Defense CEOs brace for fiscal cliff

Executives from some major defense contracting companies are the latest to lend their voices to the din surrounding budget cuts, sequestration and the impending fiscal cliff, warning Congress and the president against potentially disastrous outcomes across sectors.

The CEOs implored lawmakers to act to stop sequestration, offering a few ideas of their own to help address fiscal shortfalls. They also cautioned that a failure to resolve the ongoing partisan squabbling could result in significant job losses, particularly in the defense contracting industry, where as many as 2 million jobs could be in jeopardy.

“We are talking a good game, but are still unwilling to park short-term self-interest,” David Langstaff, chief executive of engineering services provider TASC Inc, said at a Nov. 3 event in Washington held by the Aerospace Industry Association. “Every trade group, special interest and corporate lobbyist is up on Capitol Hill clamoring that Congress solve the problem, avoid the fiscal cliff and not default to sequestration – but [then say], ‘don’t touch my budgets.’ We can't have it both ways.”

But Langstaff, speaking as part of a panel of defense CEOs, also acknowledged cuts will be inevitable, and his colleagues agreed.

“We need to stop believing — or pretending — that there is a scenario out there that offers no defense cuts,” Langstaff said, urging a less drastic approach than the potential $500-billion cuts that could hit the Defense Department over the next decade.

While Northrop Grumman CEO Wes Bush suggested $20 billion to $25 billion in cuts over the next 10 years – in addition to the $487 billion in cuts already mandated by last year’s Budget Control Act, which the panelists repeatedly referred to – Langstaff projected that cuts in the range of $50 billion to $150 billion could offer a more manageable, “stair-step” approach. He also said that “heavy lifting” should be shouldered by other, non-defense areas.

But with DOD’s roughly $600 billion annual budget, even Langstaff’s figures are “less than the amount of inflation,” said the Project on Government Oversight’s Ben Freeman on a call with reporters Nov. 3.

“If the Pentagon is not part of any sequestration deal or any fiscal cliff deal, Pentagon spending is going to increase over the next decade under current law. Calling [the nearly $500 billion from the BCA] savings is like saying you can cut your credit card debt by a quarter of a million dollars just by not buying a Lamborghini,” Freeman said. “Unfortunately, you can’t balance your checkbook like that, and neither can our government.”

Bill Hartung from the Center for International Policy noted that while sequestration is bad management, the Pentagon – and the private industry supporting it – isn’t necessarily facing the drop-off in spending that some are painting it out to be.

“Many of the companies have large backlogs; the Pentagon has $100 billion in unobligated dollars,” Hartung said. “There’s no fiscal cliff for the Pentagon. It’s more of a gradual slope.”

Still, more than 130 industry CEOs who signed an AIA letter to President Barack Obama appear to be bracing for the worst.

“For generations, America has prospered on a strong foundation of manufacturing excellence and technological innovation,” the letter noted. “But sequestration cuts would needlessly erode this economic bedrock, choking off critical investments in research and basic science and forfeiting our leadership in the markets of tomorrow. It’s a recipe for economic stagnation, and the worst possible way to tackle America’s long-term debt.”

Nonetheless, Bush acknowledged that even if the cliff is avoided it might not help create jobs. But he did say he believed that if an agreement can be reached, it would still stimulate economic growth.

“The defense industry should never be looked at as a jobs program,” Bush said. “The world is watching to see if the United States can get its act together ... or do we have to have this political theater to cause us to actually figure out how we’re going to take action?”