Defense budget cuts a bittersweet prospect in Springs

Uncertainty in Washington about the 2012 defense budget — and billions in cuts expected in the next decade — has major defense contractors worried about shrinking contracts and cutting jobs.

But smaller businesses in Colorado Springs are cautiously optimistic that smaller contracts might even the playing field.

“Smaller companies are more nimble,” said Buddy Gilmore, owner of Shape Technologies. “We can respond to smaller contracts that the big guys won’t touch. This could be actually good news for us — smaller contracts mean we’re able to compete more.”

In fact, Gilmore said Shape has grown since the beginning of the year, moving into new headquarters at Research Parkway.

“We needed more space, because we had to build a computer lab,” he said. “We’ve got contracts around the country, and we’re expecting that to continue.”

Gilmore has hired a few people since the start of 2011, and plans to hire more. The delay is getting final approval from the federal government.

“That’s the only thing I’ve noticed during this whole budget issue — and the debt ceiling issue,” he said. “It takes longer to get approved; it takes longer for the final RFP (Request for Proposal). But that’s it. We’re still getting business.”

Kelly Roth, owner of Delta Solutions and Strategies, is a little more worried about how defense budget cuts could affect the business climate. But she said small businesses have to take the uncertainty in stride.

“There’s always something,” she said. ‘When you’re a small business, volatility is just part of it — it doesn’t matter if you’re selling cars or sushi. You have to be concerned about the climate, about DoD cuts, about geopolitics. It’s always there.”

Large defense contractors such as Boeing, Lockheed Martin, Northrop Grummon and Raytheon — all with a presence in the Springs — have more resources to weather a political and economic crisis, she said.

Boeing has been preparing for flat defense budgets, said Chairman, CEO and President Jim McNerney.

While the company plans to lobby Congress during the 2012 budget negotiations, they also are making use of their international presence.

“We have been positioning the company for growth by focusing on increasing international opportunities, as well as moving into new markets,” he said.

Still, he wouldn’t speculate on what the debt ceiling agreement — with its accompanying trigger for Department of Defense cuts — might mean for Boeing’s business.

“At this time, it is too early to determine what the specific implications of the deficit reduction measure will be for Boeing and the products and services we provide for our nation’s security,” he said.

Roth said smaller companies were more nimble, but would need resources in place to survive in the future.

“Like everybody, I’m seeing more caution about budgets from federal contracts,” she said. “They want the best product at the best prices — and it’s very competitive out there. You have to be prepared, you have to buckle down and be judicious about how you spend money.”

Delta Solutions has had a pretty good 2011. Roth has hired 65 people in the first seven months of this year. But she remains cautious.

“We’ve learned a lot of lessons with these major events,” she said. “What we’ve learned — be prepared for anything.”

Both Delta and Shape provide software solutions to the government — and that might be why they aren’t yet feeling the pinch. Cyber security remains a big growth area, but larger defense companies are moving to take a piece of the niche.

“(We’re moving) into targeted adjacencies,” said Boeing’s McNerney, “unmanned systems, cyber security, energy management and support and logistics

Gilmore isn’t worried.

“We’re small enough that we can go after contracts the big guys won’t touch, it doesn’t make sense for them to,” he said. “We’ll have more opportunities in the next year.”

But that doesn’t mean everyone’s job is safe. The Department of the Army recently announced cuts to its civilian jobs, mostly installation personnel.

“I don’t think Fort Carson will escape unscathed from that,” said Brian Binn, president of military affairs for the Colorado Springs Chamber of Commerce. “But I think with the missions we have here, and the installations, those are safe.”

Binn doesn’t believe budget cuts will affect the arrival of the aviation combat brigade or construction projects at the Mountain Post.

“That’s a main priority for the Army,” he said. “We’ll see it here.”

Binn said defense companies aren’t yet shedding jobs — but they aren’t adding any either.

“The aerospace and defense industries in the Springs have been pretty flat for the past year,” he said. “The uncertainty keeps them from growing or hiring unless they have dollars flowing from a specific contract.”

And with 2012 budget talks — and a Congressional supercommittee working to find more cuts — the companies might only become more cautious, he said.

But right now, the DoD is working on the assumption it won’t see anymore cuts than the $400 billion in savings President Obama called for earlier this year.

Cuts will come from the department’s base budget, and not from its overseas operating fund, which covers operations in Afghanistan and Iraq.

Defense companies like ITT Mission Systems, headquartered in Colorado Springs, receive contracts from that budget. ITT currently has a multi-billion contract to provide services in Afghanistan — everything from managing the bases to providing training for Afghan troops. Those jobs, however, aren’t in the Springs, but are overseas, said ITT spokesman George Rhyndance.

Much of the uncertainty comes from the prospect of future cuts — about $60 billion additional cuts — if the super committee can’t reach an agreement and if Congress doesn’t act on its proposals.

Binn doesn’t think that will happen.

“There’s too much at stake,” he said. “I think the DoD won’t be exempt from the budget cuts, but I don’t think they’ll see any more than the cuts already in place. I think the committee will reach an agreement.” nCSBJ