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Defense cos. raking it in as military turns to area's tech expertise
Friday, September 22, 2006
Boston Business Journal - by Todd Wallack Special to the Journal
Bay State companies landed $9.6 billion in defense contracts in the government's 2004-2005 fiscal year, up 20 percent from the year before. Defense data also shows a surprising breadth of companies -- from Pittsfield to Nantucket -- that benefited from defense spending. More than 1,000 firms received at least $25,000 in contract awards last year.
"Massachusetts has prospered in the last few years because of the drastically increased defense budgets,'' said U.S. Rep. Marty Meehan, a Lowell Democrat and member of the House Armed Services Committee. "All you have to do is go to Afghanistan or Iraq and you will see Massachusetts technology in the theater."
Experts say the U.S. defense budget has mushroomed over the past few years, both because of the decisions to invade Afghanistan and Iraq and an effort to upgrade the military's technological capabilities. By some estimates the military budget, adjusted for inflation, is now the largest since the height of the Korean War.
And the military has long turned to Massachusetts, lined with research universities and computer companies, for much of its technical know-how.
"The more reliance there is on technology, the better it is for Massachusetts, because that is what we have to offer,'' said Alan MacDonald, executive director of the Massachusetts Defense Technology Initiative, a trade group that promotes the state's defense sector.
Indeed, scores of local tech companies are working on new technology for the military.
IRobot Corp., the Burlington company best known for making household robots that vacuum rugs and mop floors, has a line of military robots called PackBots designed to dismantle enemy explosives and explore hostile territory.
And in February, Textron Systems in Wilmington hosted an event to show off local companies' role in developing military equipment for the future -- part of the military's Future Combat Systems Initiative. The program is expected to generate $120 billion in contracts over 30 years.
Much of the military's research is also based here. The Massachusetts Institute of Technology, which received more than $600 million from the Defense Department last year, ranks as the fourth largest defense contractor, according to Pentagon data. Among other things, the university runs the MIT Lincoln Laboratory, which has close ties to the Air Force and works on national security research. Other colleges, including Boston University, Harvard, Northeastern, Tufts and several University of Massachusetts campuses, also received funding last year for defense research.
Many of the state's traditional defense contractors, such as Waltham-based Raytheon and General Electric, have also seen increased funding.
"We've had a business rise across the company,'' said Raytheon spokesman Jon Kasle. More than $2 billion in contracts were handled by Raytheon's Massachusetts operations alone, up one-third from the prior year. The company has 12,000 employees in Massachusetts who work on everything from sensors to the Patriot Missile.
Business has also boomed at General Electric's facility in Lynn, which has 4,000 employees and makes engines for the Navy F/A-18 Super Hornet and various military helicopters, including the Black Hawk and Apache. GE spokesman Rick Kennedy said the plant has an surge in orders because the U.S. Army is in the process of upgrading its helicopter fleet with newer engines.
Moreover, Bay State companies should continue to benefit as the military budget continues to grow, experts say. Steven Kosiak, an analyst at the Center for Strategic and Budgetary Assessments in Washington, said contracts will likely continue to increase at a rapid clip through this fiscal year, which ends Sept. 30, and then grow at a slower pace in future years.
There are actually different ways to measure how well Massachusetts is faring in snatching up defense contracts. One is tally up all the contracts that went to companies that used Massachusetts addresses on their bids. That produces the $9.6 billion figure cited earlier.
An alternative is to use the location where the bulk of the work is actually to be performed. Under that method, Massachusetts is doing equally well. More than $8.3 billion was earmarked last year for work done in Massachusetts in the last fiscal year, up 20 percent from the year before. That's almost double the 11 percent gain across the country.
Over the past five years, Massachusetts defense work has grown 76 percent, about the same pace as nationwide -- even though the state slipped from 6th to 8th on the list of states with the most defense contracts.
Still, some think Massachusetts is poised to grab a larger share of defense contracts as the military increasingly turns to new technology, one of the state's traditional strengths, to revamp its forces.
"The Department of Defense is looking at technology as the true competitive advantage of the United States military,'' said MacDonald, the industry group director. Naturally, he added, "the Department of Defense would be looking more and more to Massachusetts to develop those technologies."
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