December 12, 2012
The defense industry’s loud campaign against sequestration has led many observers to believe those companies would be safe if steep cuts to the military budget under sequestration are avoided.
That’s a misperception. The defense industrial base is also concerned about possible cuts to the nondefense budget if the $109 billion in automatic cuts takes effect next year. Even if sequestration is averted, they worry about a fiscal-cliff deal that scales back overall discretionary spending in both defense and nondefense accounts. Now, with just a few days left for Congress and the White House to reach a deficit deal to avert the looming cuts, the defense industry is starting to speak up for the other side of the budget that could get the ax.
“It’s not just the defense industry or private-sector workers who are on the chopping block here, but nondefense programs and workers as well,” Aerospace Industries Association CEO Marion Blakey said in a speech to the National Aeronautic Association on Tuesday.
Take Boeing, for example. Half of its $68 billion in revenues last year came from the defense and space sectors. The other half stemmed from commercial airplanes. “We are concerned about the possibility of deep cuts in other parts of the federal budget besides defense, because of the potential impact they could have on the commercial airplane industry,” Boeing spokesman Tim Neale said.
Cutbacks could mean airlines—and their passengers and shippers—would face consequences, since the government provides crucial support for the aviation business. If air traffic control services were slashed by $800 million under sequestration, as Rep. Norm Dicks, D-Wash., wrote in an October letter, the Federal Aviation Administration would lose 2,200 air traffic controllers, technicians, and support staff, which would likely reduce the number of flights per day. FAA reductions could also prompt cutbacks in safety inspectors and slow the speed of cargo processing operations. While it's a somewhat indirect impact, Neale said, “that concerns us because they’re our customers."
Boeing and other companies are closely eyeing the prospect of delays or cutbacks to the Next Generation Air Transportation System program to modernize the air traffic control system. Many AIA members are already prime or subcontractors in NextGen, Blakey told National Journal, with a direct stake in the roughly $1 billion project—ironically, she noted, just about the same size of the expected cut to FAA’s budget next year if sequestration goes into effect.
Companies with major stakes in the aviation business would not be the only ones affected by nondefense cuts. Even defense giant Lockheed Martin said 82 percent of its sales are derived from U.S. government customers, and it’s not limited to the Pentagon. “We have a business presence in virtually every federal department or agency, including the Social Security Administration, the National Institutes of Health, the Veterans Administration, the Department of Homeland Security, and the Federal Aviation Administration, to name a few, and are equally concerned with the effects of across-the-board cuts to nondefense agency programs,” Lockheed spokeswoman Jen Allen said.
As for BAE Systems, its $14 billion in annual revenue from the United States largely stems from what it terms defense contracts. But within that 70 percent faction are classified contracts that include intelligence projects. And BAE does contribute technical or information technology work for other government agencies—like assisting the Federal Emergency Management Agency with disaster claims or the FBI with cybersecurity initiatives. “The challenge,” spokesman Brian Roehrkasse said, “is the uncertainty of knowing how and where programs will be cut.”
NASA, too, would also face an 8.2 percent reduction to its roughly $18 billion budget under sequestration, prompting concerns from industry. “Such a deep and reckless cut to these agencies would senselessly jeopardize U.S. space leadership and stifle exactly the kind of investment in innovation that our economy needs,” said a report commissioned by AIA released on Wednesday. “Once these capabilities and jobs are lost, it will be decades to recover them—and may cost more than is saved in the near term.”
Voicing concerns about nondefense reductions may be industry’s last salvo in the grand finale of the fiscal-cliff showdown. With just days to go, and no sign of progress on a deal to avert the looming cuts, it may just be too late to affect the debate.
December 12, 2012