Texas defense contractors mum as nation nears 'fiscal cliff'
By Yamil Berard | Fort Worth Star-Telegram | Published: December 31, 2012
FORT WORTH, Texas — North Texas defense contractors have hit the mute button in the final hours as Congress tries to hatch a deal to avoid the "fiscal cliff" and huge automatic spending cuts starting Jan. 1.
While corporate leaders have spoken out against the cuts and warned of major layoffs, the silence now is not unusual in anticipation of a legislative order that would cut $500 billion over 10 years, industry officials and analysts say.
"Those who are supposedly in the know don't know as much as they need to know so there's a considerable amount of confusion," said retired U.S. Army Maj. Gen. Dennis Kenneally, who heads up a San Diego, Calif.-based organization of defense industry and military experts.
For months, the defense industry has been predicting economic calamity if Congress does nothing to stop sequestration, a legislative term for the process mandated in the Budget Control Act of 2011. Bell Helicopter's Chief Executive John Garrison in October said sequestration "equals devastation." And his counterpart at Lockheed Martin said the layoffs would not need to occur until April since contracts for the company's large programs are already in place.
But as the deadline nears, it's probably in the industry's best interest to hush up, analysts say.
If the industry offers up ideas on where to trim spending, congressional leaders might seize the opportunity to cut some of the industry's so-called "crown jewel" programs, such as the F-35, some say.
"It's better for them to stay quiet now," said Richard Aboulafia, a defense industry analyst in Washington, D.C. "The worst thing you can do is openly discuss plans because you're implying that this is going to be manageable rather than apocalyptic."
The big fear is that spending cuts will lead to job losses and consequences to the local economy.
One pro-defense spending group, the Center for Security Policy, reported that about $11.1 billion was spent with contractors in Tarrant County in 2011, more than $7 billion tied to Lockheed Martin's F-35 fighter program. The total for the four-county Dallas-Fort Worth area was $15.8 billion; and for the entire state was $36 billion.
The workforce at Lockheed and Bell Helicopter tops 20,000 in Fort Worth alone.
But the cuts would not be immediate and Tarrant's big defense employers would have weeks or months to make adjustments, Aboulafia and others say.
The initial impact on Bell Helicopter, Garrison has pointed out, would likely be small, because the company has contracts and funding on V-22 aircraft and military helicopters through 2015.
And the cuts would not apply to funds already obligated to support Lockheed's F-35 fighter program. Earlier this month, Lockheed received a Pentagon contract guaranteeing a final installment of about $127.7 million for the fifth production lot of F-35 fighters.
On Friday, Lockheed received Pentagon contracts worth as much as $3.67 billion for 31 additional F-35 jets, according to Bloomberg News. Those contracts would be immune from budget cuts if Congress can't avoid sequestration. Details such as the contract's target costs, profit, cost ceiling and overrun share line will be completed next year when a final contract price is settled.
If cuts do occur, certain programs, known as "crown jewels" of the industry, should be excluded, according to an industry survey by the Center for Strategic and Budgetary Assessments, a public policy research institute on defense planning.
Those "crown jewel" programs include cyber capabilities, special operations forces, undersea naval platforms and long-range strike aircraft -- manned and unmanned, said Todd Harrison, senior fellow at the Center for Strategic and Budgetary Assessments.
This report includes material from the Star-Telegram archives and Bloomberg News.