Defense firms fear industry-wide shutdown due to automatic defense cuts

Chief of Naval Operations Adm. Jonathan Greenert last week told Congress that automatic cuts to the defense budget would essentially shut down the Pentagon. On Tuesday, a top industry official said defense firms would suffer the same fate if those cuts become reality. 

The Pentagon is facing the possible cuts because of the failure last year of the so-called supercommittee to agree to a $1.2 trillion deficit-reduction plan. Under legislation that lifted the debt ceiling last year, the supercommittee’s failure triggered $1.2 trillion in automatic cuts to the federal budget, called sequestration, that are to take place starting in 2013. Roughly half of those cuts are aimed at defense coffers.

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Across-the-board reductions to defense coffers would present "a challenge for which we have no good response," Lockheed Martin CEO Bob Stevens said during the Aerospace Industry Association's annual Senate luncheon on Tuesday. If enacted, the Pentagon could be facing up to $1 trillion in spending cuts, including those already in the Budget Control Act last year. Defense officials would be forced to trim $54 billion in fiscal 2013 alone, according to Stevens.

"If there is no funding" in fiscal 2013 and beyond, Lockheed and other firms would be forced to stop work on all current and future military programs. "It will be a massive disruption," Stevens told lawmakers and staff.

If work is stopped due to budget cuts, larger firms like Lockheed would be forced to renegotiate deals with most if not all of its major suppliers and subcontractors. Stevens said he was not anticipating lawsuits against Lockheed or others for breach of contract by those suppliers or contractors. But he did add that those companies will likely demand some kind of compensation if long-standing contracts are changed. The situation has created "an unprecedented amount of uncertainty" among industry leaders, Stevens said. "And we really don't have rational [guidance]" on how to prepare for additional defense cuts.

Pentagon officials, including Defense Secretary Leon Panetta, have been adamant that the department will not prepare for the automatic budget cuts, which are scheduled to take place in January. It's assumed that lawmakers won't start planning for the cuts until after the presidential election in November. But to Sens. Saxby Chambliss (R-Ga.) and Patty Murray (D-Wash.), by then it will be too late.

If lawmakers think they will be able to adequately plan for the automatic cuts, while dealing with the budget reductions under the debt ceiling legislation, before January  "you are kidding yourselves," Chambliss said during the luncheon. For her part, Murray said one feasible way to deal with DoD budget cuts is to expand foreign exports of U.S. military hardware. By doing that, the defense industry can show to the world "that the U.S. is [still] a stable place to do business."