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Friday, February 1, 2013

Editor's Note: Back from the Brink

The clock struck midnight on Dec. 31, the ball dropped, confetti was thrown and, the United States teetered on the brink, but did not fall over, the fiscal cliff. It took some last-minute wrangling and tense negotiations, but lawmakers passed, and the President Obama ultimately signed, the American Taxpayer Relief Act of 2012, raising taxes on top earning Americans and avoiding the worst effects of the fiscal cliff.  

 

However, the bill put off a final decision on the fiscal cliff until March, and did not provide any action on the dreaded sequestration and its billions of dollars in spending cuts for the defense industry.

It seems the country is back from the brink of the fiscal cliff, but we find ourselves back in a odd, no-man’s-land position yet again.

Voices from around the country were relieved the country missed the worse of the fiscal cliff but criticized lawmakers for lack of definitive action on sequestration. So it seems the country is back from the brink of the “cliff,” but we find ourselves back in a odd, no-man’s-land position yet again.

“Congress has prevented the worst possible outcome by delaying sequestration for two months. Unfortunately, the cloud of sequestration remains,” Defense Secretary Leon Panetta said in a statement. “Congress cannot continue to just kick the can down the road.”

And down the road could be even more complex for the defense industry as the up to $45 billion in defense cuts this year would be compressed into nine months instead of 12, analysts warn. But sequestration is only part of the challenge facing the industry. “The fear is still there,” Richard Aboulafia, vice president of analysis of the Teal Group told me in early January. “It’s more than sequestration … it’s the global economy, the credit picture that’s still hanging over the industry.”

So now what? We didn’t fall over the cliff, but the country, and more specifically the defense and aerospace industries, are hanging on by their fingernails. I guess the short answer is that the industry must wait — wait for Congress, wait for the economy to improve, wait for the next election perhaps, but wait nonetheless. It’s a familiar position, one that the industry has been in for many, many months, as I wrote about in this space last month.

Defense contractors in the United States are used to the wait and have said so in recent weeks.. However, they warned prolonged action on sequestration could have chilling impacts around the industry. Lockheed Martin CEO Marilyn Hewson said the delay of sequestration “stifles investment in plant, equipment, people and future research and development essential to the future health of our industry.”

In a statement issued in early January, BAE Systems said “the prolonged uncertainty associated with sequestration, which has already made it virtually impossible to plan near- and long-term business decisions, will persist for yet another two months.”

At the risk of being redundant, as I have said this numerous times in this space, it’s time for Congress to act to save this vital part of this country’s economy from financial ruin. These cuts would be devastating and we simply can’t afford to let cuts of this magnitude derail this industry and the overall economy. There are many times and cases in which we have no control over our future. And it’s true the economy isn’t something that can be easily fixed or changed. But in this case at least as it pertains to sequestration, the future is entirely in the hands of the Congress, which is a scary position to be sure.

“If sequestration is not solved in the next 57 days, it would be an abdication of responsibility by the leaders of this country, one that will only heighten Americans’ cynicism and cement the public image of a grid-locked Washington that simply doesn’t work,” said Aerospace Industries Association (AIA) President Marion Blakey.

I’d love to hear from our readership on this. Is too much being made of the impacts of sequestration? Not enough? Is it impacting your work? Send me an email at efeliz@accessintel.com, or drop me a line on Facebook or Twitter (@EmilyFeliz1). We’ll post a round-up of what everyone is saying about sequestration on our Website and e-letters

Until then, stay away from the ledge.

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