Hundreds of Pentagon-related companies large and small are preparing to lay off thousands of employees as Congress takes a recess this week, so far unable to agree on how to undo automatic military spending cuts set to begin March 1.
BAE Systems Inc., a global giant that provides an array of goods and services for the military, estimates that it will have to lay off as many as 4,000 workers this year, including technicians who work on aircraft, ships and vehicles and who earn an average of $50,000 a year.
Meanwhile, Ammcon Corp. of Portland, Ore., which makes pipe joints and flanges for aircraft carriers and submarines, says it will have to lay off about 25 percent of its 45 employees if the defense spending cuts begin March 1.
These and other defense contractors are bracing for automatic, across-the-board spending cuts known as sequestration — which could lead to as many as 1.2 million lost jobs, according to an estimate by Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University.
Under sequestration, the Pentagon would be required to cut $46 billion from its budget by Sept. 30 and as much as $500 billion from its 10-year spending plan.
In addition, the continuing resolution that funds the Pentagon has held spending at 2012 levels and is due to expire March 27, when Congress must renew the resolution or approve a defense budget bill.
“The cloud of uncertainty from sequestration already has had a profound impact on the way our industry is able to deploy its capital and invests in facilities, jobs and new product development,” said BAE spokesman Brian Roehrkasse.
Under the Worker Adjustment and Retraining Notification (WARN) Act, most companies with more than 100 employees are required to give a minimum of 60 days’ advance notice of mass layoffs and plant closings.
But smaller companies that are not required to give advance notice could be the ones most affected by sequestration.
Deputy Secretary of Defense Ashton Carter told a congressional hearing last week that “60 to 70 cents of every dollar that we contract ends up in a subcontractor, and many of these are small businesses that don’t have the capital structure to be able to withstand blows.”
Contractors and subcontractors
Sequestration also is driving some jobs overseas.
First Line Technologies of Chantilly, Va., makes cooling vests for troops to wear underneath their body armor and employs about a dozen people. Having experienced rapid growth last year, it was readying to hire about a dozen more workers before the uncertainty over sequestration developed, company President Amit Kapoor said.
Now, First Line Technologies is looking to market its products overseas and will hire employees abroad. Its strategy is to move quickly into overseas markets to avoid layoffs or having to close.
“The biggest killer for us last year was the uncertainty,” Mr. Kapoor said. “Even if there’s an eleventh-hour deal made [on sequestration], it’s probably going to kick the can down the road.”