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Defending Defense - Fiscal cliff scenarios bleak for key area industry

Monday, December 10, 2012 - 10:23am

Tarrant County, TX  -- A plunge off the fiscal cliff could have perilous consequences to Tarrant County's multi-billion-dollar defense industry, say lawmakers and industry experts.

Rep. Kay Granger of Fort Worth compares the potential impact to devastating cutbacks that hammered Fort Worth's defense-based economy at the end of the Cold War. "It could be just enormous," said the former Fort Worth mayor.

"Fiscal cliff" is the now-?common catch phrase used to ?describe $1.2 trillion in decade-long spending cuts that will start in January unless Congress and the White House break an impasse over negotiations to hammer out an alternate deficit reduction plan by the end of the year.

Half of the cuts – about $500 billion – will be applied to defense spending, on top of $489 billion in defense cuts already in the pipeline for the next 10 years. The other half of the $1.2 trillion reduction – also known as "sequestration" – will fall on non-defense spending.

Members of the Texas congressional delegation and leaders of the defense industry started mobilizing months ago to try to head off cuts that they say could have a withering impact in a state heavily dependent on defense dollars.

According to two industry studies, Texas would lose more than 100,000 jobs if sequestration goes into effect, the third largest job loss behind California and Virginia. The economic impact could be particularly heavy in Tarrant County, which has received more than $122 billion of Texas' $356 billion in defense contracts since 2000, according to Waco economist Ray Perryman.

Tarrant County has more than 1,100 contractors and 45,000 contracts, said Perryman. Fort Worth defense giants such as Lockheed Martin, which manufactures the F-35 joint strike fighter, and Bell Helicopter Textron, maker of the V-22 tilt-rotor aircraft, are among the dominant players, but hundreds of smaller specialty firms and suppliers are also scattered throughout the Metroplex.

The head of one of those lesser-known companies – Della Williams, president and CEO of Fort Worth's Williams-Pyro, traveled to Washington in July to testify against sequestration at a hearing of the House Armed Services Committee. She appeared before the committee on the same day that Lockheed Martin's corporate boss also warned against the dangers of the looming fiscal cliff.

Williams-Pyro, located on Greenleaf Street in downtown Fort Worth, has 89 employees who design and manufacture products such as connectors, adopters and automated test equipment.

"These jobs are in jeopardy," Williams said in a statement to the committee, calling sequestration the equivalent of "cosmetic surgery with a chainsaw."

In a telephone interview with the Business Press, she said that large and small defense entrepreneurs throughout Tarrant County are "biting our fingernails" awaiting the outcome of the negotiations in Washington.

"It's pretty scary," she said. "People are really concerned about this."

Officials at Lockheed Martin Aeronautics in Fort Worth declined to discuss the possible impact, referring questions to corporate headquarters in Bethesda, Md. Lockheed's corporate officials say it is too early to gauge the specific impact, but Lockheed chairman and CEO Robert Stevens has said that the defense giant, which has a workforce of 120,000, could be forced to lay off about 10,000 employees.

Stevens has described sequestration as "the single greatest challenge facing our company and our industry." He said he shares Defense Secretary Leon Panetta's assessment that the fiscal cliff will have "catastrophic consequences" for national defense.

About 14,200 workers are employed at Lockheed Martin's mile-long plant in west Fort Worth, including about 6,000 directly assigned to the $386 billion F-35 program, the nation's largest defense project.

The F-35 has been troubled by delays and cost over-runs but the Air Force recently renewed its commitment to purchase 1,763 models of the aircraft.

Granger, chairwoman of the appropriations subcommittee on state-foreign operations and a member of the defense appropriations subcommittee, said, at this stage, "no one knows" the exact impact of the fiscal cliff. But the potential consequences to defense-dependent communities like Fort Worth, said the Republican lawmaker, threaten another grim scenario like the one that hit the city in the early 1990s when she was Fort Worth's mayor.

The end of the Cold War and the collapse of the Soviet Union prompted lawmakers to make deep reductions in defense spending and order the closure of Fort Worth's Carswell Air Force Base (though it was later revitalized as the joint-service Fort Worth Naval Air Station.).

Employment at the west side aircraft plant – which was then operated by General Dynamics – plunged from 31,000 in 1989 to 11,000 near the end of the 1990s. The fall-off in defense dollars washed throughout the city, particularly west Fort Worth, affecting an array of businesses from "mom-and-pop diners" to thousands of defense support jobs, said Granger.

"It took us years to recover," recalled Granger, who was mayor from 1991-95 before entering Congress in 1997. "It was really one of the most difficult times ever in Fort Worth."

Although the now-robust Fort Worth economy has become much more diversified, Fort Worth and the surrounding region remain one the nation's leading defense industry hubs. In addition to Lockheed and Bell, other major aerospace companies with sites in North Texas include Raytheon, L3, Boeing, American Eurocopter and Triumph Aerostructures-Vought Aircraft Division.

Consequently, workers who punch the clock at defense plants across the Metroplex – as well as their company bosses and representatives in Congress – could have a big stake in the outcome of the talks in Washington.

"Bell Helicopter is watching this issue very carefully and is optimistic that our lawmakers will do the right thing," said Bell Helicopter Textron spokesman William Schroeder. Bell recently broke ground on a new global headquarters in Fort Worth and employs more than 6,000 workers in North Texas.

Perryman, founder and president of the Perryman Group, said he is unable to predict with "any degree of confidence what the effects would be" but, given the large concentration of defense activity in North Texas, he said, "it is likely that some of the reductions would occur in procurements in Tarrant County."

Panetta and other national security leaders have said the ultimate impact of sequestration would be so disastrous that negotiators will find a way to avoid the cliff. But with the Obama administration and congressional Republicans still far apart late last week, the White House Office of Management and Budget told military leaders to start planning for the automatic budget cuts.

Separate studies conducted by the National Association of Manufacturers and the Aerospace Industries Association have painted a bleak picture both nationally and in Texas if defense spending falls over the cliff.

The NAM study, which includes a reference to Della Williams' Fort Worth company, projects a nationwide loss of 1.2 million jobs that will be felt "in all regions of the country." California will suffer the biggest job loss of 148,000 followed by Virginia with 115,000 and Texas with 109,000.

"It's going to touch all aspects of our economy," said NAM spokesman Matthew Lavoie.

The Rosslyn, Va.-based AIA, which represents more than 350 aerospace and defense companies, predicts that Texas will lose 98,979 defense-related jobs and 60,494 non-defense jobs if sequestration goes into effect. "Texas is the home of an awful lot of defense jobs so they're going to be hit harder than a lot of other states," said AIA spokesman Dan Stohr.

Fears of economic disaster and perilous national security risks aren't universal.

Steve Bell, former chief of staff of the Senate Budget Committee, said he has been told by sources on Capitol Hill that both sides are working to "dramatically tamp down" the size of the sequester on defense spending, if there is one.

"While I don't want to denigrate anybody else's work," said Bell, who is senior economic director of the Bipartisan Policy Center, "I do think that parts of the defense industry have over-estimated the impact."

The Center for Strategic and Budgetary Assessments, a Washington, D.C., think tank, says there will be no immediate program terminations although an across-the-board-reduction could force the Department of Defense to renegotiate contracts in smaller quantities since less funding will be available.

The cuts also will not result in base closures or lay-offs or furloughs of military personnel, the center's senior fellow, Todd Harrison, said in an analysis, adding that the process could result in a "new approach" to get better value from Department of Defense dollars.

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