Warning Shot: Lockheed Martin CEO Warns of Mass Layoffs

Defense industry ups ante in budget debate by predicting lost jobs and shuttered facilities.

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The U.S. defense sector upped the ante Wednesday in its high-stakes standoff with Congress, warning lawmakers mass layoffs are coming unless lawmakers act quickly.

Another round of defense spending cuts would "dismantle" the U.S. defense and aerospace business sector, which for decades has been "the arsenal of democracy," Robert Stevens, CEO of Lockheed Martin, said Wednesday.

The Pentagon is implementing a $350 billion cut over a decade. Unless lawmakers by January pass a package that slices the federal deficit by at least $1.2 trillion, national defense spending would be cut by another $500 billion over the same span.

Defense Department and industry officials have yet to determine what to do. As Marion Blakey, head of the Aerospace Industries Association, told DOTMIL Wednesday, "our companies have to start planning and making decisions long before January."

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The uncertain situation already "is a huge disruption to our businesses," Stevens said.

Defense firms in coming months would be forced to notify employees of massive numbers of layoffs across the nation, Stevens said during an AIA-sponsored forum in Washington. Industry officials and their congressional allies say thousands of jobs could be eliminated, causing further pain to America's still-ailing economy.

What's more, "we're already not hiring," Stevens, speaking as AIA chairman, said of Lockheed and other companies across the sector. Companies also would soon be forced to make a range of other business decisions--like closing facilities and relocating jobs to other sites in other regions--that would affect U.S. workers.

Stevens even warned Wednesday that some smaller firms that supply parts and other items to larger defense-aerospace companies might be forced to go out of business for good.

Such consolidations and closings would only cause further trouble for local, state, and the national economy, analysts, officials, and lawmakers contend.

Stevens and Blakey pleaded with lawmakers to pass a comprehensive deficit-reduction bill as soon as possible. "To continue to wait and then ask industry to act suddenly ... is a massively irrational expectation," Stevens said.

The dire warnings from industry were the latest rhetorical escalation by Pentagon and private-sector officials about the possibility of the $500 billion cut to planned defense spending.

Defense Secretary Leon Panetta has referred to the process under which his department would have to enact the additional cuts as "devastating." Pro-military South Carolina Sen. Lindsey Graham has compared failing to void the $500 billion in cuts to "shooting ourselves in the foot." Brett Lambert, U.S. deputy assistant defense secretary for manufacturing and industrial base policy, last month said cuts that big would equal "fiscal castration."

The additional cuts would be nothing shy of "assisted suicide," Deputy Secretary of Defense Ashton Carter told a room packed with industry and Wall Street representatives last week.

Perhaps the defense industry's biggest congressional ally, Republican House Armed Services Committee Chairman Buck McKeon of California, on Wednesday cast the defense industry as the most important tool Washington has in ensuring peace.

"The vital element in keeping the peace is our military establishment," McKeon said in a speech at the Ronald Reagan Presidential Foundation and Library in Ventura, Calif. "Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk its own destruction."

But if the $500 billion, 10-year cut in planned spending becomes law in January, Stevens warned "there are cases where we will have to stop work," as will the many companies that provide Lockheed parts and expertise on its range of Pentagon weapon programs.

That will cause new bills at the Pentagon, he said, because those kinds of developmental, testing, and production delays have not been included in the plans program managers are carrying out. And any delay to a major hardware program means big cost spikes--it is one reason so many defense programs have been terminated since 9/11.

Gordon Adams, who ran defense budgeting for the Clinton White House, predicts lawmakers will void the $500 billion cut by passing a broader deficit-reduction bill after November's election.

"People in the defense stovepipe are so completely out of touch with reality," Adams says. "Nobody is going to cut a deal that protects defense budgets. We've got more than enough defense. ... Defense is on the table just as everything is on the table in a bigger deal."

That means a comprehensive package would include some new defense cuts, but not as large as the $500 billion figure that is so feared by what Adams calls "this absurdly insecure defense sector."

But some industry officials say betting the farm that a lame-duck Congress can do the job between mid-November and early January is unwise.

"I've counted the days a lame-duck Congress would have to address everything some people think they might," Blakey says. "I don't think it's possible, just in terms of physics and time."