As Afghanistan war winds down, defense contractors face layoffs, pay cuts
A CH-47 Chinook prepares to sling load a container in Chorah, Afghanistan, May 12, 2013. The Chinooks, flown by members of Bravo Company, 2nd Battalion, 104th Aviation Regiment from the Connecticut and Pennsylvania Army National Guard, have played a vital part in the mission in Afghanistan since their arrival in December 2012 by performing resupply, retrograde, and planned missions.
As many as 1,000 employees of Tampa, Fla.-area defense contractors are facing layoffs or pay cuts as the war in Afghanistan winds down.
“There will be significant cuts,” said Greg Celestan, chairman and chief executive officer of Celestar Corp., one of several companies that will be affected by a reduction in spending that will come with the end of the war in Afghanistan. “A number of companies are having meetings with existing employees, telling them not to take out any serious financial commitments in the near future.”
Hundreds of employees, “even up to 1,000,” will face layoffs or pay cuts of as much as 20 to 30 percent, Celestan said.
Overall, the number of Department of Defense contractor personnel in the U.S. Central Command region dropped by about 26 percent from October to last month, according to a CENTCOM report. The region consists of 20 countries, including Afghanistan, Egypt, Iran, Iraq, Syria and Yemen.
On Wednesday, Leidos, a Reston, Va.-based company that provides professional, scientific and technical support services to CENTCOM’s Joint Intelligence Operations Center at MacDill Air Force Base, Fla., issued a "warn notice" with the Florida Department of Economic Opportunity saying it may lay off 93 workers in June.
Leidos submitted a proposal for a follow-on contract for CENTCOM, said spokeswoman Jennifer Gephart, and the layoffs will take place if the company does not win its bid.
“We expect an award announcement by early June, with an anticipated contract start date of July 1,” she said. “If Leidos is unsuccessful at winning the bid, the date of the permanent layoff is expected to commence on June 30.”
Gephart said that if Leidos doesn’t get the contract, the company “will assist employees in their search in finding employment elsewhere in the company as well as with other companies, including the new contractor to CENTCOM.”
The loss of Tampa-area jobs related to the military is no surprise. A study conducted last year for the Florida Defense Alliance projected a loss of 13,000 defense-related jobs in the area by 2015 “as the result of defense activities.” That represents a 9 percent drop from 141,700 jobs in the region in 2011, according to the Florida Defense Industry Economic Impact Analysis report.
With almost $14 billion in gross regional product, the military accounted for about 7 percent of all economic activity in the region, according to the report.
Regardless of the outcome of the Leidos contract, the area's contracting community is preparing for cuts, said Celestan, past chairman of the Greater Tampa Chamber of Commerce and a member of the Port Tampa Bay Board of Directors.
“This is definitely going to affect our company and other defense contractors,” said Celestan, whose company is a subcontractor to Leidos, providing intelligence analysis.
In addition to reductions in the number of contracts, the contracts that are awarded will be for significantly less money, he said.
“The numbers are going to come down dramatically, from 20 to 30 percent cuts, not only in numbers of personnel but the (contract) rates are coming down dramatically too,” Celestan said. “Most of the people continuing to work will have to take pay cuts. A lot of it is tied to CENTCOM and the drawdown of work in Afghanistan.”
Celestan said about 30 of his company’s 125 employees will be affected, either being laid off or receiving pay cuts. Other jobs are moving out of Tampa as the company diversifies in an effort to stay afloat, he said.
Smaller companies in the Tampa area are feeling the pinch, too, as the result of overall reductions in military spending and an uncertain future.
The failure of Afghan President Hamid Karzai to sign a bilateral security agreement with the U.S. is only adding to the uncertainty for contractors, because without that in place, the U.S. will not maintain a military presence beyond December. Though each of the two men in the run-off to replace Karzai is expected to sign that agreement, the White House has yet to announce how large a force will remain in Afghanistan.
Then, there is the overall reduction in military spending. The combination of factors is making it very difficult to run a business, said Joe Bianco, a principle in Legion Systems, a Tampa veteran-owned company that is focused primarily on special operations and intelligence support services.
“These changes have a disproportionately negative effect on small business,” Bianco said.
“You can’t plan,” he said, adding that the stress has ripple effects among employees and across the economy.
“You have now created instability in their lives, with a still-depressed housing market,” he said. “It’s not like there is upward mobility or even lateral mobility. That has a negative effect on the local economy, putting their livelihood in question. There is a lot of stress and worry, and when you worry about your job, you stop spending. That has a ripple effect.”
Defense Department contractor positions in the CENTCOM region are disappearing as the U.S. military looks to end combat operations there in December.
Between October and last month, the number of DOD contractor personnel in the region fell by 26 percent to more than 78,000, according to an April CENTCOM report. The vast majority of those personnel — more than 61,000 — work in Afghanistan. About a third are U.S. citizens, according to the report.
By comparison, there are about 33,000 U.S. troops in Afghanistan.
The largest percentage of contractors in Afghanistan — more than 20,000 — perform logistics and maintenance functions, according to the report called “Contractor Support Of U.S. Operations In The USCENTCOM Area of Responsibility,” issued last month. Construction, base support, management, transportation and interpreting services make up the bulk of the rest.