US: 'New War' May Shift Defense Spending

In the nation's "new kind of war" on terrorism, defense spending is likely to focus as much on information and surveillance as bombs and bullets.

Unlike previous conflicts, which relied heavily on tanks, fighter jets and ships, a prolonged campaign against terrorists will place increased emphasis on an electronic battlefield that will require sensors and software, analysts said.

Companies such as Northrop Grumman Co., which is developing a long-range unmanned surveillance vehicle and has invested heavily in electronic warfare systems, should benefit. Other contractors building the next generation of satellite-guided missiles and sensitive snooping devices also will play a role.

"This is a new war that will require new weapons," said John Kutler, chairman and chief executive officer of Quarterdeck Investment Partners, a Los Angeles investment bank that focuses on aerospace and defense. "The Pentagon has been paying lip service over the past 10 years to its need to find a new mission in the post-Cold War environment. Unfortunately, it didn't find the mission. The mission found it."

It's too early to predict which companies and which weapons systems will be funded until the administration outlines the scope of its military response to the terrorist attacks of Sept. 11. President Bush, two days after the attacks, said "a new kind of war" had been declared on the United States and added, "My resolve is steady and strong about winning this war."

Analysts said the new kind of warfare will rely more than ever on collecting and interpreting data, and communicating that information quickly and securely to troops in the field. That need is even greater if the United States attacks countries with few stationary military targets such as missile silos or bases.

Companies including General Atomics Aeronautical Systems Inc., which makes the Predator unmanned spy plane, and Raytheon, which makes radar systems and cruise missiles, should benefit.

Bullets and bombs will still be needed to fight a sustained war, especially if ground troops are used to invade countries that harbor terrorists, analysts said. Money to upgrade existing weapons systems already was part of the Defense Department's budget plans before the terrorist attacks.

"During the Kosovo air war, we almost ran out of stuff to drop," said John Williams, a spokesman for the National Defense Industrial Association, a trade group. "Munitions are probably the first thing, depending on how massively we want to do this and what the eventual targets are."

Congress will soon receive a Pentagon review of military spending, which should reveal the Defense Department's priorities for the next four years.

The Senate is considering a request for $343 billion for Defense and Energy department needs. The spending bill already has passed the House after legislators there diverted some money Bush wanted for his missile-defense program to counterterrorism efforts.

And an announcement on the next generation fighter plane, the joint strike fighter, should be made sometime this month. The Boeing Co. and Lockheed Martin are competing for the contract.

Other weapons programs, including a next-generation unmanned spy plane from Grumman, the Global Hawk, and computer warfare systems that can protect domestic computer networks and attack enemy systems, also are likely to receive funding.

The Defense Department doubled spending for the Global Hawk program in its 2002 budget. The remote-controlled plane, with a wingspan comparable to a Boeing 737, will carry more surveillance equipment and systems designed to track moving targets than similar aircraft now in use.

Grumman also is developing an unmanned combat craft called Pegasus, which will carry missiles and other weapons. Boeing is working on a similar system. Both are in the early testing stages.

In March, the Air Force bought seven more Predators and signed an option for another seven, bringing the total number in service to 79. General Atomics is working on a jet-powered Predator that will carry more equipment and fly at higher altitudes, above the range of enemy fire.

The Defense Department's research arm also is working on a system to allow surveillance planes or satellites to track moving targets, something existing bombs and missiles cannot do with precision. The system uses airborne radar that tracks a target and provides the information immediately to missiles in flight.

In addition to large, well-known contractors, a number of smaller firms, called special access defense companies, are conducting classified research on cyberwarfare, analysts said.

Companies involved in this area will discuss only their efforts to defend commercial and military computer systems against what Grumman Chief Executive Officer Kent Kresa called an electronic Pearl Harbor in a speech last year.

But analysts said the Defense Department is likely developing cyberwarfare weapons of its own, designed to confound enemy weapons and scramble enemy communications.

"There are people working to prevent terrorist hackers," said Jacques Gansler, a University of Maryland professor and undersecretary of defense in the Clinton administration. "On the other end of the spectrum, there are people working on highly classified offensive and defensive information warfare systems. On the offensive side, they can give false information or prevent (enemy) systems from working."

Computer Sciences Corp. of San Diego declined to say whether it was working on such projects. But the company does provide software to protect military and civilian computer systems from intrusion, a service expected to play a pivotal role as the newly established Cabinet-level office of homeland security gets organized.

"Cyberdefense will be a part of the homeland defense," said Thomas Burke, director of information assurance for CSC.

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