War, they say, is an ugly business. But the business of selling war machines isn't winning any beauty contests either.
Historically, the business of defense contracting has been an amiable affair, marked by good-natured arguments between rivals who were willing to work together when necessary. A few years back, General Dynamics (NYSE: GD) and Force Protection (Nasdaq: FRPT) went toe-to-toe, slugging it out for the right to build MRAPs for the Army. But when Force Protection started winning contracts, who did it tap to help scale production? General D. Similarly, Lockheed Martin (NYSE: LMT) uses many "rival" contractors to build and arm its F-35 fighter jet, and Lockheed calls on the expertise of Northrop Grumman (NYSE: NOC) and Raytheon (NYSE: RTN) to help make its Airborne Laser shoot straight.
These companies argue over who gets pride of place as "prime contractor" on a project, but once that's decided, former rivals tend to fall in line. Some call these relationships incestuous, but to investors, it's just good business. So long as the money flows freely, there's plenty for everyone.
But what happens when the money spigot gets turned off?
It's business, and it's personal
A couple weeks back, I warned Fools about this scenario. As the Pentagon cuts defense spending, PR battle lines will harden, and companies will play hardball for their "fair share" of the loot. Now we're seeing it happen. A few days back, an ad placed by United Technologies (NYSE: UTX) in the pages of the Indianapolis Star (among other publications) illustrated just how nasty this business is becoming. Featuring the face of a grizzled grunt, the company's ad practically growled at the reader: "Go ahead. Tell him that $2.9 billion should be wasted on an extra engine. Instead of being spent on equipment our troops really need."
For those not in the know, United Technologies is taking aim at General Electric (NYSE: GE) here, criticizing congressional efforts (with lobbying by GE) to fund development of a new engine for Lockheed's F-35. A plane that already has a perfectly good engine, by the way -- one built by United Technologies.
Incidentally, United Tech is also trying to work its way into the good graces of Defense Secretary Robert Gates, who first raised the "$2.9 billion" figure last month. According to Gates, programs like the GE engine are eating up funds that could be better used to buy combat equipment for troops in the field -- equipment like Black Hawk helicopters manufactured by United Technologies' Sikorsky subsidiary.
As flanking tactics go, this was neatly executed. But it wasn't pretty. And it's going to get uglier.
