Defense Industry Layoffs Picking Up Steam

Defense and aerospace firms have shed at least 160,000 jobs over the past five years as Pentagon spending has waned. About 30,000 jobs have been eliminated so far in 2013, and industry layoffs are on pace to exceed last year’s totals by 30 percent, according to new data by the consulting firm Challenger, Gray & Christmas Inc.

The company’s figures — compiled from public records and news reports — likely underestimate the extent of industry downsizing, experts said.

“We are anticipating more layoffs down the road” as sequestration budget cuts take hold, said James K. Pedderson, director of public relations at Challenger Gray. “Because military contracts can take years to unfold, we think that federal spending cutbacks on military equipment will not have a big impact until current contracts are up,” he said.

The sequester, which Congress passed during the 2011 debt-ceiling showdown, got a cool reaction because of the belief that the impact of the cuts had been exaggerated. Warnings about defense layoffs started in 2012, about a year before the automatic cuts took effect in March. 

Prognostications of massive pink slips were brushed off as sequester came and the industry did not collapse. Industry groups' alarms about impending job losses also were dismissed as top defense companies have reported some of the stock market's best returns. The strong financial performance has been in part the result of cost cutting and investors being rewarded with utility-like stock dividends. Executives have said these are only short-term fixes that cannot continue indefinitely.

The Pentagon's top suppliers have been preparing for a downturn for several years. Lockheed Martin Corp., the nation's largest defense contractor, has shrunk its workforce from 146,000 employees to 116,000 since 2008. Marillyn Hewson, the company's chief executive officer and president, announced Nov. 14 that 4,000 more jobs across the United States will be terminated by 2015.
Industry groups are once again trying to make the case that the damage inflicted by sequester on the defense sector is real, although their admonishment so far has been unable to move the needle in Congress.

Stephen Fuller, director of the Center for Regional Analysis School of Public Policy at George Mason University in Fairfax, Va., made national headlines last year when he unveiled a study that predicted sequester would kill 2 million jobs. The research, funded by the Aerospace Industries Association, put Fuller in the crosshairs of critics who dismissed the study as industry propaganda.

Speaking at a hearing of the Senate Appropriations’ defense subcommittee last week, Fuller said he stands by the findings of the study, although he revised the number of potential layoffs down to 1.5 million.

“People continue to ask me, ‘Well, where are those job losses?’” Fuller told lawmakers. The employment decline is under way, and will continue under sequester, he said. A telltale sign are the trends in federal employment, he said. There are 94,000 fewer federal workers today than a year ago. Federal agencies lost 12,000 employees in October alone. “This is just an illustration of the kinds of changes that we're looking for in the private sector.” Contractor employment is harder to track because defense companies aren't separated as individual lines in Department of Labor data, Fuller said. Aircraft manufacturing, which includes commercial as well as military, is down 10,000 jobs in the last 12 months.

The effects of sequester on employment are cumulative, he said. “The numbers that we're seeing in August at the local level and now October at the national level are going to get bigger,” Fuller noted. “The jobs not added are going to become more numerous.” This is partly because of the nature of federal contracting, as many of the cuts are for work to be delivered in the coming years.

About 45 percent of the job losses, he added, are not in military equipment manufacturing, but in vendors and retailers that are dependent on the payroll spending of aerospace and defense workers. That money is no longer available to support local businesses.

Sen. Richard Durbin, D-Ill., chairman of the defense appropriations subcommittee, is supporting a delay or replacement of sequester. He said its impact on the nation’s economy — both on the defense and civilian sides — has yet to be seen. “Round two of sequestration will cost us 800,000 jobs across this nation,” Durbin said Nov. 13.

In 2013, the Pentagon had its budget reduced by $37 billion due to sequestration. Defense will have to cut $52 billion in 2014 unless current law is repealed. “The cuts are delaying the purchase of next-generation ships, aircraft, weapons, and sensors that our troops need for the future,” Durbin said. “Each delay puts solid middle-class jobs, jobs in every single state in America, at risk.”

It is a “common misconception” that the majority of workers in the defense sector are employed by large corporations with big-ticket Pentagon contracts, he said. “In reality, the heart of our industrial base are millions of middle-class workers: engineers, machinists, computer scientists and welders.”

Greg Bloom, president of Seal Science, a small business in southern California, complained to lawmakers that most of the sequester focus has been on civilian federal employees and military readiness. “I am concerned that what has not received as much attention is the impact that sequestration is having on the industrial base, particularly the smaller supplier level,” Bloom said. “While many people recognize the marquee names in our industry, it is little known that the defense industrial base is diverse and complex, comprised mostly of small to mid-sized companies.”

A case in point is BRS Aerospace in Saint Paul, Minnesota. The company, which makes parachutes for the military, has seen is workforce plummet from 629 people in three states in 2011 to 79 employees, CEO Larry Williams said at the hearing.

Topics: Business Trends, Defense Contracting, Defense Department, DOD Budget, Procurement