Address the sequestration time bomb and do it soon! That was the message a group of Senators and defense industry leaders hammered home to an audience of Congressional staffers and reporters during a lunch on Capitol Hill today.
"Industry really can't wait until the lame duck session [to make preparations for the $500 billion dollar defense spending cut], and that is certainly true, it's true in my company and it's true in all the companies [in the defense sector," said Lockheed Martin CEO Robert Stevens, referring to the post-November election session of the current Congress.
At an Aerospace Industries Association-sponsored lunch on the Hill, Stevens warned: "The very prospect of sequestration is already having a chilling effect on the industry. We're not gonna hire, we're not gonna make speculative investments, we're not gonna invest in incremental training because the uncertainty associated with $53 billion of reductions in the first fiscal quarter of next year is a huge disruption to our business."
Stevens went on to warn that defense companies must legally provide employees with 60 to 90 days notice of any facilities closures and associated job cuts that would be triggered by sequestration, the more than $500 billion across the board cuts in defense spending over the next ten years that are slated to start in January, with a $53 billion dollar cut for FY-13 unless Congress finds a way to rescind them.
Furthermore, while everyone from the Pentagon to the defense contractors agree that sequestration will wreak havoc on the Defense Department's modernization plans and industry's profits, no one has accounted for the thousands of subcontractors who will see work disappear, said Stevens.
"To continue to wait, and then as industry to instantly respond to a massive reduction to the availability of funding when we're already in our year of execution is a massively complicated and unpredictable approach for any business and we don't have really rational and really good responses," said the CEO. "All of our companies have thousands and thousands of contracts that have terms and conditions in them that are reinforced by the funding that's available, and when the funding stops, we will be abrogating all those contracts and there will be thousands of claims for equitable adjustments from small businesses that I don't believe anybody has included in any calculus about the magnitude of disruption that's associated with sequestration."
If sequestration is inevitable, Congress and the Pentagon need to begin work identifying which programs will take the heaviest hits as soon as possible so that the defense industry can try to prepare itself for the cuts, added Stevens
Stevens was joined by Georgia Republican Sen. Saxby Chambliss, whose state has a heavy Lockheed presence, who called for both the Pentagon and his fellow lawmakers to get ready to deal with Sequestration ASAP.
The Pentagon is "not planning on sequestration but they're gonna have to be prepared for it, and we know that...they're gonna have to start planning well in advance of any lame duck and anybody that thinks that we can wait till the lame duck to address this issue is kidding themselves," said Chambliss.
Chief aerospace industry lobbiest Marion Blakey, head of AIA, also took an opportunity to urge action on sequestration, by either preparing for the cuts or heading them off.
"I know that there are many scenarios out there that say, 'well, lets wait till the lame duck and somehow we'll solve everything in the lame duck'," said Blakey.
"I don't know about you all, but I've counted the number of days in the lame duck and in order to accomplish everything that some folks are hoping for would be an absolute impossibility just in terms of time. So we o need to address it now, not only because of that issue, but also because before the election, both [office of management and budget] are going to have to act on the probability, the possibility that sequestration" will happen.
Both she and Stevens said that the defense industry will begin planning for the possible cuts well before next Janauary.