Protecting Pentagon Spending

Posted on November 1, 2013. Filed under: Uncategorized |

By James Scott

Big U.S. defense contractors say the sequester and the government shutdown are exerting serious downward pressure on their business, even as they reported better than expected profits.

An expected downturn in Pentagon spending is prodding a furious lobbying effort by the big contractors. But the cuts will, by extension, also affect many smaller subcontractors who also should be seeking to direct some lobbying muscle at lawmakers and the administration.

So far, the biggest contractors, like Lockheed Martin and Northrop Grumman, appear to be weathering the storm quite nicely. Lockheed and Northrop both beat earnings in the third quarter and their shares and those of other big defense contracts have soared. The third quarter ended before the shutdown took place.

Analysts’ estimates for the third quarter were conservative in anticipation of cuts in spending expected with the U.S. withdrawals from Iraq and Afghanistan. The big contractors have been cutting costs for some time in anticipation of a decline in investment from by the federal government.

But the Aerospace Industries Association (AIA) says the shutdown had series implications for the industry, including worker furloughs.

“There are too many government responsibilities, from national security to public safety, which have been negatively impacted either directly or indirectly,” said AIA CEO Marion C. Blakey.

In a letter to the leaders of the bicameral committee working to craft a budget deal, the AIA leadership called for an end to sequestration.

“Its impact on the industrial base and national supply chain has eroded our ability, not only to create new jobs, but to maintain our current intellectual human capital,” the letter said.

The AIA also said impacts of the shutdown spread beyond the Pentagon, to include the Federal Aviation Administration and the National Aeronautics and Space Administration.

With the shutdown over, the defense industry is focusing it lobbying blitz on trying to salvage the $52 billion in sequester cuts that were approved in 2011. This would be a cut of approximately 10 percent, enough to mean sweeping changes for Pentagon contractors in the coming years. The Pentagon has been able to maintain spending on some bigger weapons systems, like the F-35 fighter, but it cannot do so much longer.

Among those seeking to get the point across on Capitol Hill was aerospace and defense industry supplier Gregory Bloom, president of Seal Science, Inc.

“We’re here to tell Congress to decouple the conversation of sequestration from national security. Congress’ number one constitutional priority is to provide for the defense of the people,” Bloom said during a recent lobbying visit to the Capitol.

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