The shutdown of the federal government is already negatively impacting the defense industrial base through employee furloughs and threatening support for the warfighter, industry leaders are warning Congress and the Pentagon.
In a letter to Democratic and Republican leaders in the House and Senate last week, the National Defense Industrial Association (NDIA) said that Britain’s BAE Systems believes that the shutdown may impact between 10 and 15 percent of its 35,000 strong workforce in the United States, and points to United Technologies Corp.’s [UTX] announcement last week that the budget impasse could result in the furlough of 5,000 of its employees (Defense Daily, Oct. 4).
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| EADS North America CEO Sean O’Keefe. Photo: EADS |
Lawrence Farrell, president and CEO of NDIA, and Sean O’Keefe, the chairman of NDIA and the chief of the U.S. division of the European Aeronautic Defence and Space Co., said in their letter to Capitol Hill that another member company has already furloughed 1,500 direct and subcontract employees, amounting to almost 10 percent of its workforce. They note that one small company, Micro Technologies, LLC, has furloughed 100 of its 400 employees.
Last Friday, the nation’s largest defense contractor, Lockheed Martin [LMT] said that about 3,000 of its employees will be furloughed on Monday and that if the shutdown continues, that number will grow weekly. A company spokesman said that the furloughs will affect its business areas across the country and is discussing with customers to better understand specific program impacts.
The company has suggested to its employees that they take available vacation time so they can continue to receive pay and benefits to minimize the impact of the furloughs. In instances where employees don’t have 40 hours of vacation time, the company will advance them the shortfall, Marillyn Hewson, Lockheed Martin’s president and CEO, said in a corporate-wide memo.
The shutdown could have longer-term impacts to the defense workforce.
“We have heard that when told of their furloughs, some employees have given notice,” Farrell and O’Keefe said. “These examples are just a few of the shutdown impacts occurring everywhere across the defense industry, and even when funding returns, some of the jobs unfortunately may not.”
A key concern for the defense industry is direct impact to it due to the furlough of federal employees, in particular inspectors with the Defense Department’s Defense Contract Management Agency that audit the manufacturing processes for military systems.
“The manufacturing process must stop if these inspections and certifications are not performed,” Marion Blakey, president and CEO of the Aerospace Industries Association, and Farrell warned Defense Secretary Chuck Hagel in a joint letter last Thursday.
The AIA and NDIA Chiefs also point out that the Pentagon’s Defense Finance and Service, which is responsible for paying DoD military and civilian personnel as well as defense contractors for work performed, will stop functioning this week despite having unobligated funds from previous years. If that happens, the impact on the credit lines of small businesses and the cash flows on larger businesses will be felt quickly, they warn.
“The consequences are clear,” Blakey and Farrell said. “Within days many of our members will have no choice but to halt certain defense manufacturing production and furlough employees indefinitely absent government guidance and payment.”
Boeing [BA] said it is beginning to see impacts on its operations from the shutdown and that while it is working to mitigate these impacts, it expects to begin to see the consequences in the coming days, including “limited furloughs in some areas.”
A spokesman for General Dynamics [GD], which provides the DoD with tanks, ammunition, ships, submarines and a range of information technology equipment and services, said the company has not announced any furloughs and will only do so if it has to take them.
Raytheon [RTN] said it is assessing the situation and “will implement operational changes as necessary to ensure we continue to meet our customer commitments and business goals.”
In a separate statement by AIA on Friday, Blakey said that furloughs of more than 90 percent of the Federal Aviation Administration’s (FAA) 1,200 inspectors and certification staff means that no new certification projects will begin, which in turn means the agency “will not be able to support smaller companies that rely on direct FAA support for design approvals.”
“This will have an immediate impact on small companies,” Blakey said.
In their letter to Congress, Farrell and O’Keefe said the combination of an already constrained federal spending environment, the sequester, contract delays and now the shutdown, puts an even greater burden on small companies.
“In the case of one NDIA woman-owned small business, a healthy workforce was whittled down to just one employee, its owner,” they saic. “Her workforce has left for more certain opportunities, and when funding returns, she will have to rebuild her business.”