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Wed November 7, 2012
Threat Of Sequestration Looms In Connecticut
The nation’s growing deficit looms large over this election season, and once the vote is over, the winners will have to grapple with sequestration – a threatened across-the-board cut to federal budgets. WNPR’s Harriet Jones reports on what that might mean for Connecticut ’s defense jobs.
The sign says ‘Welcome to Aerospace Alley.’ This is a gathering of the Aerospace Components Manufacturers, 80 small Connecticut companies who have banded together to form an industry cluster. And among the talk of export contracts and hiring difficulties, the business of Washington DC is also part of the chatter.
“At Pegasus we have serious concerns about potential defense cuts..”
Chris DiPentima runs Pegasus Manufacturing, a Middletown based company that does subcontracting for Electric Boat.
“For us that’s a decent chunk of our business, about 20 percent of our business, and one of the talks is cutting back to manufacturing one sub a year, which is what we did about four, five years ago. So we’d lose 50 percent of our revenue from submarines.”
For others here, the biggest problem for the moment is the uncertainty caused by the budget stalemate. Doug Rose runs Aero Gear in Windsor, a Pratt & Whitney subcontractor.
“Certainly a lot of us are kind of holding back. I think getting the election behind us will probably help as well. And the deficit problems and what programs will be cut in the defense department. So a lot of us are kind of sitting back, hoping that we get a little clearer picture of what it looks like going forward.”
“It’s actually having an effect now. It doesn’t have to go into effect to have an effect.”
Jay DeFrank is a spokesman for jet engine maker Pratt & Whitney, one of the state’s largest aerospace companies. Twenty five percent of its work is paid for by the Pentagon. DeFrank says from his perspective just the threat of sequestration is already making a dent in the industry.
“We’re a capital-intensive business and we have to make major capital investments in equipment and machinery and in highly skilled manpower. And so at a time like this with uncertainty, there’s an effect in our supply chain, a reluctance to want to make those big investments or make those hiring decisions.”
Sequestration would mean an across-the-board, indiscriminate cut in all defense programs of more than 9 percent. If no budget deal is reached, it’s due to go into effect January 2nd. Even if it’s averted, any deal to forestall it is also likely to involve cuts to the defense budget. These would be in addition to the almost $500 bn the Pentagon has already agreed to cut over the next ten years. DeFrank says there ARE places to cut the defense budget that would make sense, but a rational debate has been lost in parochial political concerns.
“As we’ve seen when the Secretary of Defense or the Department of Defense has proposed cost savings measures such as base closures or retiring aged assets from the Guard and Reserve, it’s all but impossible to do for political reasons.”
Estimates of the potential impact are controversial. The Aerospace Industries Association has estimated that sequestration could put more than 36,000 jobs in Connecticut at risk. A study from George Mason University has estimated that about half of the losses could come from the small business supply chain, for instance from the three thousand companies in the state that do business with United Technologies. DeFrank says it’s not as if there will be thousands of layoffs January 2nd, but the effects would likely be felt over a period of months as the cuts took hold. And where would they fall?
“The best answer though is, it depends on what platform you’re on.”
That’s Alan Samuel of the Aerospace Components Manufacturers. He says the effects of future cuts are likely to be very hard to predict. He says it may depend if you’re employed on a military workhorse like the Black Hawk helicopter, or a project that’s just getting started, where funding may be harder to find.
“I wouldn’t necessarily believe that it’s going to be uniform across every single platform, where some may be affected more than others because of issues that affect cost, their level of maturity, their level of development. So we’ll have to see how that plays out.”
Samuel is more optimistic about the resiliency of his industry. He says what is sometimes missed in the gloom over defense cuts is the current strength of the commercial aerospace industry, on an upswing as airlines order new planes and retool engines.
“And that has a major benefit to our members, the benefit of the increasing manufacturing volumes for both the existing aircraft power plants and the engines for the new aircraft.”
Plenty of small Connecticut companies are already eyeing that balance. Doug Rose’s Aero Gear for instance currently depends on defense work for 60 percent of its revenues and commercial for 40 percent.
“I think looking forward over the next couple of years, I would expect it to shift to the opposite ratio, 60 percent commercial, 40 percent military -- that's kind of what we're planning on.”
For WNPR, I’m Harriet Jones.