Dayton-area defense contractors have avoided mass layoffs in recent months, but confront continued uncertainty because of automatic budget cuts known as sequestration, company leaders say.
Many local defense firms have halted hiring and not filled open positions until they know what’s ahead with the Pentagon’s budget, said Scott Coale, president of Modern Technology Solutions Inc. in Beavercreek.
“I think it’s an issue that is still sorting itself out,” said Coale, a former leader of the Dayton Area Defense Contractors Association and a retired Air Force colonel. “I think the real challenge is what’s going to happen over the next 10-year period which the sequester law was supposed to address.”
The automatic budget cuts, which began four months ago, are targeted to cut about $500 billion out of the defense budget over a decade. This year, the military was forced to cut $37 billion by Oct. 1, and 10,000 Wright-Patterson Air Force Base civil service workers began 11-day furloughs this week. The cuts were in addition to the $487 billion in spending reductions the Pentagon agreed to absorb.
Deborah Gross, Dayton Area Defense Contractors Association executive director, said she has witnessed a “huge impact” from the no-show of military aircraft flying at the Vectren Dayton Air Show to more people sending out resumes “because they’ve lost their job due to sequestration.”
Sequestration, combined with other defense budget cuts that could add up to $1 trillion, would cause 1 million layoffs nationwide and more than 18,000 jobs lost in Ohio, according to a George Mason University report commissioned by Aerospace Industries Association. AIA spokesman Dan Stohr said Monday the intervention of Congressional lawmakers has changed the outcome.
“In the short term, we have not seen many layoffs,” he acknowledged Monday. “That will be coming.”
He predicted a bigger impact in the next 12 to 18 months.
Sequestration “doesn’t happen all at once,” he said. “It happens contract by contract, activity by activity, program by program.”
The four-county Dayton Metropolitan Statistical Area reported a 7.3 percent unemployment rate in May, the most recent numbers available. The region recorded the same unemployment rate in May 2012. Ohio had a 7 percent unemployment rate in May, compared to 7.6 percent nationally.
Stan Soloway, president and chief executive officer of the Arlington, Va.-based Professional Services Council, said sequestration’s effects on defense firms will be gradual.
“This was always going to be a ramp, not a cliff,” said Soloway, whose organization represents professional service firms with Pentagon contracts. “You will continue to see slowly growing but not insignificant impacts in the industry … which translates directly to job loses.”
“It’s fairly clear that when you look at 3, 4, 5 percent reductions in spending on services, you see a proportional number of people lose their jobs,” he said.
He expects to see a “significant reduction” in the defense budget next year, although Congress has not settled the question of sequestration’s effect on military spending in 2014.
Ohio Metal Fabricating had strong sales the first half of the year, but has noticed a drop-off the second half, a company spokesman said. The Dayton company with 17 workers makes parts for helicopters, Humvees and Mine Resistant Ambush Protected vehicles.
“We had a stellar first half of the year,” said Gary Burdette, sales engineer. “The second half we’re seeing some impact.”
The biggest drop happened when a major aerospace contractor departed the state, he said.
“We are just holding staff,” he said. “We’re level right now, but we’ve been finding work outside of our niche business.” That niche business has meant producing commercial heat lamps and capturing more aerospace work, he said.
Custom Manufacturing Solutions in Xenia makes turret rings for armored combat vehicles.
Mike Collinsworth, company president, said the federal government has delayed awarding some defense contracts. The company has kept 30 employees on the job, and had about a dozen temporary workers last year because of strong orders.
“We bumped up last year with temps and now the temps are no longer here, but I’ve not laid off my core workers yet,” he said.
TAC Enterprises in Springfield laid off 17 employees by early March and is trying to find new work for about 100 employees who produced Air Force cargo nets, officials said. Employees have had four furlough days since sequestration started, said Mary Brandstetter, chief executive officer.
The company, which employs developmentally disabled adults, recorded an 83 percent drop in new cargo net orders, bottoming out at $1.2 million, but had a 16 percent increase in a $2.2 million agreement to repair cargo nets, she said.
“Right now, it’s kind of month to month,” she said.