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Capstone CEO John Rogers on Defense Spending…Post Election
02 Nov 2016

Capstone CEO John Rogers on Defense Spending…Post Election

November 2, 2016
Rick Barrett, Milwaukee Journal Sentinel

U.S. military spending at Wisconsin companies has been strong this year, with Oshkosh Corp. and other defense contractors pulling in billions of dollars for everything from military vehicles to aerospace technologies.

Wisconsin companies defined as prime contractors by the government have received about $2.8 billion in federal government business so far this year, not including a several-month delay in figures from the Department of Defense and contracts previously awarded.

“Based on what I see, Wisconsin should top last year’s federal spending in both total dollars and Department of Defense spending,” said Aina Vilumsons, executive director of the Wisconsin Procurement Institute, which tracks government spending.dod

Oshkosh Corp., which builds military vehicles, is the state’s largest defense contractor, accounting for about 29% of the federal government spending in Wisconsin this year.

Marinette Marine Corp., which builds U.S. Navy vessels in Marinette, also has received billions of dollars in federal business. However those figures are not included in the state total because Marinette is a subcontractor for Lockheed Martin Corp., based in Maryland.

Wisconsin typically ranks in the middle of the pack, compared with other states, when it comes to federal government spending.

Some of the top Wisconsin recipients include WPS Corp., formerly known as Wisconsin Physicians Service Insurance Corp., and Logistics Health Inc., a La Crosse-based provider of medical services for government agencies.

Overall, it’s been a good year for Wisconsin companies involved in defense-related technologies, said Lee Swindall, vice president of sector strategy development for the Wisconsin Economic Development Corp.

“I can say we are kind of holding our own,” Swindall said, with strong spending at Oshkosh Corp. but a downsized production schedule for the Navy’s littoral combat ship program at Marinette Marine.

The new warships, including vessels built in Marinette and Mobile, Ala., have had serious problems in the past year. At least four of them are now considered “test” ships that may never be deployed.

The Navy insists the littoral combat ship program will sort itself out. Yet the program’s critics, including Arizona Republican Sen. John McCain, say it’s time for the Navy to question all assumptions about the program, which has been criticized for its costs and concerns about the ships war-fighting ability.

In 2013-14, the Navy cut the planned number of littoral combat ships from 55 to 32 – a 42% reduction.

“That has been a bit of a drag on the overall defense spending that was expected in the state,” Swindall said.

On the plus side, there’s been a significant increase in government spending at Wisconsin aerospace companies, according to Swindall.

Milwaukee-based Astronautics Corp. of America recently won a Federal Aviation Administration contract related to aircraft cybersecurity threats.

“Astronautics is becoming a growing force in defense and aerospace, with advanced avionics, which was not a proficiency where we had a strong presence four or five years ago,” Swindall said.

DRS Power & Control Technologies, of Milwaukee, has been active in developing control systems for Navy ships.

“That is often overlooked because their work is highly confidential. Their products are on every Naval vessel,” Swindall said.

Johnson Controls, Tower Industries, Amtec Corp., Trane U.S. Inc. and Weinbrenner Shoe Co. are among the top 20 Wisconsin defense contractors.

“I would say, on balance, there’s more good news than bad for Wisconsin in the (defense) industry at large. It’s much better than it was four or five years ago,” Swindall said.

Hundreds of Wisconsin companies are subcontractors and suppliers in the industry, and like the prime contractors, they’ve seen the highs and lows of that business.

Oshkosh Corp. is poised to build tens of thousands of vehicles for the U.S. Army and Marines over the next decade, yet only a few years ago its military business took a big hit as contracts wound down – leaving hundreds of the company’s employees on layoff.

When defense business is good, “we are going to run at it like crazy,” said Jerry Murphy, executive director of New North, an economic development group that represents industry in northeastern Wisconsin.

When defense spending is down, Murphy said, suppliers have to adapt and find other business.

MCL Industries, a Pulaski manufacturer of mechanical and electrical controls, has been an Oshkosh Corp. supplier for more than 20 years.

At one time, the company was almost entirely dependent on Oshkosh. Now its business is more diversified.

MCL also supplies controls for the U.S. Navy and Coast Guard ships built in Marinette.

“I would say that we have had a good year in defense,” said MCL chief executive officer Bob Rupp.

On Nov. 15, Wisconsin Procurement Institute will host a seminar on how the outcome of the elections will affect federal spending.

Military spending likely will remain strong in 2017, given the positions of both presidential candidates and the threats against the United States, said John Rogers, a former Defense Department official and now CEO of Capstone National Partners, a Milwaukee consulting firm.

“You can extrapolate quickly and easily where some of that money will go. Specifically, cyber (warfare) is just going to get more and more resources. Asymmetric warfare is also going to get more resources,” Rogers said.

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