Defense executives plead for Congress to avoid budget cuts

Reuters News
Posted: Jul 18, 2012 3:50 PM
Defense executives plead for Congress to avoid budget cuts

By Lauren French

WASHINGTON (Reuters) - Defense executives warned lawmakers on Wednesday that they must quickly come up with a plan to avert $500 billion in automatic spending cuts because the uncertainty is forcing companies to move ahead with dramatic layoffs and plant closures.

Lockheed Martin Chief Executive Robert Stevens said his company may have to let 10,000 employees go because of the automatic spending cuts that take effect in January.

"The impact on industry would be devastating, with a significant disruption to ongoing programs and initiatives, leading to facility closures and personnel reductions," Stevens told the House Armed Services Committee.

David Hess, the president of Pratt & Whitney, a United Technologies unit and Sean O'Keefe, the chairman and CEO of EADS North America, also said they expect to lay off employees but were unsure of numbers because the Obama administration has yet to release guidance on how the cuts will fall.

The show of force from the defense executives is part of a broader campaign in the defense industry and the Pentagon to convince Congress to find a way to avoid the cuts.

The $500 billion in defense cuts are called for in the Budget Control Act, which Congress passed last year after it failed to agree on $1.2 trillion in further budget cuts and instead resorted to across-the-board spending reductions.

The contraction in defense spending would come on top of $487 billion in cuts already planned over the next decade.

Della Williams, head of a small Texas-based company that helps design intelligence systems, warned that it is not just the big contractors that will suffer.

She likened sequestration to performing "cosmetic surgery with a chainsaw."

Lockheed's Stevens said Congress needs to act soon and said every month that goes by without clarity is another month of lost investment.

"The near-term horizon is completely obscured by a fog of uncertainty," Stevens said. "With just 167 days remaining until it is triggered, we have little insight as to how sequestration (the automatic budget cuts) will be implemented."

The U.S. House of Representatives approved a measure with little opposition on Tuesday calling for President Barack Obama to give Congress a detailed report on the impact that automatic across-the-board budget cuts would have on federal spending.

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Lawmakers hope the report will help the public understand how severely the budget would be slashed under the cuts. A similar measure has been approved by the Senate but it is unclear whether the two chambers would be able to agree on a compromise to send to the president for his signature.

As the defense industry prepares for the cuts to go into effect, Stevens said his company is also considering how many federally mandated layoff notices to issue.

The WARN Act requires most companies with more than 100 workers to give 60-day notice before mass layoffs.

(Reporting by Lauren French and David Alexander; Editing by Karey Wutkowski and Jackie Frank)