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Defense firms recruit fresh CEOs

But experience needed as Pentagon cuts rattle industry

The defense industry, bracing for change in the face of declining government spending, is bringing in a crop of new executives.

While these corporate leaders will be tasked with managing a far tougher environment, their backgrounds are virtually the same as those of their predecessors.

As they weigh acquisitions, spin-offs and mergers, contractors aren’t seeking upstarts from the tech industry. Instead, they want chief executives with experience.

“Defense companies just don’t hand the keys over to a completely new driver,” said Roman Schweizer, an aerospace and defense policy analyst at Guggenheim Securities. “Defense has its own peculiarities.”

The U.S. unit of BAE Systems this month announced that Linda Hudson, chief executive since 2009, will depart and Gerard J. DeMuro, who spent more than a decade as an executive at General Dynamics, will take over.

Airbus Group’s North American unit – formerly known as EADS North America – announced this month that its chief executive, Sean O’Keefe, will step down in March. Allan McArtor, chairman of Airbus Americas, Airbus Group’s commercial aircraft division in North and South America, will succeed O’Keefe.

“What boards are looking for is predictability,” said Loren Thompson, a defense industry consultant. “The sector already has enough uncertainty from its federal customer without having to add additional doubt.”

In the past two years, the industry has seen the arrival of a number of new chief executives: Kenneth Asbury at CACI International, Marillyn Hewson at Lockheed Martin, John Jumper at Science Applications International Corp. (he now leads Leidos, created by splitting SAIC into two companies), and Phebe Novakovic at General Dynamics.

Most of these executives rose at established companies; Hewson and Novakovic had years of experience at their respective contractors, while Asbury’s background included decades at Lockheed Martin.

Industry analysts said experience and relationships matter in government contracting, given the role of Capitol Hill and the Pentagon in ensuring new work.

“Running a defense company is as much about being able to relate to the senior military leadership and the political leadership as it is about understanding how you make a supersonic fighter,” said August Cole, an adjunct fellow at the American Security Project.

But this new crop of chief executives is likely to participate in a significant industry reshaping. Defense analysts say that the decline in government spending has already spurred divestitures and spin-offs that will set the stage for a rearranging of units and assets.

The new leaders of the U.S. units of European defense companies may have their own specialized set of issues.

In 2012, BAE’s London-based parent company sought to merge with what was then known as EADS, but that deal came to a halt after European officials failed to agree on terms.

The changed times means the executives should be prepared to do things differently than their predecessors, Cole said.

“The worst thing the defense industry could do is keep doing the same things again and again,” he said. “Technology’s moving much faster than it has before. … To be relevant in the national security environment, you have to move much faster.”

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