Aerospace Industries predicts $6B growth despite Pentagon spending cuts

The leading defense and aerospace industries trade group is predicting growth in 2013 despite the threat of across-the-board cuts to the Pentagon’s budget.

The Aerospace Industries Association’s (AIA) prediction of $6 billion in additional sales in 2013 doesn’t take into account the $55 billion in defense cuts set to take place next year if Congress doesn’t vote to turn them off.

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“There’s good news for 2013 — yes, that may surprise you,” AIA CEO Marion Blakey said Wednesday in a speech to industry officials and the media at her group’s annual year-end lunch.

“Yes, I’m sure some of you are wondering, 'Did she factor in sequestration?' ” Blakey said. “No, guys, I didn’t. I’m an optimist, and we have to prevail.”

With only 27 days to go before the across-the-board cuts take effect — a fact noted by the large red AIA “countdown” clock on stage next to Blakey — the defense industry’s fate remains very much up in the air.

For more than a year, AIA has lobbied to stop the cuts, known as sequestration. The group has touted studies showing more than 2 million jobs could evaporate, while damaging national security and reducing U.S. technological gains.

Democrats and Republicans on Capitol Hill generally agree the defense cuts should be avoided, but the two sides have been unable to reach a deal to prevent them because of disagreements over taxes and entitlements.

Blakey on Wednesday chided Washington for putting sequestration on the table in the first place, asking what message it sent to the world about the U.S. commitment to national security.

“The fact that the world’s arsenal of democracy has been relegated to the status of a political bargaining chip is difficult to fathom,” Blakey said.

Even if sequestration is avoided, the Pentagon is likely to be asked to accept some spending cuts as part of a deal.

Defense was not mentioned in the House Republicans’ fiscal-cliff offer to the White House on Monday. But there was $300 billion in additional discretionary cuts included, without explaining how much might come out of the Pentagon.

Even lawmakers who are the biggest defenders of a robust military have acknowledged more cuts could be on the way. Sen. Lindsey Graham (R-S.C.) — who said before the election he would not go beyond the $487 billion already cut from the Pentagon — softened his position this week.

“Potentially yes, but not a trillion,” Graham told reporters Tuesday when asked if he could accept more defense cuts in a deal to avert sequestration.

At a defense industry press conference to push for a fiscal-cliff deal Monday, TASC CEO David Langstaff said that as much as $150 billion in defense cuts could be absorbed.

Blakey said that executives were not “breaking ranks” when asked about their comments Wednesday, though she did not mention the prospect of additional defense cuts as she argued that everything must be on the table in a fiscal-cliff deal.

“They were being very, very consistent with what we are advancing and truly believe, and that is that we do have to have a balanced solution,” Blakey said. “Everything on the table, we believe, is the way to get there."

Blakey offered an optimistic assessment of her industry despite Pentagon cuts, outlining the potential for more growth in sales as well as exports. She cautioned against a “sequestration hangover” even if a deal is reached on the fiscal cliff.

Much of the industry's strength came out of the civilian aerospace market, Blakey said.

AIA’s figures showed the aerospace industry’s 2012 projected sales rose from $211 billion in 2011 to $218 billion in 2012. The group estimated that sales would rise to $224 billion in 2013, without taking into consideration the sequester cuts.

Blakey said it wasn’t possible to determine how much sequestration might change those projections, because it remains unclear exactly how the cuts would be implemented.

“At this point we’re all in a fog of uncertainty,” she said. “We don’t know how deep, how far, how long this is all going to take place.”