Aerospace firms brace for defense cuts

Industry’s contracts and plans could be in doubt for months

Los Angeles TimesFebruary 28, 2013 

BIZ SPENDING-AEROSPACE 2 LA

Workers on assembly line at Southern California Aerospace firm Qual-Pro on Wednesday in Gardena, California. Qual-Pro has worked to diversify its business in anticipation of sequestration style cuts.

BOB CHAMBERLIN — MCT

For the past several months, Gregory Bloom has worried about his small Irvine, Calif., aerospace business and what would happen if federal funds were held back – or “sequestered” – because of Congress’ inability to reach a budget agreement.

And now his worst fears are approaching. Cuts in the nation’s defense budget could total $3.2 billion in California alone, and Bloom knows that the industry’s payrolls, contracts and plans could be in doubt in the months ahead.

“We could wake up and face a world we’ve never seen before,” Bloom said. “We can’t make long-term decisions on an uncertain future.”

As president of Seal Science Inc., a maker of rubber gaskets for fighter jets, Bloom made several trips to Washington to warn lawmakers that the defense industry could be severely harmed by the cuts.

On Friday, $85 billion in federally funded programs are set to be slashed over the final seven months of this fiscal year unless Congress reaches an agreement on reducing the mounting federal deficit. Defense programs are expected to be cut about 13 percent for the remainder of the fiscal year.

Specific cuts to programs remain largely a mystery, but for companies such as Seal Science, with 120 employees, alarm bells are ringing. Bloom has held back on hiring and investing in new machinery because he has no idea what to expect.

Larger companies have edge

Most of the small aerospace shops depend on subcontracts from giant defense contractors, which have announced waves of job cuts in recent months, citing expectations of a protracted contraction of Pentagon spending.

“The damage of sequestration will fall largely on smaller, third- and fourth-tier suppliers,” said Dan Stohr, spokesman with the Aerospace Industries Association, an Arlington, Va., trade group. “Smaller companies with unique product lines and tighter margins are not going to be as resilient in the face of losing substantial orders.”

Larger companies have larger cash reserves and more diverse portfolios, he said. They are better-positioned to withstand the downturn in sales that is coming in the defense sector.

Still, aerospace giant Northrop Grumman Corp. of Falls Church, Va., is concerned about what would happen if sequestration hits. Northrop spokesman Randy Belote declined to speculate on the possible outcomes of sequestration and how it might affect the company.

He did say the company is “very concerned” on the budget cut’s long-lasting effects on “the defense industrial base” and “all of the communities that rely on the defense industrial base.”

Tightened purse strings

The Aerospace Industries Association has estimated 1 million jobs of all kinds nationwide would be lost if sequestration occurs.

Still, there is doubt whether sequestration will take place. If it happens, it would affect both the military, which is a core issue for Republicans, and social spending, which is important to Democrats.

But some aerospace companies have already been downsizing to reflect new budget realities in Washington.

Congress has tightened purse strings on the Pentagon. U.S. military spending – which grew by double digits after the Sept. 11, 2001, terrorist attacks – is now expected to decline $487 billion over the next decade.

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