazeera


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