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US defense industry in late surge to stop spending cuts

Source: Thomson Reuters Foundation - Fri, 1 Feb 2013 23:24 GMT
Author: Reuters
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* Industry sees cuts as "doomsday machine"

* Some say big contractors wouldn't feel immediate impact

By Susan Cornwell

WASHINGTON, Feb 1 (Reuters) - An anxious U.S. defense industry has launched a new push to galvanize lawmakers who are doing little to stop the massive federal spending cuts due to kick in on March 1.

Defense contractors started a fresh surge of letter-writing campaigns and meetings with U.S. officials to plead their case about why the billions of dollars in cuts known as sequestration would harm not only the defense sector but the larger economy.

The cuts are already law, but when Congress put them there last year, lawmakers never intended for them to happen. The thinking was that they would be so abhorrent that Democrats and Republicans would come up with an alternative budget-cutting plan.

But no plan has emerged, and lately some Republicans have been saying they are willing to let sequestration take effect. If Congress doesn't act by March 1, some ${esc.dollar}85 billion in spending will be cut, about half of it from domestic spending and half from defense, this year.

"It's time that our elected officials focus and disarm the so-called doomsday device they set in motion," Linda Hudson, chief executive of British BAE Systems' U.S unit, wrote in a blog posted on Thursday to employees of the company.

"Sequestration must be stopped, and you can help," she declared, urging employees to go online to a website where they could post a letter to their lawmakers. BAE Systems PLC is a subcontractors on the F-35 Joint Strike Fighter jet. Lockheed Martin is the prime contractor, while Northrop Grumman and BAE Systems are principal partners.

Last week, the Aerospace Industries Association, the industry's chief trade group, hosted a conference call with 200 executives from about 150 defense companies to map out plans for a final stand against the cuts, spokesman Chip Sheller said.

The group has been warning against sequestration for months but now is using direct marketing on Facebook and LinkedIn. It is urging individuals who may be hurt by job losses to write protest letters, and BAE's push is part of this plan.

"These latest gloom and doom messages from the Hill about sequestration are fueling our efforts to turn up the volume," Sheller said. He said the industry had generated 17,000 new letters to Congress and the White House since Monday.

AIA President Marion Blakey and a handful of top industry executives have also been meeting members of Congress, including the leaders of defense committees, to underscore the potential impact cuts would have on jobs.

Blakey pointed out this week that the 0.1 percent contraction of the U.S. economy in the fourth quarter was partly caused by government spending that has already been reduced, primarily in the defense sector. A fresh wave of cuts would "overwhelm our floundering economic boat," she said in a statement.

'BEST WE CAN HOPE FOR'

Defense lobbyists who have been sounding the alarm about sequestration say they fear they may not succeed. Some saw as particularly unsettling comments by Republican Representative Paul Ryan this week that he thought the automatic spending cuts "will probably happen".

"How can you maintain a firm line when the Republicans have said they'll accept defense cuts?" said one lobbyist who requested anonymity.

"About the best we can hope for now is that they'll allow generous reprogramming requests," he said. Reprogramming requests are the means by which the Defense Department seeks congressional approval to shift sums from one account to another to cover unexpected needs.

During recent earnings calls, defense executives said they are not yet including the cuts in their outlooks for 2013, leading some to believe that the sector is confident they will not happen.

But the omission is more about uncertainty, not confidence.

"We don't have specific information about how DOD (the Department of Defense) might implement sequestration," said Rob Doolitte, spokesman for General Dynamics Corp, which manufactures the Abrams main battle tank, the Striker combat vehicle and nuclear-powered submarines.

"They talk about across-the-board cuts. We have thousands of contracts ... and until we have information about changes to those programs, we can't make an accurate assessment of how sequestration will impact us," Doolittle said.

Weapons-makers cite economists who say at least 1 million defense industry jobs would be threatened. BAE has estimated that sequestration could result in the elimination of 10 percent of its workforce in the United States, or about 4,000 jobs, spokesman Brian Roehrkasse said.

NO IMMEDIATE THREAT?

But some analysts say companies making major weapons systems like the cutting-edge Joint Strike Fighter (JSF) program will not feel an impact immediately if sequestration happens.

"The big ticket items are not really a problem. They are already operating on contracts that have been funded ... They will be working off their backlogs for not just months, but years," said Chris Hellman, a senior analyst at the National Priorities Project, a research organization that focuses on the budget.

Big programs could be affected in the future if for example, civilian contractors are used for training new pilots for the JSF, and there is no money to pay the contractors, Hellman said.

Hellman does not think sequestration is the best way to cut the defense budget, but he does not think the cuts would affect national security. "I think we could easily take ${esc.dollar}55 billion out of the annual defense budget, I think we should. And the sky is falling rhetoric ... I think is unreasonable."

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