Uncertainty about the depth of U.S. budget cuts is having a paralyzing effect on the American defense industry’s plans for investment and hiring, top executives from the sector warned.
“It’s very hard for anyone – the government or industry – to make big commitments without knowing what’s going to happen,” Mick Maurer, who became president of United Technologies Corp’s Sikorsky Aircraft unit on July 1, said in an interview.
“The uncertainty is paralyzing everyone,” Maurer told Reuters on the eve of the Farnborough International Airshow, the aerospace industry’s biggest showcase, Reuters reports.
Defense Secretary Leon Panetta and top industry executives have been urging the U.S. Congress to act soon to stop an additional $500 billion in defense spending cuts on top of $487 billion that are already being implemented.
Industry executives have met in recent weeks with Panetta and U.S. lawmakers to warn about the impact of looming, across-the-board defense cuts, which would be carried out under a process known as “sequestration”.
The Pentagon has said that unless Congress acts to change the law, it will have to implement the cuts on Jan. 2 by slashing all programs by a certain percentage, regardless of strategic need.
Dave Hess, president of UTC’s Pratt & Whitney engine-making unit and chairman of the Aerospace Industries Association, said he had been traveling to Washington once a week to help lawmakers understand the gravity of the situation.
The AIA has said the additional budget cuts — estimated at 10 to 14 percent of Pentagon spending — could result in the loss of 1 million jobs and a 25 percent reduction in U.S. economic growth, while harming the U.S. defense industrial base and national security.
“We can’t wait until December. It’s the law, and we are obligated to plan for the law,” Hess told Reuters in a separate interview, saying Pratt and many other companies would need to give employees 60-90 days’ notice about possible layoffs.
“We need clarification now,” he said, adding that lawmakers appeared to be becoming more engaged on the issue. Industry leaders have joined forces with unions in some areas to fight the budget cuts.
Hess said Pratt & Whitney was analyzing the expected impact of the additional budget cuts on its revenues and hiring, but the uncertainty had clearly put the brakes on his company’s investment and hiring plans.
“We’re already seeing it today,” Hess said. “No one wants to hire. No one feels there’s enough certainty to make significant capital investments. We’re all kind of waiting on the sidelines to see what happens,” he said.
Industry leaders have warned that the Pentagon could also face billions of dollars in contract termination fees and other costs when the new cuts go into force next year.
Dennis Muilenburg, president and chief executive of Boeing Co’s defense unit, said his company had shed 8,000 jobs and decided in January to close its Wichita, Kansas facility to cut costs and safeguard some research and development spending.
“We’ve been preparing ourselves for a worst-case scenario – a full $1 trillion cut in the U.S. defense budget,” Muilenburg told a group of reporters at the airshow. “We’re trying to size our cost structure to be prepared for that worse-case scenario.”