When asked 18 months ago what parts of the defense budget were ripe for picking, then-Vice Chief of the Army Gen. Peter Chiarelli mentioned spy aircraft as one of the obvious ones. Each branch of the military owns multiple fleets of surveillance and armed drones, creating unneeded duplication. Chiarelli said at the time that the Army would be seeking to save billions of dollars by axing redundant programs.
Similar budget scrubbing was taking place across most Defense Department procurement offices after the Pentagon received marching orders from the White House to cut spending by $487 billion over 10 years.
But plans to begin a prudent shedding of bloat in weapons procurements were short lived. Congress’ failure to negotiate a deficit-reduction deal last summer put deliberate budgeting on hold and threw Washington into chaos by setting a January 2013 deadline for automatic cuts of $1.2 trillion. A possible outcome for the Pentagon is that its 2013 budget may have to be pared down by at least $50 billion.
The looming “sequester” has, for now, derailed any attempt at rational downsizing at the Defense Department. It also set off an intense lobbying campaign by defense firms, which are threatening to lay off hundreds of thousands of workers due to a business slowdown and overall uncertainty.
The screaming about jobs over the past year has drowned out a long-overdue debate about which weapon programs the Pentagon really needs. Any talk of setting sensible priorities as Chiarelli suggested is passed off as blasphemous if jobs are on the line. Amid the hysteria over sequestration and election-year madness, the Pentagon has found the perfect cover to protect every program.
Maj. Gen. William “Tim” Crosby, program executive officer for Army aviation, said that none of the service’s unmanned aircraft will be terminated, despite the review that Chiarelli had recommended. Crosby said the entire portfolio of aviation programs he oversees had been deemed necessary and spared from cancellations, although some orders might be scaled back. Echoing industry warnings, Crosby said he would oppose closing down aircraft production lines because it “messes up the economy.” Crosby appeared genuinely worried about the employment consequences of Army decisions. “You’re talking about jobs. That’s defense workers,” Crosby said during a recent meeting with reporters at the Pentagon. “We want to minimize the impact of cuts.”
The National Association of Manufacturers unveiled estimates that defense budget cuts would result in losses of 1.2 million jobs in 2014, jacking up the national unemployment rate by 0.7 percent. Similar numbers had been circulated earlier this year by the Aerospace Industries Association. The American Legion warned that sequestration would result in 500,000 unemployed veterans.
Crosby’s statements are proof that industry’s messaging campaign is working. It has not always been easy for U.S. defense firms to get such vocal support from military brass. Just three years ago, Air Force Chief of Staff Gen. Norton Schwartz raised eyebrows when he said job ramifications should not be a primary factor in procurement contract awards. “Considerations of whether we are maintaining domestic engineering and manufacturing is a Defense Department responsibility, but should not enter in the source selection process,” Schwartz said in 2009, in response to questions about the forthcoming refueling tanker competition.
Critics of military spending have dismissed industry’s threats of massive layoffs as political theater. They contend defense firms have enough backlog orders, cash reserves and foreign sales to keep factories open in the near term. Even if the automatic cuts go into effect, defense spending would contract dramatically in 2013 but would rebound after that, according to administration forecasts.
Even Pentagon officials have hinted that industry alarmism may have gone too far. Amid the uncertainty, “people gravitate to the most negative behaviors,” said Brett B. Lambert, deputy assistant secretary of defense for manufacturing and industrial base policy. Speaking at a Bloomberg Defense conference, Lambert said the Pentagon is not panicking about losing suppliers. “[Companies] are part of an economic structure,” Lambert said. His office is concerned about potential “points of failure” in the supplier chain, but only will act to protect a vendor if the product it provides is absolutely essential and cannot be obtained elsewhere.
Some of the rhetoric about sequestration has been melodramatic. But if the ax does come down as the law prescribes and chops $50 billion from next year’s defense budget, industry will take the brunt of the pain. With troops still at war and personnel spending already sheltered from sequestration, most of the cuts will fall on the procurement accounts. A $50 billion reduction is just below 10 percent of the Pentagon’s budget, but could wipe out one-third to half of spending on new weapon systems. “That would have significant employment impact,” said David Fitzpatrick, managing director at AlixPartners aerospace and defense practice.
Analysts said industry can absorb cuts if they are planned and managed. Regardless of sequestration, changes in military strategy from land-based counterinsurgencies to air-sea battles and cyberwarfare will force companies to make significant realignments in their work force and facilities, said Richard Bergmann, Accenture managing director for aerospace and defense.
“Companies have to manage the new environment and the new reality,” he said. The threat of automatic cuts and fear of the unknown are only delaying that necessary evolution that must happen in defense industry, Bergmann said. “What the U.S. will need for national defense will change. It’s not just an austerity issue. It’s necessary change.”
But that’s a debate to be had after the November election.