UMass Donahue Institute

Massachusetts’ defense industry will be in retreat for a short period if the war in Iraq winds down after a new U.S. president takes command.

But analysts hope the Bay State’s diversified defense sector and high-tech concentration will help it play a key role in the country’s military future.

No one is predicting an immediate withdrawal of troops, equipment and spending in Iraq after a new president - whether he’s Democrat Barack Obama or Republican John McCain - is sworn in this January.

But defense industry experts and Wall Street analysts are already talking about what will happen if any type of reductions occur, whether it’s forced by domestic politics, battlefield necessity or a combination of the two.

Some analysts think the state’s defense industry - whose value was recently pegged in a University of Massachusetts report at about $14.7 billion a year - could take a 5 percent or more revenue hit if there’s a significant change.

That could lead to layoffs and other disruptions for firms making everything from missiles and robots to aircraft engines and other items used by GIs in Iraq.

Defense contracts in Massachusetts now support about 32,240 jobs, according to the recent UMass Donahue Institute study.

An additional 39,187 jobs are indirectly tied to defense-related research and supply-chain operations, the UMass report said.

“There will be some impact,” said Donald Quenneville, executive director of the Defense Technology Initiative, an offshoot of the Massachusetts High Technology Council.

Most major defense contractors would be affected - whether it’s Raytheon Co., which accounts for about 23 percent of all Pentagon contracts in Massachusetts, or smaller companies, such as Foster-Miller Inc., which holds less than 1 percent of the state’s defense-related contracts.

But industry sources are optimistic that Massachusetts would be less hard-hit than other states with big defense businesses - and in the long run the state could become an even bigger player in defense.

The reason for the optimism: the Pentagon’s aggressive commitment to modernize the U.S. military, as it prepares for the “next wars,” and the state’s well-regarded high-tech sector.

“Massachusetts’ defense industry is not reliant on making bombs,” said Andre Mayer, economic researcher for the Associated Industries of Massachusetts.

“If we were making bullets, we’d be in trouble,” added Chris Anderson, president of the Massachusetts High Technology Council.

The U.S. Army is now pushing its own $100 billion-plus “Future Combat Systems” program, which envisions developing and then pushing new technologies faster into the hands of soldiers, sailors and airmen.

Meanwhile, the state has made a bid to get the U.S. Air Force to set up its Cyber Command headquarters at Hanscom Air Force Base. Massachusetts is competing with 17 other states for the cyber-defense program, which would create about 550 jobs and spur growth elsewhere in the defense technology sector.

Among the companies that may see a small hit if the war winds down quickly is Bedford’s iRobot Corp., which now makes the much-lauded “PacBot” robot that’s used both in Iraq and Afghanistan to help identify and defuse deadly roadside bombs.

The company’s defense-related contracts now account for about 40 percent of its $250 million in revenue - with the rest coming from domestic commercial products, such as its popular “Roomba” vacuum cleaner.

But the military envisions one day assigning a small tank-like robot to infantry units to act as a mobile mechanical scout, equipped with videos and sensors to detect a nearby enemy.

That could lead to a huge increase in its robotic business with the Pentagon, the company believes.

“If you are part of the future and part of a transformational industry, then your future is bright,” said Joseph Dyer, president of iRobot’s government and industrial division.

Bay State defense powerhouse Raytheon also feels optimistic no matter what the country’s future in Iraq holds.

Less than 5 pecent of Waltham-based Raytheon’s $21.3 billion in revenue comes from products and services tied to the country’s conflicts in Iraq and Afghanistan.

Among other things, they include the company’s famed Patriot anti-missile system and mobile radar equipment.

But Raytheon believes its product lines are well-diversified heading into the future, spokesman Jon Kasle said.

Robert L. Culver, president of the Massachusetts Development Corp., said the net result after any Pentagon spending and priority shifts in Iraq could be offset in other areas, from expansion of Air Force facilities at Bedford’s Hanscom Field to investments in new electronic equipment.

August 18, 2008