Aerospace industry executives told the House Armed Services Committee that the government hasn’t given them proper insight in how to prepare for proposed budget cuts threatening to hit Pentagon spending.
Under a law approved last year, $500 billion in federal funds of all kinds would be held back — "sequestered" — until Congress reaches an agreement on reducing the mounting federal deficit.
Although there is much speculation about whether Congress would let those automatic cuts actually occur in January, military contractors are ringing alarms now.
Robert J. Stevens, chief executive of Lockheed Martin Corp., the world's largest defense firm, told the committee Wednesday that his company is trying to prepare for the automatic cuts.
“From an industry perspective, because of the specter of sequestration, the near-term horizon is completely obscured by a fog of uncertainty,” he said. “The impact on industry would be devastating, with a significant disruption to ongoing programs and initiatives, leading to facility closures and personnel reductions that would significantly disrupt advanced manufacturing operations, erode engineering expertise, and accelerate the loss of skills and knowledge.”
Although there has been no specificity on what programs will be cut, Stevens estimated that his company would be force to lay off 10,000 people.
The Aerospace Industries Assn., an Arlington, Va.-based trade group, released a study Tuesday that concluded 2.14 million American jobs could be lost if the mandate takes effect.
But last week, the Congressional Budget Office released a report that said even if the automatic cuts were enacted in January, the process would be complicated, but not unbearable.
“Accommodating those automatic reductions, in particular, could be difficult for the department to manage because it would need to be achieved in only nine months,” the report said. “Even with that cut, however, [the Pentagon’s] base budget in 2013 would still be larger than it was in 2006 (in 2013 dollars) and larger than the average base budget during the 1980s.”
Still, Sean O’Keefe, chief executive of European Aeronautic Defense & Space's unit, EADS North America, told the Armed Services Committee that the administration must communicate its sequestration implementation plans.
“The current uncertainty has effectively put sequestration and its consequences in motion,” he said. “In the absence of any guidance, industry is already holding back investments, questioning the fairness of ongoing competitions, doubting the viability of existing contracts and starting to trim capacity.”
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