Defense contractors eye cuts to jobs, plants

by SHAUN WATERMAN May 18, 2012

Defense contractors already are preparing for the layoffs and plant closures that will occur if Congress fails to reach a deal on the federal deficit this year, triggering $600 billion in automatic Pentagon spending cuts.

"We are running towards a cliff, all telling each other like lemmings that somehow this isn't going to happen," said Marion C. Blakey, president and CEO of the Aerospace Industries Association (AIA). "But the cliff is coming up."

The looming threat of the automatic cuts is causing defense and aerospace companies to make legally required stock market disclosures about possible lost earnings and to consider notifications to workers and suppliers about layoffs and contract cancelations, said AIA Vice President Fred Downey.

An AIA-commissioned study found that, if the automatic cuts occur, about 1 million jobs will be lost directly by contractors and indirectly by subcontractors and others companies in the cascade of consequences resulting from plant closures and mass layoffs.

The jobs that would be lost in the aerospace and defense sector are "good, high-paying, high-tech jobs" that pay up to twice the national average wage, said Mrs. Blakey.

Sequestration - the process for the $1.2 trillion automatic, across-the-board federal spending cuts - is "fundamentally flawed an abysmal public policy," and its consequences would be "almost unthinkable," she said.

The automatic cuts require almost $600 billion in defense cuts over the next 10 years, and a bit less than that in non-defense spending.

By law, the cuts have to be across the board, with agencies and departments prohibited from protecting their most effective or efficient programs, as they would do in a normal round of budget cuts.

Lame-duck hope for deal

Sequestration was intended to ensure that Congress‘ so-called supercommittee could reach a deal last year to get the federal deficit under control and start reducing the ballooning national debt.

It was designed to be "so draconian to make it certain people would come up with a solution," said Mrs. Blakey.

But the supercommittee was unable to reach a compromise, and the automatic cuts will go into effect Jan. 2 unless Congress acts - either by finding ways to reduce the deficit, or by repealing the law that implements the cuts.

"It's stupid, and it shouldn't happen, but no one knows how to stop it," said Mr. Downey.

The impasse has resulted from the parties failing to compromise sufficiently on a deficit-reduction plan: Republicans insist on deep cuts in entitlement spending without increasing taxes, while Democrats demand higher taxes and more moderate cuts to entitlements.

What is needed, Mrs. Blakey said, is some "good, old bipartisan, pull-to-the-middle, get in a room and exercise some leadership."

"They have an obligation to maintain the nation's defense," she said.

But most observers agree that, with the atmosphere on Capitol Hill mired in election-year politics, it will be impossible to reach a deal before Election Day. A lame-duck congressional session after the election appears to offer the best opportunity for a compromise.

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