welcome to "this week in defense news." i'm vago muradian. as u.s. and european defense spending contracts, a top bae systems executive tells us about where his company is going to find growth on global export markets. plus, how one military service organization is changing how it supports military members and veterans. but first, the looming threat of sequestration and whether the pentagon will be forced to cut another $500 billion if congress fails to strike a daily by january 2. defense secretary leon panetta and the chairman of the joint chiefs of staff general marty dempsey say cuts would be devastating to capabilities. industry executives warn unless congress resolves the crisis they will be forced to lay off thousands, starting a chain reaction that could cost up to

2 million american jobs. panetta was so concerned that just a few weeks ago he summoned some of the nation's top defense executives to washington to discuss the problem. dennis muilenburg, the ceo of boeing's space business was mog those who spoke with panetta. we recently caught up with him at the farnborough international airshow outside london. >> wade very good conversation around the overall defense budget situation and the potential sequestered situation in particular. the conversation was really around making sure we have open communication lines, a common understanding of the risk areas and how the sequestered scenario could play out and some of the potential impacts to the industrial base. overall it really sat a good attorneys i think, for making sure we have a common strategy and open communication lines as we deal with a very challenging situation. >> how serious would sequestration would be? what are you doing to prepare fort, and do you think it's going to happen? >> sequestration would have a

devastating impact on the industry. as currently written the law and the way it applies across the board in terms of budget cuts would unravel a lot of programs and cause a devastating jobs impact and impact national security as well and our ability to deliver on those programs so it's a very significant issue. it's not clear yet what the political solution is. it's something that we've been advocating strongly, to find a billioned solution to avoided is he scwes atmosphered, but in order to prepare as a business we have to manage risks so we're already taking actions, reducing cost structure. we have already made some employment reductions, and we'll continue to take aggressive affordability steps to prepare ourselves for potential worst case scenario. >> like all the companies in this industry almost worldwide export markets are obviously becoming more attractive as domestic budgets go down. what are the most interesting -- what are the product that you guys are out there pushing and in what markets?

>> ly with export markets are becoming more and more important as we expand globally. our defense business at boeing has gone from 7% outside of the u.s. to almost 25% during the last year. so over five-year time period a very significant mix change. around the globe we see a lot of interest in our fighter product lines, like the f-18 and the f-15, transport capability like the c-17, helicopters, chinook and apache in particular, and growing interest in v-22. and we see a lot of emerging interest in the whole area of isr and intelligence capability, products like the p 8 and others. >> that's the maritime surveillance aircraft. >> maritime surveillance aircraft w. the idea of being able to connect satellites, aircraft, and provide awareness to our customers around the globe. we think that isr area in particular is a big international growth area and is one of our featured areas here at the airshow this year. >> what about regions and countries in particular that are going to be the strongest

growth areas for you? >> we see strongest growth in the middle east and asia pacific, and that broad based growth in the middle east includes saudi arabia and uae, qatar, kuwait, around the asia pacific rim we've been working very hard in places like japan, korea, our customers in australia, india, singapore. a really broad based growth in both regions as they deal with some very tough security challenges ahead. they're also looking for next- generation capabilities that can be delivered affordably and on schedule. >> brazil is another one of the important markets for you. you were just there for a whirlwind visit. they've delayed their fighter competition by about six months. on the commercial side, you guys have struck a daily with embraer air, and on the defense side you've struck a deal to help them market the kc-390 twin-engine tactical transport. how important is this alliance that you have with embraer air to winning in brazil?

>> i am burglary is a very important -- embraer is a very important partner to us. boeing has been in brazil for about 80 years so that relationship is one that's very important for us to continue to invest in. in april we announced a broad- based agreement with embraer that includes collaboration on areas like biofuels and safety technologies. as you mentioned, recently we announced collaboration on the kt-390 medium transport aircraft. and what that represents is a growing set of collaborations between embraer and boeing all with the idea that we're long- term partners and that will help us grow in brazil and around the world. >> is it going to be a factor in helping you win the fighter competition? does industrial collaboration matter? >> certainly industrial collaboration matters. as you have mentioned the fighter competition in brazil is very important. we've offered our super hornet. we think it's a very good match

to the capability our brazilian customer is seeking. industrial partnerships is a key part of that offering. our relationship with embraer is a key element. >> in singapore earlier this year you said you would consider a smaller aircraft -- smaller jet aircraft for a lighter version of the p-1 maritime surveillance aircraft we discussed. is that aircraft going to be an embraer? >> we haven't decided yet. certainly the mission systems we see in p-8 are scalable by design so we have some customers very interested in the p-8, the 737-based aircraft. other customers may be seeking a smaller airframe with scalable mission systems. so we're evaluating a number of different airframe alternatives all with the idea of providing an affordability capability match for our customers. >> the pentagon is putting in

new guidelines for commercial products that are used for military applications. you guys produce two very notable commercial modified products. one is the p-8, and the other one is the tanker aircraft. how is that policy change going to affect you guys? >> it plays an important role in our commercial derivatives business strategy, and our customer at the pentagon rightly wants to understand that they're getting the best deal, the most affordable commercial pricing. >> that's right, because they want more extensive prizing data from you. >> what we're doing is providing them access to selective commercial data that will give them confidence in the pricing level while maintaining the proprietary nature of some of our commercial information. i think it's a billioned approach. we are going to be testing it out on products like tanker and p-8, and i believe we're converging on an approach that will work for all parties. >> the pentagon also wants the industry to invest more to develop new products but the industry has been reluctant to do so and has, in fact,

generally been cutting investment in independent research. where do you guys stand? are you going to boost your investment? >> we've been taking perhaps a little bit of dave rent approach than some of our competitors. if you take a look at beg's overall stance we look at the overall market as one boeing and collaboration between our commercial unit and our defense unit. while we see the defense budget realistically as a very tough situation in the u.s. we've been taking some very aggressive affordability actions, cost reduction actions that will allow us to preserve and hold our r&d through the downturn, and we think it's very important that we continue to invest in the downturn and that we do our best to hold that r&d and in some cases grow that investment in new prototypes like the phantom i, for example that provide high- altitude long endurance isr capability. so that will continue to be our stance. the key is to drive productivity and cost reduction so we can continue to fund

one of the world's top defense companies tells us what they're doing to offset

all defense companies tout their global credentials but few are as international as bae systems. only 20% of their $30 billion in 2011 revenues came from the united kingdom with 41% from the united states and the remaining 39% from customers worldwide. what will b a do to grow as u.s. and european spending drops? to find out we spoke with alan

garwood, bae systems group business development director who was head of the sales organization before taking up his current post five years ago. i asked him what his priority markets were and what products he thought would prove the most attractive on the international market. >> okay, i mean, i think as you know we're one of the world's top exporters. to some extent chasing exports is business as usual for bae systems. but we have increased in three areas, middle east, latin, and far east. we've been looking at the brazilian naval market. middle east is still the center of expenditure and investment on defense equipment and we're seeing the far east, asia very interesting to us. that's across the defense piece and growingly on the security sector as well. northeast asia, our focus there particularly at the moment is things like f-16 upgrades, offering capability improvements to people like korea, i think that also has great promise for b a systems

in the future. >> what are some of the other product sets that you guys are lacking at? knew typhoon is really important product for us. we're in discussions with oman. malaysia has a competition that's going to kick off very shortly. uae, a lot of other companies we're chasing. we're also seeing the saudi arabians committing to a new program. >> restarting manufacturing. >> that gives us a good base there to chase other export around the world. a lot of people are looking for new training systems. again, oman, maybe iraq. >> in the united states, you're very bullish on that. >> last of all, teamed with l3 and northrop grumman, they are going to be the focus on us for the competition. we're trying to do our best to make sure it's what the united states air force wants and great industrial package. the hulk is going to be made in

the united states. >> let me go to the euro fighter. there is a view in the u.k. that one of the reasons the aircraft lost in india was because the partner governments hadn't agreed to a new radar, air to air missile integration. when are we going to see movement on that? do you think it was a factor, and when are we going to see movement on that? >> i don't know if it was a factor or not because there's been no de-brief yet. we're on stand by as the second lowest bidder if things don't mature there. there is a track record in india of them calling forward the l 2 bidder to take over the contract. for us, there's initial funding on the way from government, and there's a program for the integration of the missiles. i think the scan radar is readily available to all the customers. all the customers are going to be offered the scan radar and the full suite of weapons which, let's face it, is the best suite of weapons in the

world. as you know, my past was in missiles. when i was running mbda we brought the as-ram missile, the best short-range, and? other policeman in the world can offer that. so the fully equipped typhoon with an e-scan radar is available to all the customers that we're talking to and is going to be a world beater. >> your old job was working for the british government obviously for security exports. where is the global market going to be in five years' time? >> for me, i think it's going to be very much middle east and southeast asia. i don't see that changing for the foreseeable future. the united states -- >> are you willing to put a number on it? >> i'm not, no. but the u.s. focus on the pacific now is where the money is going to be for those countries as well. a lot of activity in north and southeast asia. we have just put a new managing director for southeast asia into kuala lumpur. we're basing our regional team down there. we have a focus in northeast asia and middle east.

that's going to be, as i say, of course aircraft, probably some ships, a lot of land equipment, and the growing security sector. >> you guys have been a very, very successful exporter but all of your competitors are rushing in and competing for work with some of your longstanding customers. what are you doing to protect yourself from that onslaught, and is that going to rob energy and resources to actually win more business? >> several things. first, i would say we're the most global aerospace company in the world. we've been out there doing this for a very long time. we therefore have a really strong established network of people in the country who understand how the countries work who usually speak the language of the country they're operating in. so we're drawing on 50, 60 years, that's the company's heritage. it doesn't sap energy from the new business here in the united states. that's separate teams that do. that we've got more than enough people to focus on what is still very substantial market. the united states is still the world's biggest defense market

by a long way so we're not going anywhere. sorry, just the other thing, what we're doing to protect ourselves, we're making ourselves more competitive. if you look at the work bell linda hudson and her team have been doing, we've been trimming overhead numbers, trimming the costs so that our businesses are able to compete in the global markets that we want to work in, particularly in the growing service sector where margins are a little lower but we want to grow that sector and develop our efficiency in those sectors. >> let me take to you sequestration which is the biggest topic in the united states. obviously the half trillion dollar cut that would take place. you're a generallal defense company. how is that going to affect your business and what kind of global ramifications do you think it is going to have? >> i don't know if it's going to happen probably any more than you do, and i would see lots of input from around the u.s. about what the consequences are. we've done some modeling for us, what we think may be the consequence. it's not that significant an issue for us. it's going to hit everyone but i don't think we're dog to be more hit than anyone else.

i don't know if it will have an effect around the world. it will just drive the companies out more and more to get into the export market. fundamentally you think hat to at some point undermine the american export market because there will be less indigenous technology, but we're years away from getting into that sort of position. >> let me take you to another -- in the few seconds we have left, the anglo french unmanned vehicle cooperation. there was supposed to be a deal that was supposed to have been signed at this airshow. it is not going to be signed now. how important is it? what's going on? and what happens if it goes away? >> well, i think it is important. as the first new initiative for a long time, my understanding is the french government remain committed to it but are just taking time to look at it. they've only been in power for a few weeks. there's an expectation this will move forward in a few weeks time. for us, it's a real breakthrough. we're having really good discussions with our partner about would we mate do, not

just in the anglo-french market but as a vehicle for export around the world. i met the desseau guys here yesterday and we're looking forward to a future which is pretty good for both countries. i think it's very important. it may bea vehicle for both countries in the future but the u.k. and industry want to get the anglo-french deal sorted out, then if other countries want to come in we can probably accommodate them. >> alan, thanks for joining us. >> good to

financial hardship has taken a toll on many americans including military families. operation homefront, one of the military support groups founded after 9/11, provides emergency funding to military families and veterans in need including transitional housing for wounded service members. last year it responded to more than 156,000 requests for help. i'm joined by jim knotts, the president and ceo of operation

homefront. jim, welcome. >> thanks, vago. >> there are a lot of these support groups. what makes operation homefront unique? >> operation homefront is there at critical times particularly for our service members and their families when someone is away deployed to iraq, and now afghanistan, or while they're recovering after they're wounded, making their transition back to civil life. we're meeting the most basic of needs. food, rent, utilities, car payments. >> mortgage payments, in fact, if folks need help on that. >> absolutely. we're there at the most critical times, and our assistance comes in the form of cash grants paid to the service providers. >> your organization grew up practically overnight after nine len. how has it changed since then and where do you see the organization going in the future? >> the mission has changed a lot and has taken on that focus of emergency financial assistance. but we have changed and added additional programs to be flexible to the needs of the military families and of course cognizant of the changes in the

military mission. and that's what we see changing in the future as we wrap up the deployments to afghanistan. we're just really worried that a lot of people that have supported our troops over the last 10 years of war are going to think that the troops no longer need their support. and that is absolutely not the case. we know that a lot of new needs are going to emerge as that's families impacted by years and years of strife go through longer periods of reintegration. >> and also your dynamically shifting to do more for veterans than you are for active duty members who are deployed. >> well, we're continuing to support veterans, particularly in housing where we have done transitional housing for the wounded as they recover and either return to service or leave the military, and a new program that we call homes on the homefront is providing permanent housing to veterans. since the beginning of the year we have taken 80 properties

from financial institutions that have donated the homes to us, and we're actually going to put the families there and help them make that transition success havely over a period of about two years. >> in terms of long-range fund- raising, though, what are you guys doing to try to maintain those funding streams? because as you said, you guys want to be around 10 years from now and not just two years from now. >> absolutely. we just want everybody to know that the military will continue to need their help, both the active duty family as well as our veterans. and operation homefront is making the changes internally now, talking to our senior military leaders about what the needs of the family will be, making those changes now so we're prepared to continue serving when the deployments end to afghanistan. >> jim, thanks very much for joining us. best of luck. coming up, my

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the house last week overwhelmingly voted to give the obama administration 30 days to detail the $500 billion in automatic defense cuts that would be triggered if congress fails to embrace a broader deficit reduction deal. the administration has avoided detailing automatic cuts specified by last year's act in part to keep them from becoming a reality. under the law every program, project or activity would be cut 1 to 15% although the president can exempt military personnel which would hit acquisition, operations, and research harder. it's also unclear how much more it will cost in charges and future litigation to alter every dod contract that suffers a cut. with the january 2 deadline looming and increasing uncertainty whether sequestration can be avoided alarmed defense leaders say they're legally bound to start warning employees of potential layoffs in an election year. part of this is intended to terrify lawmakers into action but businesses hate

uncertainty. it was uncertainty whether america would default on its debt last year that prompted the first ever downgrade of u.s. debt. greater clarity about sequestration's impact would be welcome but details are less important than avoiding sequestration in the first place. lawmakers manufactured this crisis and it's up to them to adopt a daily that responsibly cuts the nation debt while also increasing revenues. thanks for joining us for "this week in defense news." before we go a salute to the 2012 military times service members of the year chosen by their peers for outstanding performance both on and off the job. each of these five everyday heroes exemplifies the ethos of service before self. go to military tames.com/smoy. i'll be back next week at the same time. until then, have a great week.

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