With demand for weapons headed downward in the Obama Administration’s proposed five-year spending plan, now would seem like a good time for defense companies to consider diversifying into commercial work. Many of them have technology skills that seem fungible beyond defense, and the outlook for demand in the government’s civil agencies doesn’t appear much better than at the defense department. However, there are at least five reasons why diversification won’t be considered seriously by most big military contractors. Defense demand could come roaring back if there’s a new threat, there are plenty of opportunities for margin expansion, and new military markets beckon. Beyond that, defense work doesn’t prepare companies well for commercial competition, and investors don’t like the idea of military contractors diversifying. I have written a commentary for Forbes here.
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