The latest quarterly financial results this week offer yet another sign that the U.S. defense industry is in the midst of a critical phase.

The biggest U.S. contractors reported no first-quarter sales growth compared with the year-ago period. Raytheon’s revenue dipped by about 1%. Boeing’s defense business also saw a similar slip. Lockheed Martin’s sales inched marginally lower too, as did Northrop Grumman’s revenue. General Dynamics reported about a 2% decline.

Meanwhile, cost cutting is propping up the industry’s first-quarter profits, but only just so. There is only so much corporate flab bean counters can burn off before doing long-term damage.

The effect of sequestration still has not shown up in force. It’s too soon, for one. In one case, Lockheed Martin said this week it expects 2013 revenue to be reduced by $825 million because of the across the board automatic budget cuts that only went into effect last month.

All this comes as the industry’s influence in Washington has waned. The politics of weapons spending is no longer as predictable, or malleable, as it once was. Last year’s failed campaign by the industry to stave off sequestration is one such example where lobbying muscle and political threats were not enough.

Not only is the strength of the U.S. military potentially on the line, but America’s competitive position depends on the industry successfully weathering this period.

The defense industrial base is an important element of America’s economic, and strategic, edge, whether through the contribution to the U.S. economy of billions of dollars in aerospace exports or the employment of some of the country’s most public-minded engineers and programmers.

See the American Security Project paper on American competitiveness and the defense industrial base.

The challenge for the Defense Department, executives and lawmakers is what to do next. The industry needs to redefine what it can offer Washington and Wall Street after becoming accustomed to delighting shareholders and winning appropriations battles inside the Beltway.

The latest quarterly results underscore that this is one of the most important tests for the industry’s executives this year. Managing in a cyclical industry during down times when uncertainty is the norm is a true measure of corporate leadership.

The stakes are greater than any one company

Check out ASP’s Blogs on American Competitiveness here, and click below to to access our White paper that discusses these issues further:

American Competitiveness – Defense Industrial Base by The American Security Project

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