Thu December 5, 2013
As wars end, Iowa defense contractors seek new markets
Yesterday, as part of our 3-part series on defense contracting in Iowa, we introduced you to a Cedar Rapids manufacturer with just 12 employees. But it’s the industrial giants who tend to pull in the most contracts for the Department of Defense. When times get tough, many are finding profits overseas. In our second installment, Iowa Public Radio’s Durrie Bouscaren heads to Iowa’s largest defense contractor—Rockwell Collins.
Of the Iowa companies who pull in the most work from the Department of Defense, Rockwell Collins dominates more than half of the state’s defense industry. In years past, their contracts with the US government have raked in more than a billion dollars every year. But those numbers are declining. So the largest employer in Cedar Rapids has found another market—the militaries of other countries.
Colin Mahoney is in charge of Rockwell’s international sales. In 2011, Rockwell won a contract to provide avionics equipment for Brazil’s air force—we’re standing in front of a simulated flight deck they’ll install for Brazilian military transport jets—the KC-390.
"In a refueling environment you’d be able to see the airplane coming up behind," Mahoney says, pointing out a variety of large screens--which he says are the largest in the industry.
"As a pilot, that allows maximization of situational awareness."
Mahoney says Brazil is a strategic market, and one Rockwell hopes to grow with over time.
"There was a strong competition to win the KC-390 position. When the OEM (Original Equipment Manufacturer) decides on a partner, you become married for a long time," Mahoney says.
During a recent year-end earnings call, Rockwell’s leadership listed international sales as one of the main ways they hope to make up for a nearly $200 million decline in sales of government systems.
"From the international sale standpoint, it's rending rapidly. For example this year, 36% directly sold to the international market."
In two years, Mahoney says international sales will account for 40 percent of Rockwell’s revenue. That’s a big difference when total sales are over $4.6 billion a year.
But Rockwell isn’t alone in seeking new markets to anticipate more defense cuts.
Cobham PLC operates a facility in Davenport, building oxygen systems for military hospitals. Spokesperson Greg Caires says they’re finding a market in home oxygen use.
"They typically are large canisters, that can be bulky, that can be heavy, not the safest. So we have devices that will generate oxygen by taking in air and purifying it," Caires said.
After closing a plant in Florida earlier this year, Cobham moved some remaining employees and production lines to the Davenport plant. Caires says the money they’re getting from the military hasn’t gone down yet—but the way defense spending has been cut through sequestration makes it difficult to plan.
"There's very few levers we can pull to reduce costs on how we can reduce our costs by streamlining the operation. I’m not going to speculate on whether they will or will not be making further operational streamlines in the future," Caires said.
And with a second round of spending cuts expected in January, the Aerospace Industries Association--which represents defense companies including Cobham and Rockwell--has been lobbying Congress to reverse the sequester. Caires says Cobham supports the Association’s efforts.
"We all understand that defense spending likely is coming down--and maybe needs to come down," Caires said.
"But, and this is what members of Congress are saying, and even the Pentagon leadership is saying, is can we please have some guidance to make decisions that reflect our needs, and take money where it needs to be taken and put money where it needs to be put. "
But as Congress inches closer to their January deadline, a second round of sequestration seems more and more likely.