By Roxana Tiron - 05/05/10 12:00 AM EDT
After nearly a decade of banner revenues and profits, several major defense companies are laying off hundreds of employees and reorganizing to protect their bottom line following contract cancellations.
BAE Systems, Lockheed Martin, Raytheon and Boeing Co. are among the defense contractors that have announced hundreds of layoffs over the last several months.
The cutbacks are a turning point for an industry that is dealing with a reshuffling of Pentagon priorities in its $700 billion budget and the end of some long-term contracts, according to a review by The Hill of the most prominent layoff announcements.
Secretary of Defense Robert Gates on Monday indicated budget woes should prompt military services, and in particular the Navy, to reduce their reliance on big-ticket items such as multibillion-dollar ships and submarines and devote more resources to other needs, such as unmanned underwater vehicles.
Some defense insiders view the layoff announcements as a sign that military contractors are girding for leaner times and responding to their shareholders.
David Berteau, who leads the defense industrial initiatives group at the Center for Strategic and International Studies, said defense companies, responsible to their stockholders, must keep profits high enough to compete for capital as they anticipate reductions in the defense budget.
Big defense companies will shed more jobs this year because of the Pentagon’s reduced spending on traditional weapons and high-tech systems, Zacks Equity Research indicated in an April report.
Areas taking a hit include Army tracked and wheeled vehicles and armor programs, munitions and the service’s former ambitious modernization program, known as Future Combat Systems (FCS). Past problems with select helicopter programs, such as the new presidential helicopter and the Air Force’s search and rescue helicopter, also have led to job cuts.
“If you are doing low-end industrial work such as weapons manufacturing, you are going to get hit; if you do tracked combat vehicles, you are going to get hit; and if you are doing wheeled tactical vehicles, you are going to get hit,” said defense consultant Jim McAleese of McAleese & Associates.
The Army already has enough weapons, and it is buying very few tracked combat vehicles in order to save up its money for a new ground combat vehicle in 2015, McAleese explained.
“The need for new wheeled tactical vehicles is limited by the large numbers of vehicles that are returning from Iraq,” he said.
BAE Systems, the wholly owned U.S. subsidiary of the British defense conglomerate, has announced that it will shed 610 employees in southwest Ohio because it lost a contract to produce armored vehicles for the Army and saw fewer orders for Humvee armoring kits. The defense giant also slashed 373 jobs across Tennessee at a plant for body armor and one for tactical vests.
The company had expanded its workforce to deal with a major spike in contracts as a result of the wars in Iraq and Afghanistan, said Herb Muktarian, BAE’s vice president for communications. “The major spike has now passed and we are adjusting our workforce levels,” he said.
BAE Systems is also trying to prevent laying off at least 1,000 employees at its Sealy, Texas, facility, where the company has built the Army’s medium tactical trucks. BAE recently lost the contract to Wisconsin-based Oshkosh Corp.
Lockheed Martin is laying off 472 people across the Northeast as part of its reorganization, which includes the merging of two divisions focused on electronic systems into one unit, now called Mission Systems and Sensors (MS2). Many of the job losses will be in New York and New Jersey.
Lockheed Martin spokesman Scott Lusk attributed the layoffs to the proposed 2010 federal budget, which he said signaled major changes for the U.S. defense industry due to competing pressures amid a challenging economy.
“As a result of these economic conditions and the integration of the former Systems Integration-Owego and MS2 businesses, Lockheed Martin needed to size its workforce to meet projected workload and remove redundancies,” he said.
Lockheed had predicted in January that it would have to shed 1,200 jobs, but that number has now been reduced to 472 because about 500 employees took voluntary buy-outs.
Lockheed took a significant hit when the Pentagon canceled the VH-71 presidential helicopter because of ballooning costs. Lockheed already reduced its Owego, N.Y., workforce by 1,000 last year, in part because of the VH-71 cancellation and the halting of a competition for new Air Force search-and-rescue helicopters.
Lockheed, which builds the technology that is installed in helicopters, announced in April that it would partner with Sikorsky to vie for a new contract to replace the decades-old presidential fleet. The competition for the rescue helicopters has also been revived.
Raytheon Co., whose missile systems division is Arizona’s largest employer, announced it would lay off 225 people in Tucson — one of the largest layoffs the company has seen since 2002.
Raytheon spokesman John Patterson attributes the cutbacks to the company’s need to “better align” and “achieve the right mix of talent to remain competitive in the marketplace.” He said the company is well-positioned to win new business.
The Army recently dropped its effort to develop a precision-guided projectile for tanks as well as several projects under the now-defunct FCS program — all of which Raytheon had a stake in.
Calculations of the Boeing Co.’s layoff plans are a little more complicated because of the aerospace giant’s significant commercial operations. The company last year announced it would shed 10,000 jobs in 2010.
The most recent layoff announcements come from Washington state, where Boeing has cut 775 jobs so far, about half of them related to defense, according to local reports. Boeing also plans to cut about 300 jobs in Wichita, Kan., when work on military refueling tankers for Italy and Japan winds down.
Boeing, which hopes to win a contract to build the new Air Force tanker, would do part of the work in Wichita .
Boeing also indicated it may cut 1,000 jobs as a result of the Pentagon restructuring its missile defense programs and the FCS cancellation.
Boeing did not comment for this article by press time.