Defense industry executives called for more clarity regarding potential across-the-board Pentagon budget cuts yesterday, warning lawmakers that programs for jets, helicopters, and ships could be harmed.
Leaders of Lockheed Martin [LMT], EADS North America, Pratt & Whitney [UTX], and Williams-Pyro told a largely receptive House Armed Services Committee (HASC) that they are anxious about their employees and weapons systems because President Barack Obama’s administration has provided scant information on how the so-called sequestration cuts could be implemented.
They cited marquee programs they fear could be harmed under the potential cuts, including Lockheed Martin’s F-35 Joint Strike Fighter and Littoral Combat Ship (LCS) and EADS North America’s UH-72 Lakota helicopter and Coast Guard aircraft.
HASC Chairman Howard “Buck” McKeon (R-Calif.) called yesterday’s hearing as he battled with both Democrats on a plan for replacing the sequestration cuts and with the White House to explain how the $500 billion reduction to planned defense spending would be implemented.
Republicans and Democrats have not been able to agree yet on a budget-cutting plan to replace the politically unpopular sequestration cuts, which could cut $1.2 trillion in decade-long defense and non-defense spending starting next Jan. 2. The $500 billion in defense cuts are designed to be across-the-board, though some aspects of the Pentagon budget are exempt. The Budget Control Act calls for the sequestration reductions to trim the same percentage from every applicable defense program, project, and activity.
Obama opposes the sequestration cuts and his Office of Management and Budget (OMB) has not yet provided details on how they would be applied to the Pentagon budget. McKeon lamented yesterday that there is “a chaotic and uncertain budget environment for industry and defense planners.”
“Faced with the prospect of being forced to lay off workers, renegotiate contracts, disrupt production, and give bad news to shareholders, industry leaders have been attempting to get more guidance from the administration on how they will interpret and implement the law,” McKeon said. He said he fears OMB won’t issue implementing guidance regarding sequestration until November, and that will be “much too late” for industry.
The four executives–Lockheed Martin Chairman and CEO Robert Stevens, EADS North America Chairman and CEO Sean O’Keefe, Pratt & Whitney President David Hess, and Williams-Pyro President Della Williams–named weapons programs they fear would be harmed by sequestration cuts.
Lockheed Martin’s Stevens said “undoubtedly” the F-35, the Pentagon’s largest weapons program is a concern. He cited the LCS effort, for which his company has designed and built one of two seaframes. Stevens further said he is concerned about Lockheed Martin’s portfolio of missile-defense programs and its classified and “intelligence-oriented” programs.
EADS North America’s O’Keefe said he “first and foremost” worries about how the UH-72 Lakota chopper would fare under sequestration, touting the program’s good track record.
EADS North America fears Coast Guard aircraft programs would be harmed by sequestration, because the company produces most of the service’s helicopter and many of its cargo aircraft, he said.
O’Keefe further cited concerns about the LCS, because his firm has a “very strong interest” in systems on the ships.
Hess said Pratt & Whitney, before the potential sequestration cuts, is “already seeing significant engine-delivery reductions in (its) legacy engine programs.” Looking forward to sequestration, he said he has qualms about both the F-35 and new Air Force tanker, for which his firm does or is planning to supply engines.
At Williams-Pyro, Williams said she is concerned about the test equipment the company manufacturers for aircraft including the F-16, F-15, F-18, A-120, F-35, F-22.
The four executives said they all expected layoffs under sequestration.
Lockheed Martin could layoff 10,000 employees, Stevens said. He acknowledged he derived that number through a rough “seat-of-the-pants” estimate, because of the “limited information” available on how the defense cuts would be implemented.
Some of the firms, meanwhile, plan to issue layoff-warning notices. The Worker Adjustment and Retraining Notification (WARN) Act requires a 60-day notice to employees of pending layoffs, and states including New York law require 90-day notification.
Stevens previously caused a stir by saying all employees could receive layoff warnings. He noted yesterday the Defense Contract Audit Agency faulted his firm for not notifying employees sooner than it did about layoffs that came after the Navy canceled its contract with it for the VH-71 presidential helicopter.
EADS North America’s O’Keefe said his firm believes it is compelled to issue so-called WARN notices. The company has already begun this process in a way, O’Keefe said, because it has been notifying members of Congress and state officials about potential EADS North America job losses in their states, he said.
Pratt & Whitney does not know now if it would be required to notify employees under the WARN Act, Hess said, noting only 25 percent of its business is in defense.
“So depending on what’s happening in the other elements of the business, the commercial environment, we might have the potential, the opportunity to redeploy people,” he said. Yet he said the situation is “far from certain” and the firm may have to reduce headcount.
Williams-Pyro has fewer than 100 employees and thus is not required to issue the warnings under the law, Williams said.
Varying estimates exist for the impact sequestration cuts would have on the economy. In a report commissioned by the Aerospace Industries Association (AIA) released Tuesday, George Mason University professor Stephen Fuller estimates the first year of defense and non-defense sequestration cuts would cost the United State 2.14 million jobs. Yet Gordon Adams, a former Clinton administration official who teaches at American University, slammed the study as “flawed.”
Acting OMB Director Jeffrey Zients and Deputy Defense Secretary Ashton Carter are scheduled to testify before the HASC about sequestration on Aug. 1.
The full House also took action on sequestration yesterday, passing via a 414-2 vote a bill that calls for Obama to report to Congress within 30 days of the legislation’s enactment on how spending accounts would be cut if the sequestration cuts are made. The House Budget Committee passed the bill, the Sequestration Transparency Act of 2012, on June 27.
The Senate has approved similar legislation, in an amendment to the so-called farm bill last month. Crafted by Sens. John McCain (R-Ariz.) and Patty Murray (D-Wash.), the measure requires multiple levels of disclosure on the impact of the sequestration cuts, including a report from the Pentagon by Aug. 15.
The House also passed legislation in May that would thwart the first year of sequestration cuts by reducing entitlement programs. Republicans in the House and Senate have proposed legislation in each chamber to prevent the first year of sequestration cuts by shrinking the federal workforce.