Print Edition|Manufacturing

Looming defense cuts put manufacturers on hold

Brad Kane |
Photo / Pablo Robles
Photo / Pablo Robles
AMK Welding in South Windsor compensates for the question marks around the defense subsector by pursuing oil and gas contracts.

As the federal government moves to slice $492 billion from the U.S. Department of Defense budget over 10 years, Connecticut's manufacturers are reluctant to hire employees or upgrade facilities for defense contracts.

Manufacturers choose to put resources in growing areas, such as commercial aerospace and oil and gas exploration.

"Right now, people aren't spending the time to reinvest in defense in case it doesn't come to fruition," said Nelson Rouette, president and chief executive of AMK Welding in South Windsor. "I'm going to wait and see."

The Aerospace Industries Association held a conference Aug. 14-16 in Hartford for defense suppliers to learn more about how sequestration — the congressional mechanism for major budget cuts unless a bipartisan delay can be reached on more nuanced approach — will impact business. AIA is planning a Sept. 19 rally in Washington, D.C. to stop the cuts before the majority are scheduled to be implemented in January.

A George Mason University report commissioned by the association says Connecticut stands to lose 41,942 jobs and $4.2 billion in economic output over the next two years as a result of sequestration. The job losses include 5,712 non-manufacturing employees who support the defense industry.

"We are talking to everybody that we can," AIA spokeswoman Alexis Allen said. "This is an issue that cuts across the economy."

The defense sequestration comes from the Budget Control Act of 2011, the result of the debt-ceiling crisis last August. The multiple provisions call for $1 trillion in budget cuts, about half from the Defense Department.

One of the most vocal opponents to sequestration is David Hess, president of East Hartford aerospace manufacturer Pratt & Whitney. Hess, who serves as chairman of the AIA, led an anti-sequestration rally on Aug. 8 in West Palm Beach with Pratt employees.

"Make no mistake, massive sequestration budget cuts are a threat to American jobs, the economy and U.S. national security," Hess said at the rally. "At a time when the U.S. needs job creation and economic growth more than ever, now is not the time to push the self-destruct button."

Despite Hess' strong words, Pratt isn't anticipating how sequestration cuts will impact operations or military contracts, including the $1.1 billion F-35 joint strike fighter jet engine agreement, said Pratt spokesman Bryan Kidder.

"In addition, potentially affected employees may be retained and/or redeployed to work on other, unaffected military, or commercial, programs depending upon business need at that time," Kidder said.

The same goes for Groton manufacturer Electric Boat, which makes U.S. Navy submarines. The military has not told Electric Boat how sequestration might impact the company, so it can't forecast how its operations might change, said Robert Hamilton, Electric Boat spokesman.

"We continue on a business-as-usual approach until we get specific direction regarding the submarine program," Hamilton said.

West Hartford gun maker Colt Defense saw significant reductions in military contracts before sequestration, because of the Iraq and Afghanistan military drawdowns. As a result, the company ramped up its commercial sales and isn't too concerned with sequestration, said Gerry Dinkel, president and chief executive of Colt Defense.

"We don't have a perception that we will be hit hard by sequestration if it occurs," Dinkel said. "We have some contracts with the military that if they went away, it wouldn't impact us too much, although we wouldn't like it."

Despite confidence from defense original equipment manufacturers, the state industry has been kicked into a nervous mindset from the economic downturn of the last three years, creating a wait-and-see approach on new hires and equipment purchases, said Frank Johnson, president and CEO of the Manufacturing Alliance of Connecticut.

"There is not really a segment of the Connecticut manufacturing economy that operates independent of everything else," Johnson said. "These are very interesting political times, and people want to know how it will shake out in the next six months."

Defense manufacturing comprises 13 percent of AMK Welding's revenues, said Rouette. The balance is commercial aerospace, power generation, and oil and gas exploration.

Due to sequestration, Rouette doesn't want to ramp up for new defense contracts. His company doesn't need more defense work either, as the other three areas of his business are growing. AMK's fastest growing segment is oil and gas exploration. Companies in places such as Texas and Pennsylvania are performing discovery drilling and are starting to look beyond the traditional equipment supplier to get their orders filled, Rouette said.

"They've struggling find that down south, and now they are going to the aerospace manufacturers up here," Rouette said.

The problem with oil and gas exploration manufacturing is customers aren't looking for long-term contracts that commercial aerospace provides, making it hard for Rouette to know how long this segment will be there for AMK.

Even if this oil and gas increase is temporary, it provides stability when the defense segment is shaky, Rouette said.

"The defense side makes people nervous," Rouette said. "Luckily, we don't need it."

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