Defense companies must go on offense to prove their value

In anticipation of changing leadership in Washington, the stock market has soared higher in recent weeks. Increasing optimism in an economic recovery is bringing more investment into the marketplace. For the most part, share price increases have taken place across the board, with especially notable increases in the banking sector and in the defense/aerospace industry.

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It is evident that investors are expecting more Wall Street growth based at least in part on increased Pentagon spending. However, investors (who usually demand clarity before making financial decisions) may have acted too soon in rallying around those companies that have the Pentagon as its biggest (and perhaps only) customer.

 

Recent criticisms of Boeing and Lockheed Martin in tweets by President-elect Trump have started conversations that will lead to questions of the value these companies provide the taxpayer. This criticism has increased volatility of the share price, at least in the short term. While the value provided by defense contractors surely exists, the questions raised have placed these companies on the defensive – a disadvantaged position for any communicator.

“The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th,” Trump announced via Twitter on Dec. 16.

The announcement rightly concerned Lockheed Martin executives. The company immediately responded about its efforts to reduce costs.

Trump tweeted a week earlier, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion, Cancel order!”

After a significant blow, it didn’t take long for Boeing’s stock price to recover, but the announcement surely shocked a company that likely isn’t used to being second-guessed.

Having a business leader instead of a politician in the White House will change the way any entity approaches selling to the government – especially when it comes to defense spending.

Let’s face it: the bigger numbers are the first place the new administration will look to cut. In order to avoid coming into contact with a sharpened pencil, every defense contractor had better start proactively communicating the value of the products and services they offer. Communicating in terms of value instead of costs will go a long way in an environment where billions of wasteful spending has been exposed and will likely to be under continued scrutiny.

We are advising our defense clients to go on offense and communicate proactively to avoid being on the receiving end of a sharp presidential tweet. This is counsel that works for most since if a business doesn’t tell its own story first, it risks a competitor or critic establishing the public narrative. And in an era where “fake news” has been ever more prevalent, companies need to have maximum control of the narratives they are looking to advance.

While this strategy may be counterintuitive for a company unaccustomed to proactively communicating, the old saying that “an ounce of prevention is worth a pound of cure” applies. If a company thinks it may even have a chance of its program being pushed onto the chopping block or under a presidential microscope, it should start communicating with stakeholders now to build up its own defenses.

Ben FitzGerald of the Center for a New American Security explained in a NPR Marketplace interview that the F-35's challenges lie in being a “one size fits all combat aircraft that must support the Air Force, Navy, and Marine Corps.” He further described the F-35 is an “engineering marvel” illustrating that defense companies need to get out front with a true and compelling storyline. If they do, experts like FitzGerald will be even better equipped to explain the value, if costs become an unwelcome headline.

Companies like Boeing and Lockheed Martin are in the defense business, but had better stake a value claim now and go on offense before the cost cutters or competitors take further aim.

Defense contractors provide valuable services that all too often go unnoticed. These are not trivial matters. Their products and services save lives and protect the homeland here and abroad, all while protecting the interests of the taxpayer too.

The facts associated with most defense contractors are honorable, and even patriotic – but when mischaracterized – regardless of the motivation, these same companies have to explain their value in a fog of criticism. And, as the old PR saw goes, when you are explaining, you are losing.

Dan Rene is a senior vice president at LEVICK.


The views expressed by contributors are their own and are not the views of The Hill.