The Obama Administration’s plan to eliminate over $480 billion in planned defense spending over the next 10 years would “cripple” certain defense sectors, forcing the industry to shed skilled workers, curtail development, be less responsive to urgent needs and for some firms cause them to leave the sector altogether, three key industry groups said in a report released on Friday.
Based on responses to a survey distributed to select member companies of the industry associations, the report says that “According to senior executives at manufacturing and service companies that support the U.S. military, the $480 billion in additional budget cuts projected over the next decade could cripple certain defense sectors, resulting in an industrial base that is smaller, less innovative, and less responsive to urgent wartime needs,” says the report, Defense Executives Assess Business Impacts of Major Cuts. The report was prepared by the Aerospace Industries Association (AIA), the National Defense Industrial Association and the Professional Services Council and was delivered to Defense Secretary Panetta in November.
“This report paints an alarming picture of the future of the aerospace and defense industry,” Marion Blakey, president and CEO of AIA, said in a statement yesterday. “Yesterday Secretary Panetta outlined very severe reductions in the defense budget. Any further cuts will cripple crucial industrial base capabilities in the national security sector.”
President Obama and the DoD leadership on Thursday outlined their 10-year, $487 billion budget cutting plan that de-emphasizes spending on “Cold Ware-era” weapons in favor of capabilities around intelligence, surveillance and reconnaissance, counterterrorism, countering weapons of mass destruction, and the ability to operate where enemies try to keep the United States out (Defense Daily, Jan. 6).
The industry leaders called for better communication between the Pentagon and industry amid the pending downturn in defense spending.
“Especially in this time of shrinking defense budgets, government needs to communicate openly and often with industry to ensure impacts to the industrial base are deliberately managed, rather than left solely to market forces,” Lawrence Farrell, president and CEO of NDIA, said in a statement.
The report notes that some companies are already cutting back on investments given pending cuts, saying one company has put on hold a plan to add 50,000 more square feet of manufacturing space.
There is also concern within the industry that the cuts will lead to instability in the defense sector, leading the capital markets to take their money elsewhere. Budget cuts will have a trickle down effect, causing lower tier supplier out of the defense sector, robbing the country of a “great source of innovation,” and also force some companies to send more work overseas, which could make it harder to control costs as well as open systems to counterfeit parts, the report says.
Respondents to the survey said that a smaller defense industry will eliminate the capacity to surge weapons, equipment and services to meet wartime needs.
To help mitigate the impact of cuts, the report says industry would like reductions to be backend loaded, allowing a smoother transition down. However, the report says history shows that the more likely scenario is front-loaded cuts to investment accounts that industry relies on for their work.
The report doesn’t contemplate another $600 billion in cuts that could hit the defense budget over the next 10 years if Congress cannot agree on a debt reduction package this year.