Lockheed Martin Corp (LMT.N), the largest U.S. weapons maker, on Wednesday urged Congress to act quickly to avert an additional $500 billion in defense cuts that would begin in January, warning that uncertainty about the future was dampening investment and hiring across the industry.
Lockheed Chief Executive Bob Stevens told the Senate Aerospace Caucus on Wednesday the very threat of the cuts — which would double $487 billion in cuts already planned for the next decade — was already having a chilling effect on industry.
“It’s inducing an incredible amount — an unprecedented amount — of uncertainty in industry,” Stevens said, noting that the automatic cuts would slash $53 billion more from defense spending in the fiscal 2013 year, which begins October 1, on top of $47 billion in cuts already planned.
Stevens was joined at the lunch by Marion Blakey, president of the Aerospace Industries Association, which has launched a marketing campaign to raise awareness about the potential impact of the further cuts, also known as “sequestration”, on the aerospace industry, its workforce and the entire country.
Blakey said last week that additional defense spending cuts would “wreak havoc” on the U.S. aerospace and defense industry, and could trigger a double-dip U.S. recession. On Wednesday she said industry was already suffering the effects.
Defense Secretary Leon Panetta has repeatedly warned Congress that allowing further cuts in defense spending to take effect would be devastating for U.S. national security. He has urged lawmakers to find cuts elsewhere, including in Social Security, to avert the additional $500 billion in cuts over 10 years scheduled to begin in January 2013.
“We’re not going to hire; we’re not going to make speculative investments; we’re not going to lean forward,” Stevens told the luncheon at the Hart Senate office building, where a huge three-foot digital display ticked off the days, hours, minutes and seconds left until sequestration kicks in.
He said aerospace and defense companies were cutting overhead, curtailing research spending and capital investments, consolidating facilities and laying off workers to implement cuts already proposed for next year.
HARD TO PREDICT EXACT IMPACT OF “BOW WAVE”
“This is a serious matter that we should not wait to address until the lame duck session or January 2013,” Stevens said in an impassioned speech to the group.
Further cuts would result in plant closures, more job cuts and a ripple effect that could shut down many smaller suppliers.
Companies were legally obligated to give workers 60 to 90 days of notice before imposing layoffs, but they had no idea which sites would be affected, he said.
“I can’t remotely predict the consequence of a bow wave of $53 billion that’s about to impact industry,” Steven said using the nautical term to refer to the first phase of the cuts that would hit industry beginning in January 2013.
Senators Patty Murray, a Washington Democrat, and Saxby Chambliss, a Georgia Republican, who co-chair the caucus, underscored their concerns about the impact of further budget cuts on the defense and aerospace industry.
Tom Captain, head of aerospace and defense industry research at Deloitte, said the industry accounted for about 2.2 percent of U.S. gross domestic product and supported more than 3.5 million direct and indirect jobs.
Captain said he hoped that educating lawmakers and the public about the consequences of further defense spending cuts would help “cut through the fog” and encourage Congress to take other actions to cut the deficit.
Obama’s spending plan for the 2013 fiscal year includes a base defense budget of $525.4 billion, about $5.1 billion less than approved for 2012. It begins to implement the $487 billion in cuts to projected spending required by an August deal between the White House and Congress, cutting more than 100,000 troops over five years and slowing or terminating many arms purchases.
The budget does not include an additional $500 billion in cuts to defense spending over 10 years that will kick in from January 2013 after lawmakers failed to identify an extra $1.2 trillion in federal spending reductions.
Stevens called sequestration “a terrible idea” and said lawmakers should look at cutting other spending, adjusting tax policies and tackling entitlement accounts instead of proceeding with defense cuts that he said would “break” his industry.
By Andrea Shalal-Esa; editing by Carol Bishopric
March 14th, 2012