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Government shutdown is starting to burn aerospace, defense firms

A helicopter patrols the area around the Capitol as part of the regular security measures in place in Washington, D.C. Executives from the defense industry say the prolonged federal shutdown is beginning to impact larger companies that contract with the military.

MICHAEL S. WILLIAMSON/THE WASHINGTON POST

By AARON GREGG | The Washington Post | Published: January 9, 2019

WASHINGTON — The current government shutdown, now in its 18th day, is already the longest in at least two decades. And its economic impact on greater Washington, D.C.'s government-centric business community is starting to extend beyond the smallest, most vulnerable companies to include multibillion-dollar companies.

Executives from the government services giant Science Applications International Corporation, known as SAIC, said the shutdown is costing their company tens of millions of dollars as it approaches the end of its fiscal year. And representatives from the trade group Aerospace Industries Association said it could hurt U.S. exporters by holding up already-cumbersome export control paperwork.

In a Tuesday letter to reporters, Aerospace Industries Association Chief Executive Eric Fanning urged Congress and the President Donald Trump to end what Fanning called a "self-imposed crisis," noting the shutdown is already rippling beyond the ranks of government employees.

"Every day the shutdown lasts, the impacts grow and become more difficult and more expensive to fix," Fanning said.

Swift resolution appears unlikely. Trump has threatened to veto any spending bill that doesn't include at least $5 billion for his proposed border wall, and as of Tuesday afternoon there appeared to be little progress toward a deal with congressional Democrats. Trump said Friday that he would be willing to keep the government shut down for "months or even years" to get funding for the wall.

Meanwhile, AIA's Fanning said closures at the State and Commerce Departments have slowed the processing of export control licenses, which are required when U.S. defense contractors sell military hardware overseas. He also noted that contractors working in closed U.S. facilities have been unable to report for work, and mentioned that research projects have been delayed at the Federal Aviation Administration, NASA and the National Oceanic and Atmospheric Administration.

SAIC Chief Executive Tony Moraco said Monday that his company has taken a hit of roughly $10 million each week since the shutdown began, and noted that the rate could increase as the shutdown continues. The losses are coming mainly from the company's work with NASA, the Federal Aviation Administration and the Department of Agriculture, he said.

He also noted that the company expects between $40 million and $50 million in cash payments to be behind as of the end of January. The shutdown could interfere with the company's ability to meet its cash flow target for the current quarter, Moraco said.

The disruption comes at an inopportune time for SAIC. The company is working to close a high-stakes $2.5 billion deal to merge with Engility, another large defense contractor, which would make the combined company one of the Washington region's largest IT employers.

SAIC is impacted by the shutdown in a different way than many of its peers because its fiscal year runs through February 1st. Depending on how long the shutdown lasts, the company could take a financial hit when it reports results next month.

Moraco was confident, however, that the shutdown would do little to harm the company's long-term profitability.

"We'll see how that plays out," Moraco said. "But really the fundamental message there is that it is — it's a short-term challenge."
 

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