How Are Defense Cuts Impacting Contractors?

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Sept. 20 (Bloomberg) -- BAE Systems Senior Vice President Tom Arseneault discusses the impact of U.S. spending cuts on the company with Mark Crumpton on Bloomberg Television's "Money Moves." (Source: Bloomberg)

The challenge -- how is bae systems responding to the challenges?

We are trying to understand where our customers are headed, reshaping our focus accordingly.

How is geopolitics shaping that focus?

There is a shift in focus now to the pacific.

The threats their are getting into the front of our thinking.

With events in syria, you can understand why it's difficult for the industry in the face of sequester to be able to balance the focus.

The defense department is your biggest customer.

What impact has it had on bae?

There is pressure on the budgets there.

That refocus involves building of resilience and reshaping of our portfolio away from sequester to more sequester proof segments.

Tony five percent of our commercial -- portfolio is commercial or international.

The u.s. has built up defense throughout the wars.

There is a flattening on the budgetary side that is not been seen in about 10 years.

How does that affect your long- term strategy?

We're working on this.

The shift in focus is away from the near-term and into the longer-term.

This is something we have seen for about two or three years.

We saw there would be a flattening.

We every shaped our business accordingly.

We have had to take out jobs.

We changed our horizon.

Speaking of horizons, how does that affect you on the commercial and international side?

On the commercial side, we do a lot of work for commercial airlines.

We're working on things like the next-generation aircraft cabin, where we will be able to provide the flying passenger a bit more rules -- resilience in the way they get their electronics charged and windows are deemed and seats -- dimmed and seats are controlled.

Talk to us more about the hydro bus.

There are thousands of buses driving around new york city with a hybrid electric drive made by bae systems.

It is technology that was born out of our flight control business.

We have been able to apply that to the energy-efficient buses.

Commercial and international makes up a quarter of your business.

How much growth are you hoping to generate?

We would like to see that go up by 10% if not more.

Is that feasible in this economy?

There are a number of opportunities, particularly on the commercial aircraft side.

Bae systems is a big international company.

We have a large footprint across the globe and are looking to continue to leverage that.

But there's also a larger footprint across the globe, and that's the economic headwinds we have been seeing the last three or four years.

How does that impact your strategy?

There will be the typical amount of patience required.

There are significant defense budgets around the world.

Not as big as the u.s. it will be difficult to offset the downturn in the u.s. we look to do as much as we can.

You have what we like to call cool technology.

One is an tele-cabin and the other is the electromagnetic rail gun.

What is that?

The tele-cabin is the future of passenger flight.

Nowadays as you are flying, you're raising and lowering the plastic shutter and the window.

As your landing, they want to make sure the shutters are up.

In the future, those windows will be polarized glass.

They will be able to dim the glass at the push of a button.

Making power more available, so everyone who wants to charge their cell phones or other electronics, they will have that capability at every seat.

What about the electromagnetic rail gun?

Bullet trains, you can picture tons of mechanical flying across the landscape.

We're looking at a video of it right now.

Imagine that technology translated to a projectile.

Big world war ii naval guns with large shells.

Replace that was small projectiles, but propelled multiple times the speed of sound using the same technology.

Magnetic fields will propel these accurately and launch these devices hundreds of miles.

Is that strictly a european thing now?

What happens in the u.s. is there's not enough long run.

We have got a lot of older infrastructure.

To reach those speeds is difficult.

Is it time for the creation of an infrastructure bank?

That has been discussed on capitol hill time and time again.

It is something we are a bit behind on in this country, something that would bode well for the future.

This text has been automatically generated. It may not be 100% accurate.

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