Letters shed light on defense cuts

Published 9:24 pm Tuesday, September 11, 2012

Thirteen defense contractors, most with a North Suffolk presence, share their concerns over “sequestration” in letters released by Arizona Sen. John McCain.

The letters, expressing serious concerns over automatic federal budget cuts that could hit defense spending beginning Jan. 2, respond to questions from McCain and six fellow Republicans on the Senate Armed Services Committee.

Set to take effect if federal lawmakers don’t reach a bipartisan deal to reduce the deficit, so-called sequestration would cut $500 billion more from defense budgets for 2013-2021 than the minimum $487 billion — a 9-percent cut — already assured.

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Under the Worker Adjustment and Retraining Notification Act, workers need to be given 60 days’ notice in advance of layoffs, and some contractors detailed how they would manage the process amid workforce reductions.

Lockheed Martin Chairman and CEO Robert Stevens wrote that “our best judgment at this point” is that notices would be sent in late October, or late September for New York.

“We may have to conditionally notify a substantially higher number of our employees than would actually be laid off that they may not have a job if sequestration takes place as planned,” he wrote, describing 10,000 potential job losses.

General Dynamics Chairman and CEO Jay Johnson wrote that without clarification from the Office of Management and Budget or the Defense Department, conditional notices may be issued at “defense business units most likely to be impacted by sequestration.”

The company heads concurred that a sequester would hit small business suppliers hard. ITT Exelis CEO and President David Melcher wrote, “we are very concerned about the impact of a sequester on the small business supplier base … These firms are where substantial reductions are likely to hit first and hardest.”

In his letter, Science Applications International Corporation Chairman and CEO John Jumper is concerned about resulting layoffs eroding technical skills and national security impacts.

The company employs 10,000 veterans, 25 percent of its workforce, Jumper wrote, and these jobs also would be impacted.

Contract activity has already slowed substantially due to the specter of sequestration, according to the letters released by McCain.

Melcher wrote that ITT Exelis, with 1,000 prime and sub Defense Department contracts, had revenues of $5.84 billion in 2011, a little more than $4 billion of which was from the DoD and intelligence community.

For 2012, the company is forecasting revenues of $5.4 billion to $5.5 billion, “in part due to the current uncertainty around the defense market timing of contract awards that have been or will be cancelled or delayed,” Melcher wrote.

Johnson predicts that “the full weight” of sequestration would be felt in the second half of fiscal 2013, presenting a challenge “well beyond anything ever done before.”

“The consequences of an arbitrary defense sequester occurring on January 2 are so unprecedented that it is difficult not to slip into hyperbole when commenting on it,” he wrote.