Pentagon Starts Bailing Out Companies that Have Lost Business Due to Coronavirus

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The Defense Department is sending millions of dollars to keep companies afloat, and more deals are expected.

The Pentagon has begun to bail out U.S. companies that have seen large parts of their business dry up amid the coronavirus pandemic, in a bid to make sure they can still build weapons. 

On Wednesday, officials announced that five mid-tier defense companies had received a total of $135 million to “help sustain defense-critical workforce capabilities in body armor, aircraft manufacturing, and shipbuilding,” according to a Defense Department statement.“These actions will help to retain critical workforce capabilities throughout the disruption caused by COVID-19 and to restore some jobs lost because of the pandemic,” Lt. Col. Mike Andrews, a Defense Department spokesman, said in the statement.

Meanwhile, a senior Pentagon official told lawmakers that DoD plans to ask Congress for money to reimburse many of its contractors for COVID-related expenditures; for example, wages paid to keep employees on the payroll despite idled production lines and vacated offices; purchases of personal protective gear, and alterations to factory and other work spaces for social distancing.

These moves will buttress earlier Pentagon efforts to shore up its COVID-rattled contractors, including paying firms more money up front and awarding multibillion-dollar contracts earlier than planned.

On Wednesday, Ellen Lord, defense undersecretary for acquisition and sustainment, told a House Armed Services Committee hearing that the Pentagon has asked White House’s Office of Management and the Budget for permission to request on the lower end” of “tens of billions of dollars” to cover personnel-cost reimbursements in a future coronavirus stimulus package. 

The CARES Act allows defense companies to recoup money they used to keep employees working amid the pandemic. But while Congress authorized these disbursements, it appropriated no new funds to cover them. If lawmakers don’t provide the money, Lord said, Pentagon officials would likely have to cut weapons programs.

“The defense industrial base, I believe, is the nexus of economic security and national security,” Lord told lawmakers. “It’s vitally important to make sure that they remain as healthy as possible.”

To date, Lord said, no contractors have requested reimbursements.

The costs from COVID-19 related delays — such as sick workers, employees unable to report to work because of local lockdown or suppliers not delivering parts to assembly lines forcing production to slow — could cost the six largest defense companies $8 billion, Jim McAleese, who runs McAleese & Associates, wrote in a note to clients Thursday morning. Last month, Lockheed said it would deliver 18 to 24 fewer F-35 fighter jets in 2020 because of coronavirus-related delays.

“Lockheed appears to be projecting ~$2.5B total COVID-19 impact,” McAleese wrote.

For months, defense officials have said they were concerned about the aerospace and shipbuilding sectors, two industries devastated by coronavirus. Global shipbuilding deals reportedly fell 71 percent in the first quarter while U.S. travel plummeted 96 percent in early April.

Bailout details

The $135 million for five contractors comes through the Defense Production Act, the DoD statement said.

One of the recipients is aircraft manufacturers Spirit AeroSystems — a key supplier to Boeing, Sikorsky, Bell, and Northrop Grumman. Spirit received $80 million to “expand its domestic production capability and capacity for advanced tooling, composite fabrication and metallic machining at Spirit and the supporting lower level supply chain,” the statement said. 

The Wichita, Kansas, company has seen an increase in its classified military work in recent years, but was hit hard by coronavirus-related production slowdowns and Boeing’s suspension of its 737 Max airliner manufacturing. The company Wednesday said it would temporarily lay off or furlough roughly 900 workers beginning next week.

The Air Force nominated Spirit to receive the Defense Production Act money, Will Roper, the service’s head of acquisition, said during a Wednesday briefing. 

“Aerospace was particularly hard hit by COVID-19 because so much of the aerospace industry that supports defense is reliant on commercial revenue streams,” Roper said. “We’ve had to work double hard in the Air Force because everything that we do is aerospace, and so all that’s been hard hit.”

Spirit on Thursday said it would use the money “to build tooling, fabricate composite parts and machine complex metallic parts.”

“This funding for Spirit provides the Department of Defense additional production capacity for defense needs and helps maintain critical skills in the Defense Industrial Base,” Duane Hawkins, president of defense and fabrication,” said in a statement.

Another recipient was military aircraft engine maker General Electric. The company, which is laying off 25 percent of its workforce, received $20 million from the Pentagon.

“GE Aviation will expand development in advanced manufacturing techniques, including additive manufacturing, promoting advanced material development, and improving digital engineering proficiencies,” the statement said. “This will enable GE Aviation to retain critical workforce capabilities throughout the disruption caused by COVID-19 and to sustain engineering positions put at risk by commercial aviation contraction during the pandemic.”

Shipbuilding suppliers Steel America received $19.5 million. Allied Systems, a company that builds cranes for the Navy and Coast Guard, received $500,000.

Last month, Navy acquisition chief James Geurts said that while the aviation sector has been hit hardest by coronavirus, officials are closely monitoring the shipbuilding industry.

“I'm worried about all of it,” he said during a briefing with reporters. “We're trying to track all of it. The most immediate impacts we've seen have been on aviation.”

Body armor maker Bethel Industries received a $15 million deal Wednesday to “increase critical industrial capacity for specialized laser cutting of laminated nylon fabrics for soldier protective systems during the COVID-19 pandemic.”

More “defense focused” Defense Production Act contracts — like the ones announced Wednesday — would be announced soon, including “several this week,” Roper said.

“We’re either trying to stabilize a supply, ensure that workforce are able to continue working, especially workforces that have [security] clearances,” he said. “ A lot of the companies do not have a huge cleared workforce and so if they’re looking at having to do a furlough, we want to make sure that their engineers, their mechanics, etc, that have clearances are not put under duress, so that it’s an easy call for that company to keep them working.”

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