As negotiations continue between the White House and Congress over how to avoid the highly publicized fiscal cliff, U.S. aerospace and defense manufacturers are bracing themselves for what could happen if the worst-case scenario comes true.
Lawmakers from both parties are trying to come up with a compromise with the White House to avoid the automatic $1.2 trillion in government spending cuts starting Jan. 2, the result of the failure of the 2011 congressional “super committee” to reach an agreement on a federal deficit reduction package.
Aerospace and defense manufacturers would be heavily impacted due to the proposed $500 billion cut to military spending over the next decade, which would be in addition to the $487 billion in defense cuts that the Pentagon is already overseeing.
The pending cuts have some of the nation’s wealthiest aerospace manufacturers concerned about possible loss of jobs and profit in the near future.
"Boeing strongly urges elimination of both defense and non-defense sequestration within the context of a balanced agreement that addresses the broader fiscal issues facing the nation,” said Lorenzo R. Cortes, a spokesman for Boeing.
Although Boeing would be more insulated than other aerospace companies from the impact of the reduced government spending because of its multi-billion dollar commercial airframe business, the company does receive significant revenue from defense contracts. Boeing thoroughly outlines the impact of sequestration at its newly created website –– nocliff.com.
Boeing isn’t the only major manufacturer concerned with the fiscal cliff; avionics manufacturer Rockwell Collins believes sequestration could reduce its workforce by up to 1,000 employees.
“If sequestration does occur – we anticipate this would result in a headcount reduction of 350 employees. This would be on top of other reductions that are likely to occur as a result of lower defense spending,” said Pam Tvrdy-Cleary, media relations manager at Rockwell Collins. "We’ve indicated that with sequestration – our work force could (not would) be reduced by as much as 1000 employees – but again only 350 of those would be a direct result of sequestration.”
In its third quarter earnings report, Northrop Grumman said it continues to try to produce “affordable solutions” to support customers in “today’s fiscally constrained environment.” The manufacturer also noted it is monitoring “shifts or reductions in defense spending” going forward.
If the sequestration cuts go through, and a compromise is not produced, the impact on the U.S. aerospace and defense industry is likely to have a domino effect, as noted by Aerospace Industries Association (AIA). While no one can accurately predict the exact monetary impact on the industry, the Pentagon would be forced to reduce its budget by $52.3 billion in additional cuts for the current fiscal year if Congress does not reach a compromise, thus leaving companies to prepare for the worst possible scenario.
“On behalf of the aerospace and defense industry, which employs more than one million workers across all 50 states, we are encouraged that there are serious negotiations occurring between the White House and Congressional leadership to avoid our nation’s imminent fiscal cliff,” said AIA President Marion Blakey.
AIA has been calling for a deal to avoid sequestration throughout the year. In August, the group released a report highlighting the devastating impact sequestration would have on the U.S. aerospace community, where a likely scenario could see FAA’s budget reduced by $1 billion annually over the next 10 years.
“We urge negotiators to focus on a balanced approach that considers all reasonable solutions and ultimately produces a plan that also includes adequate revenue and entitlement reform,” Blakey added. More