Defense industries track possible budgetary cuts

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An M1A2 Abrams tank fires during training. Such sessions could be affected, along with every aspect of defense operations, if sequestration becomes reality in the 2013 budget.

As the tourism industry starts to take stock of the damage from the Waldo Canyon fire, another sector of the Springs economy is bracing for a firestorm of a political nature — sequestration legislation that could cut billions more from aerospace and defense companies.

About 45 percent of the Springs’ economy comes from defense contractors and the city’s five military bases. Sequestration, if it becomes reality, will cut an additional $450 billion from the DoD budget, in addition to $500 billion already planned for the next decade. The cuts could equal $55 billion next year alone.

That means 17,000 jobs in Colorado’s aerospace industry are at risk, says Brian Binn, president of military affairs for the Greater Colorado Springs Chamber and EDC. Not to mention the thousands of military jobs that could be cut — and the contractors’ work as well.

“And for every aerospace job that’s lost that means three additional jobs are affected,” Binn said. “It has devastating potential.”

Aerospace industry officials and defense contractors are busy lobbying Congress to have sequestration lifted — so far, to no avail.

“We think they’re under terrific pressure right now to do something,” Binn said. “We’re hoping it’s not more ‘kick the can down the road.’ There are other reasonable solutions and we’re hoping they address those. And we hope we’ll see something soon, but it isn’t likely before the election.”

Binn said the local chamber sent a letter to the state’s congressional delegation, trying to let them know the urgency behind the issue. Although six months remain until sequestration is implemented, some defense contractors say that pink slips will be issued as early as November.

At Lockheed Martin, CEO Robert Stevens says the company has already cut its facilities and its workforce.

“Over the past few years, we have reduced costs by billions of dollars,” he said in a statement. “We’ve removed a million and a half square feet from our facilities’ footprint and we will reduce another 2.9 million square feet before the end of 2014. Today our workforce is 18 percent smaller than it was just three years ago and the pace of our hiring has slowed considerably.”

The problem is that the Pentagon hasn’t said how it will implement the billions in cuts, leaving defense contractors facing a very uncertain future. And that includes the companies operating in the Springs.

“We just don’t know what the cuts will look like,” Binn said. “And until we do, there’s so much uncertainty. People aren’t going to hire until they know what the government will do. That’s why they shouldn’t just put it off year to year. They need to make final decisions.”

In January, both defense and non-defense budgets would be cut by about $500 billion each. For defense, that’s an additional half-trillion dollars beyond the Budget Control Act commitments already in place, Stevens said.

“Our Secretary of Defense has described the sequestration process as a meat axe,” he said. “It is. There is no strategy or force structure or concept of operations for our nation that is supported by these reductions. From an industry perspective, the near-term horizon is completely obscured by a fog of uncertainty.”

The Colorado Space Coalition is actively lobbying Congress to end sequestration, said Vicki Lea, spokesperson for the group.

“It’ll be so detrimental to the state’s economy,” she said. “We’re working behind the scenes, because we’d love to see this addressed before the summer recess.”

The big problem is that sequestration cuts are blanket cuts — across the board.

“They’ve taken an axe to the budget,” she said. “Companies can’t plan, because how do you cut 10 percent from an aircraft carrier or a satellite program? You can’t. This is just unprecedented.”

It’s not just the DoD budget, either. NASA’s budget would take a hit — translating into losses in Colorado’s many aerospace companies engaged in high-tech research and development.

“We’re trying to get back into the space race,” Lea said. “And there are Colorado companies that are working on that — companies like Sierra Nevada and United Launch Alliance. Cutting those programs will hurt our ability to compete.”

And cutting aerospace jobs — with the highest average salaries in the state at $114,000 — will translate into cutting into both the state’s service sector and its manufacturing industry.

“This is going to be so widespread; it’s going to be dangerous,” she said.

But maybe not. Fred Crowley, economist at University of Colorado at Colorado Springs, says the Springs could actually benefit if the military closes bases elsewhere.

“I don’t believe they are going to walk away from the millions they’ve invested at Fort Carson,” he said. “If they close bases elsewhere, maybe we’ll get more missions here. And, think about it — for the past 10, 12 years, we’ve had one-third of the soldiers assigned to the post actually deployed elsewhere.”

As the deployment tempo drops, more soldiers will stay at Fort Carson, working and training. That will translate into more apartments rented, cars sold, groceries bought, Crowley said.

“Even if they cut the force at Fort Carson, we’re used to having fewer people here,” he said. “They definitely won’t cut one-third of the soldiers.”

Crowley isn’t the only one optimistic about the future. Tom Daschback, owner and CEO of T.D. Support Services Corp., says he isn’t worried about cuts to his government contracts.

“We aren’t tied to a product in the same way the heavies are,” he said. “We supply services — security, nurses, doctors, things like that. Even if they cut the footprint of the bases, they’ll still need support services.”

Daschback has about 350 employees spread across the United States and in Europe. He says he’s hiring in some areas.

“The key,” he said, “is to diversify. It’s not to have a single product the government might not want in the future. We have contracts outside the Department of Defense, providing services to other government agencies. Those services will have to be delivered, no matter what. And I’m not just blowing smoke, trying to be positive. I really think that we have nothing to worry about.”

And while Daschback might have found the secret to permanent success for small businesses with government contracting, not all defense contractors are as optimistic. At Lockheed Martin, the fear is losing more than jobs — it’s a fear of losing ground globally.

“I suspect that on one level it might be flattering to believe that our industry is so robust, so durable, so as to absorb the impact of sequestration without breaking stride,” Stevens said. “But this is a fiction. 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.”