Trump’s ‘Twitter-spanking’ of defence contractors could pay off: analyst

U.S. president-elect Donald Trump’s tweets targeting Boeing and Lockheed Martin won’t lower defence costs much but may give the president-elect the upper hand in procurement talks, two military analysts told CNBC on Friday.

“This is going to embolden government officials to go out and pursue aggressive deals, and it’s going to perhaps sharpen the demeanor of corporate managements who know they’re going to get Twitter-spanked by the president-elect or the president if they are too greedy,” Cowen’s Roman Schweizer said on “Power Lunch.”

Retired Army Col. Jack Jacobs said on the show that Lockheed’s cost overrun came from new requirements put in place to extend the F-35 programme, including maintenance and operational fixes for the stealth combat aircraft. While the programme is extremely expensive, the cost couldn’t go much lower, he said. 

“It’s not going to save zero money, but it’s not going to save a lot,” he contended, referring to Trump’s tweets.

Overall, developing military operations is costly, and if Trump seriously intends to reboot the nuclear arms race, he will need all the extra cash he can get, Jacobs said.

“We do need to spend a lot of money on refurbishing the systems we have and replacing some of the systems … with new, more efficient ones,” Jacobs said, adding that that doesn’t require increasing the number of warheads, but slashing the number of delivery vehicles.

“The Russians and the Chinese are doing the same and we definitely have to keep pace, but we don’t have to increase the arsenal,” Jacobs said.

Schweizer said Trump used the tweets to create a more competitive atmosphere in a largely noncompetitive sector and to assert his power over how defense contractors function.

“I think what [the] president-elect is doing is by picking out Boeing and Lockheed Martin, he’s actually picking on the two biggest kids on the block. And if he can get them to change their behavior, it’s certainly going to flow down through the other companies in the group,” he said.

But tarnishing relations with the contractors now may create obstacles for Trump in future negotiations, Schweizer said.

“We’re in this situation where he’s sort of limited in what he wants to do,” the analyst said, contending that if the president-elect dismantled the F-35 programme, the onus would be on him to rebuild it from scratch or refurbish an older programme. 

On the other hand, “Boeing, on the presidential aircraft replacement, that negotiation comes up some time next year, and the president is in a bit of a bind. I mean, is he really going to contract with [Europe’s] Airbus to build Air Force One?” Schweizer asked.

Regardless of how the negotiations pan out, Schweizer said Trump’s criticisms have rekindled excitement in Washington around the president-elect’s involvement in military operations.

“When the secretary of Defense gets interested in a programme, it really moves the entire Pentagon. When you have this being done from the Oval Office, it really changes the game dramatically,” he said.

And perhaps this will remind Washington officials and other leaders of the power of negotiations, Schweizer added.

Source: CNBC