While the military is struggling with sequestration constraints, defense companies are confident they’ll survive the current and future budget cuts.
The key, those companies say, is to be agile and offer a broad array of services and to provide innovation at low cost.
“This is a budget cycle. It’s just another budget cycle for us. We made it through those, we’ll make it through this one,” said Mark Luttrell, vice president of mission information systems at Harris International, an international corporation that is more than 125 years old. “It’s not the brightest of cycles. But we have a broad base of services, and a track record of delivering what we say we’re going to deliver.”
Harris, which has two divisions in Colorado Springs, holds 60 percent of the military’s radio market and 40 percent of the military’s radio communications systems market internationally.
The company also provides communication services to the Federal Aviation Administration and provides satellite command-and-control to the federal government as well. It has an information technology office near Schriever Air Force Base and a local government services division with offices at the Colorado Springs Airport and on Academy Boulevard.
Like other large defense companies, Harris is growing internationally in the face of budget troubles in the United States. It has offices in 125 countries, and is considering expansions in Brazil and Asia.
“It’s about achieving a good balance,” he said. “We have areas of focus in the Middle East and in Latin America. We aren’t abandoning our traditional customer, but we are looking to supplement the contracts we have now.”
Searching for work beyond federal contracts could be a wise move.
Gen. William Shelton, commander of the Air Force Space Command at Schriever Air Force Base, says the Air Force has cut some of its local contracts by 50 percent. Civilian employees are facing a 14-day furlough through the end of the year.
“You can imagine the angst of our civilian employees,” he said. “Right now, the furloughs are on hold, but imagine losing 20 percent of your pay for the rest of the fiscal year. It’s disturbing. Cutting contracts 50 percent — those are real jobs. They are sizeable cutbacks.”
It’s Shelton’s job to figure out how to manage the $508 million in cuts the Space Command has to come up with — and he says it’s not easy to figure out. That’s because in the first year of the sequester, government agencies have no discretion — every line item must be cut. In the following five years, military commanders and department heads have more wiggle room to prioritize the cuts.
“We’ve reduced the contract for satellite management systems by 75 percent,” he said. “That’s pretty much put us in a break/fix situation, as opposed to doing studies about maintenance.”
And the Air Force has turned off one-third of the Space Fence, a radar system that detects orbital objects as they pass above America.
“That means essentially that the eastern part of the U.S. isn’t covered,” Shelton said. “We put it in cold storage. And we were going to put a radar detection system on the Aleutian Islands on half-power, but because of the situation in North Korea, we decided to keep that at full power. That means we have to cut $5 million from somewhere else.”
And Shelton said a contract to continue the next generation of the Space Fence is ready to be awarded, but the Pentagon hasn’t yet decided if it will be.
“That decision will come as we discuss our priorities, I’d say in the next month,” he said. “We’re about ready to award the contract, but we’re not sure if we will.”
Everyone involved says the government has to come up with new ways of meeting the budget challenges while maintaining its space and defense priorities. And the frustration is palpable.
“On behalf of the federal government, I apologize,” Shelton said. “I find this personally and professionally embarrassing.”
But some companies are viewing the current economic and budget environment as an opportunity. Braxton Technologies, headquartered in the Springs, just purchased Net-centric Design Professionals, a Boulder-based company that specializes in command and control operations for satellites, as well as cyber security. Net-centric has 50 employees.
“It’s a good fit for Braxton,” said CEO Frank Backes. “From a technology standpoint, we align ideally. We don’t cross in our customer base, either, so it’s not like we bought a competitor.”
Braxton will keep the founders of NDP on board, but will move its administrative functions to the Springs. The company will also maintain a presence in Boulder. In the future, the merger could mean more jobs in the Springs, but the companies have to complete the transition first, he said.
The merger represents the major goal of the O’Neil Group — buying companies and moving them to downtown Colorado Springs. The sequestration and uncertainty only help them with that mission.
“There are a lot of middle-level companies run by Baby Boomers,” he said. “And they are looking at the budget and realizing they’ll have to put their retirement at risk to stay in business. They don’t want to do that. We want to buy them — and we’re in talks to do exactly that. Buy more companies and move them to downtown Colorado Springs.”
Backes said the company was in talks with two other companies and plans to make announcements soon. Backes is also encouraging other locally owned companies to consider the idea.
“Privately held companies are entrenched where they are,” he said. “It’s hard to get them to move. So why not have a company that’s already here purchase them and then move them here? It’s what we do.”
Braxton itself stands to benefit from the military’s current stance of better, faster, cheaper when it comes to military contracts. The company specializes in off-the-shelf software customizations, which means it can provide satellite and Global Positioning Systems software at a much lower cost.
“We can sell a product off the shelf, and then bid for another contract using 97 percent of the product,” he said. “That makes us cheaper and faster.”
In the short run, the aerospace industry agrees that sequestration will be painful. Programs will be cut. But Dennis Heap, executive director of the Front Range Airport, says Colorado is in a pretty good position to weather the budget storm.
“We’re the number two aerospace state,” he said. “So we’ll feel some of that pain. But it also means that some cuts won’t happen because what goes on here is too important.”
Heap says Front Range Airport is an example. Originally, it was on the list of towers the FAA planned to close. But because it is the site of Colorado’s planned spaceport, a coalition of legislators and local leaders was able to lobby to keep the contract tower open.
“You can’t have a spaceport within five miles of the 10th busiest airport in the nation without a tower,” he said. “And they agreed. That’s just one example of how we can all work together to prevent the worst of the cuts.”
But success stories don’t erase the concern felt by military and political leaders faced with the hard choices.
“These cuts are too indiscriminate,” said Rep. Dutch Ruppersberger, a Democrat from Maryland, and ranking member of the U.S. House Permanent Select Committee on Intelligence. “A 9 percent cut could mean turning off a satellite. And that means a 9 percent cut equals a 100 percent loss to national security. We’re throwing out the baby with the bathwater.”
“Sequestration was designed to be so bad, that it would be ill-advised for both sides. It’s reality now and our education system is taking a hit. The education we need to invest in is being cut and it’s being cut in the same fields that the Russians and Chinese are heavily investing in. National security is being sacrificed and so is our national future.”
— Rep. Dutch Ruppersberger, a Democrat from Maryland, ranking member of the U.S. House Permanent Select Committee on Intelligence
“We are in a changing environment. I’d say the changes in the environmental conditions around counter space weaponry and with budget constraints — we could have a perfect storm. The status quo is not a good option. And we’ve come to a fork in the road, and we need to decide what our national priorities are.”
— Gen. William Shelton, commander of Air Force Space Command
“It’s definitely an uncertain budget environment, and it’s hard to plan when you don’t know what the future is going to look like. But we have to stay in close contact with our clients. We’ve been planning for this for quite some time — and we’ll have to do a little internal belt-tightening.”
— Mark Luttrell, vice president of missions information systems, Harris International
“Fighting cyber attacks against personal networks, against infrastructure, against weapons systems is hard enough in a good budget environment. And I think the real world is going to interfere with these best laid plans. We’re going to see a flash point — North Korea, Iran — and we might not be able to protect ourselves.”
— Ret. Gen. Trey Oberling, vice president, Booz Allen Hamilton
“Industries are going to be motivated to work within the military’s budget constraints. They want innovation at a low cost with a short turnaround. Successful companies are going to give them that.”
— Frank Backes, CEO of Braxton Technologies
“It’ll hurt us, but it also will force us to do something as a country and as an industry — force us to find better, more efficient ways to do business. It’s uncomfortable to go through, but there are places that can be cut, and places that should be cut.”
— Dennis Heap, executive director of Front Range Airport