Dempsey talks defense cuts, sequestration with Boeing execs

"I wanted to get a sense of their level of concern, and they are concerned," Dempsey told reporters after the meeting at the company's headquarters in Seattle. 

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Pentagon officials and the defense industry have been sounding the alarm on the damage a projected $500 billion in automatic defense budget cuts would have on U.S. national security interests, should the cuts go into effect in January. 

In a letter to Congress in September, Boeing President and CEO Jim McNerney, said the notion of automatic defense cuts going into place was negatively impacting how the company does business. 

"The mere specter of sequestration already is having an adverse effect on investment and employment within the defense industrial base due to the additional uncertainty it represents for companies," McNerney wrote. 

But so far, efforts on Capitol Hill to come up with a plan to avoid the cuts under the White House's sequestration plan have stalled along party lines. 

With three months left before the devastating reductions become reality, Dempsey and other top Pentagon leaders are pleading with Congress to come up with a solution. 

"We are counting on all of our elected leaders to find a way to accomplish the multiple tasks they have to reduce the deficit and restore the economy," Dempsey told the Seattle Times on Friday. "But sequestration is not the answer." 

The budget cuts under sequestration were built into last summer’s deal to raise the debt ceiling. The cuts were designed to force a supercommittee of lawmakers to reach an agreement to cut the deficit by $1.2 trillion. 

The failure of the supercommittee to reach a deficit deal forces the automatic cuts, unless Congress can pass new legislation before the year is out to make deficit reductions without sequestration. 

Boeing, along with many of the U.S.-based defense firms, stands to lose millions in canceled military programs or restructured contracts with DOD should sequestration be enacted. 

Among its various deals with the Pentagon, the Seattle-based firm is under contract with the Air Force to build the service's newest version of its aerial refueler, at an estimated cost of $35 billion. 

Frustration inside the Pentagon with lawmakers' inability to reach a compromise on sequestration briefly bubbled over during a press conference with Dempsey and Defense Secretary Leon Panetta.

When asked about the department's expectations on Congress reaching a deal on the defense cuts, Panetta replied: “I'll take whatever the hell deal they can make right now to deal with sequestration." 

Most recently, defense industry leaders, lawmakers and the White House have been wrangling over whether defense firms should begin issuing layoff notices to their workers in anticipation of the sequestration cuts. 

Companies are required by law to notify their workers two months in advance of any potential layoffs or plant closures, according to mandates in the Worker Adjustment and Retraining Notification (WARN) Act. 

The Office of Management and Budget issued guidance last week advising contractors not to send out pink slips to their employees due to sequestration, noting the federal government would cover any legal costs if contracts were canceled and layoffs did in fact occur.

Defense firms Lockheed Martin, BAE Systems and EADS North America took the White House's advice and backed off their plans to issue notices. Boeing had not threatened to send out notices, even before OMB issued its guidance. 

But Sens. Lindsey Graham (R-S.C.) and John McCain (R-Ariz.) announced on Friday they would block any effort by the government to compensate defense firms that didn't provide layoff notices to their workforces. 

"The law clearly states that workers must be notified at least 60 days in advance of a potential mass layoff or plant closure, and it is unclear to us ... how the Administration can guarantee that no sequester-related budget cuts or contract actions will occur on January 2 or shortly thereafter,” the senators wrote in a letter sent to 15 defense firms.