Defense

July 18, 2012

Defense firms warn of job losses from budget cuts

by Donna Cassata
Associated Press

Leader of the nation’s major defense contractors warned July 18 of job layoffs and disruptions in manufacturing if Congress fails to agree on an alternative to automatic budget cuts.

Robert J. Stevens, chairman and chief executive officer of Lockheed Martin, said the across-the-board reductions could result in layoffs of 10,000 employees from his company of 120,000 workers. Executives from Pratt and Whitney, EADS North America and Williams-Pyro also sounded the alarm about the $110 billion in cuts slated to hit defense and domestic programs on Jan. 2.

“From an industry perspective, because of the specter of sequestration, the near-term horizon is completely obscured by a fog of uncertainty,” Stevens said in testimony before the House Armed Services Committee.

Republicans and Democrats are trying to undo the cuts they voted for last summer when they agreed to a deficit-cutting budget, but partisan divisions stand as a major obstacle to any solution. Democrats argue that any alternative must include tax hikes on high wage earners. Republicans are resisting any tax increases as the economy slowly recovers.

Politically, Republicans are trying to use the issue against President Barack Obama, contending that the commander in chief is willing to undermine the nation’s military with deep defense cuts. In fact, Republicans and Democrats backed the legislation that called for $487 billion in defense cuts over 10 years, plus the automatic cuts of about $492 billion in projected spending if a congressional bipartisan committee failed to come up with $1.2 trillion in savings. The panel was unsuccessful.

Some Republicans, including Armed Services Committee Chairman Howard “Buck” McKeon, R-Calif., have said they regret the vote.

The House voted overwhelmingly Wednesday for legislation requiring the Obama administration to spell out how it would implement the cuts in a report to Congress. The vote was 414-2.

In another political wrinkle, the officials from some of the defense firms said they would send out notices warning of possible layoffs 60 days before the cuts – which would fall just days before the November elections.

“Some may consider it flattering to believe that our industry is so robust and so durable that it could absorb the impact of sequestration without breaking stride,” Stevens said. “But that is a fiction. The impact on industry would be devastating, with a significant disruption to ongoing programs and initiatives.”

Despite the gloom, a report this past spring from Price Waterhouse Coopers found that the top 100 aerospace and defense companies reported $677 billion in revenue and $60 billion in operating profits, a record-setting year.

“Revenue was higher by 5 percent compared with 2010, while operating profit was up 2 percent over 2010,” the report said.




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