Defense contracting companies threatening mass layoffs

Defense contractors say thousands of jobs depend on Congress.

“It is a legitimate concern for the defense industry in general,” said Scott Coale, a retired Air Force Research Laboratory vice commander who is president of DaytonDefense, the regional association of defense contractors.

The association’s more than 250 member companies, with a combined 10,000 employees, primarily serve Wright-Patterson Air Force Base, the Air Force’s 27,000-employee logistics and acquisition center that has a $5 billion annual economic impact on the region.

The $500 billion in spending cuts are to take effect Jan. 2, 2013, because a congressional committee in late 2011 did not reach agreement on what specific reductions should be made to cut federal spending.

The cuts are in addition to $487 billion in reductions over a decade that lawmakers imposed on the Pentagon in the last budget.

House Armed Services Committee estimates show defense cuts in Ohio would mean 1,377 fewer active-duty service members out of 8,261, and the loss of 6,250 Defense Department civilian personnel out of 25,001 in the state, according to the nonprofit and nonpartisan Center for Security Policy in Washington, D.C.

Those cuts could cost 27,900 jobs by 2014 in Ohio’s public and private sectors, a National Association of Manufacturing study estimated.

Montgomery and Greene counties, home to Wright-Patterson, would have a projected annual decline to defense contractors of $92.5 million and $70.1 million, respectively, through 2021 if the full cuts land on Ohio, the Center for Security Policy estimated. In Hamilton County, home of GE Aviation in suburban Cincinnati, the reduction could hit $306.8 million a year.

What will happen?

Defense contractors, and the Pentagon, have been warning for months of potentially dire impact on defense readiness and industry production schedules. What will be cut and when, whether suppliers of military hardware will be hit harder than service providers, and which government programs will be affected remains a mystery.

“Part of the problem is the uncertainty,” said Dan Stohr, spokesman for the Aerospace Industries Association, a trade organization for major aerospace manufacturers. “We just don’t know how this is going to play out.”

“It’s impossible to say what the impact will be long-term,” said Stan Soloway, president and chief executive officer of the Professional Services Council, trade group for about 350 companies that provide the government with services including engineering, logistics, research and development, construction and facilities maintenance.

Because federal law requires companies to give 60-day advance notice of mass layoffs, those public notifications could go out days before the presidential election. The Aerospace Industries Association and National Manufacturers Association have said that 1 million or more jobs could be at stake.

The Office of Management and Budget and the Defense Department haven’t provided guidance on what programs will be cut, and whether there will be flexibility in imposing the cuts, industry officials said. Defense contractors said they must plan for the potential loss of revenue.

Lockheed Martin Corp., one of the nation’s biggest producers of military aircraft, has said it may have to notify the majority of its 123,000-employee workforce in early November of the risk of layoff. The layoffs may ultimately affect just a fraction of Lockheed’s workforce, but senior executives said they don’t know what operations will be affected.

“For the defense contractors, the law had an unreal quality at first,” said Loren B. Thompson, a defense analyst with the Lexington Institute in Arlington, Va. “It’s only as the deadline approaches that they begin to realize this is a real thing. Washington is so polarized right now that you have to be on the verge of a crisis before the political system can act.”

If defense firms send hundreds of thousands of layoff notices to employees, Congress will take notice, he said.

Michael Gessel, a Dayton Development Coalition vice president in Washington, said many believe Congress won’t resolve the issue before the election unless a groundswell pushes it to act. “The reason for that is difficult votes are unpopular in general,” Gessel said. “Delaying a vote on a piece of (complicated) legislation until after the election avoids making some people unhappy.”

What to cut?

U.S. Sen. Rob Portman, R-Ohio, and U.S. Rep. Mike Turner, R-Centerville, said they have co-sponsored legislation to find savings outside of defense. To avoid $110 billion in cuts next year, they proposed to extend a federal employee pay freeze until June 2014 and restrict federal hiring when attrition occurs.

“If it did go into effect, it would be terrible for us in Ohio because we have a significant military presence and defense contractors,” said Portman, a member of the Senate Armed Services Committee. “The Pentagon should not be exempt from any cuts, but this is not the way to do it.”

Turner, a House Armed Services Committee member, said he is concerned that cuts would affect Wright-Patt and overseas U.S. military operations, including the war in Afghanistan. Turner and U.S. Rep. Steve Austria, R-Beavercreek, joined the House GOP majority in May in voting for the deficit reduction proposal by Rep. Paul Ryan, R-Wis., to cut entitlements rather than defense. The Senate should act on that proposal, they said.

Lawmakers from both parties have called on the Obama administration to detail how the cuts would affect defense and economic development, education, public safety and other areas. “Our goal, in all that we do, should be to find a balanced approach to reducing the deficit that does not threaten our fragile economy and instead ensures future economic growth,” Sen. Sherrod Brown, D-Ohio, wrote in an email to the Dayton Daily News.

Kenneth Baer, spokesman for the Office of Management and Budget, said the Obama administration has put forward a balanced deficit reduction plan. “There is time for Congress to act, and we hope it will. Should it get to a point where it appears that Congress will not do its job and the (cuts) may take effect, we will be prepared.”

The Dayton region’s roster of defense contractors includes industry giants Lockheed Martin, Northrop Grumman Corp., Boeing Co., General Electric Co. and dozens of second-tier suppliers and subcontractors.

GE Aviation, the commercial and military engine manufacturer based in suburban Cincinnati, sees the looming 2013 cuts as a potential boon for its business, company spokesman Rick Kennedy said Tuesday. If military aircraft production is reduced, the Defense Department will likely have to spend more on maintenance to keep older aircraft flying longer, and engine maintenance and rebuilding is a lucrative market for GE Aviation, Kennedy said.

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