U.S. defense firms drawn into Congress budget politics
July 6th, 2012
07:00 PM ET

U.S. defense firms drawn into Congress budget politics

From Mike Mount
CNN Senior National Security Producer

Congress is asking top U.S. defense contractors to disclose their corporate plans if the military is forced to cut $500 billion from its budget early next year, putting the companies in the middle of a political fight between Republicans and the White House.

In a letter sent Thursday to 15 major defense contractors by U.S. Sen. John McCain, R-Arizona, the ranking member of the Senate Armed Services Committee, and six other GOP senators as well as independent Sen. Joseph Lieberman, Connecticut, the companies were asked to answer five questions about the effect the potential massive cuts, known as sequestration, would have on their bottom line, employees and suppliers.

The potential cuts are the result of a congressional deal struck last fall while negotiating over the current budget deal. Those negotiations resulted in the inability of Congress and the president to agree on a deficit-reduction plan. If there is no agreement, come the beginning of January 2013, the Pentagon will be forced to cut an additional $500 billion from its accounts over the next 10 years.

Some of the questions the letter asks of the companies - which include employment giants Lockheed Martin, Northrop Grumman, Boeing, United Technologies and Raytheon - "What is your total number and total dollar value of contracts you currently hold with the Department of Defense that could be terminated or restructured," in the event of sequestration and, "What impact would termination or restructuring of those contracts have on your employees, partners and suppliers?" The letter also asked companies when they plan on sending layoff notices ahead of a potential sequestration.

Defense contractors know where their bread is buttered and play both sides of the political spectrum to ensure contracts keep coming their way. Now they are being called out in a political game of chicken to talk about a potential catastrophe. Most defense companies just want to lay low as not to rock the boat, especially as election season approaches.

 Northrop Grumman, which supplies drones, satellites and numerous other products for the military, acknowledged company CEO Wes Bush received the letter from the senators but said, the company, "will defer further comment on it, at this point," according to company spokesman Randy Belote.

 While not commenting on the letter, the company did have a comment on sequestration.

 "While we do not contemplate extraordinary customer actions in anticipation of a potential sequestration, the outcome of that debate remains uncertain. As a result, Northrop Grumman is prepared with contingency plans for the possibility of sequestration occurring in January 2013. It is Northrop Grumman's view that the implementation of sequestration as presently mandated could have a very serious negative impact on our company, our industry and of course on the defense capacity of our nation."

 Raytheon spokesman, David Desilets, said the company would decline making any comment for this story.

 Lockheed Martin CEO Bob Stevens has been an outspoken opponent of sequestration, saying last month, "With the widespread disruption associated with across-the-board cuts and significant layoffs, I fear our industry will suffer a loss of learning, a depletion of talent, and an erosion in quality. And I again ask our nation's leaders to address sequestration without delay," Stevens said.

 "From an industry perspective, the near-term horizon is completely obscured by a fog of uncertainty," he said.

 Lockheed Martin also acknowledged it received the senatorial letter and said in an e-mail response to CNN, "We are working to provide responses to the letter, and we continue to have dialogue with members of Congress, the Administration and customers to raise awareness about sequestration, and the potential impacts to our industry and our country."

 The senators' letter reads in part: "The (Obama) Administration's apparent unwillingness to conduct any meaningful analysis or planning for sequestration is alarming," and refers to the potential effect on the defense industry as well as the economy.

 McCain spokesman Brian Rogers told CNN the letter was sent because, "Sen. McCain believes it's critically important that Congress have all the information about the negative impacts of defense sequestration on our security and economy. This is part of that effort."

 In a response to Security Clearance about the letter, Kenneth Baer, spokesman for the White House Office of Management and Budget said, "While OMB has not yet engaged agencies in planning, our staff is conducting the analysis needed to move forward if necessary. ... Should it get to the point where it appears that Congress will not do its job and the sequester may take effect, OMB, DOD, and the entire Administration will be prepared."

 Last month, McCain and Sen. Patty Murray, D-Washington, offered an amendment that calls on the Pentagon to report by August 15 on the impact of defense sequestration. It also calls on Office of Management and Budget to report within 30 days, and the president to report within 60 days, on the impact of all of sequestration, across both defense and non-defense spending.

 "The truth is that no amount of planning or collection of reports will turn the sequester into anything other than the devastating cut in defense and domestic investments that it was meant to be," Baer said.

 "What's needed is action to avoid the sequester by Congress passing balanced deficit reduction that the President can sign into law, not searching for ways to cushion the blow on defense and non-defense programs," he continued.

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    As a 22 year veteran on the "Dark Side" of the Department of Defense, we wasted, WASTED hundreds of millions of dollars on trivial programs, equipment, et al. Are any of you civilians aware of the annual DoD spending frenzy that occurs every September, which happens to be the last month of the federal fiscal year. In other words, its your last chance to spend any remaining funds from that year's budget. EVERY UNIT spends every dime. Mostly on items we don't "need." Why? Because if you don't spend your 40 million or whatever amount you're budgeted, they cut your budget next year. This year free-for-all is affectionately known as the "Spend Plan." A clever play on the term Fin Plan, short for Financial Plan.

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    Before playing "cat and mouse", better be sure who is the cat and who is the mouse. Companies that play politics and say that programs will become more expensive might end up having those programs cut completely.

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  14. NN

    This propaganda about losing learning and experience is not borne out by past performance, most of their employees will hit the street and bounce. This is what happened during the major cutbacks in California aerospace during the Clinton years. The Defense contractors are famous for padding the payroll with lots of employees and then charging the government for their time, at a profit, even though those employees do absolutely nothing.

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  16. Travis

    It's the U.S. "defense" firms who are running this country today as the heads of the all powerfull M.I.C. No matter who is elected in November, they'll come out on top since both candidates favor them and all these stupid wars that we're in!

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    • Travis

      Quite right Stan, except that Barack Obama does have a hatred for the Muslims whereas Mitt Romney is trying to be politically correct in supporting all these useless and unnecessary wars abroad and increased military spending. No matter who wins in November, the M.I.C. does while the middle class loses!

      July 7, 2012 at 10:57 am | Reply

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