Defense CEOs Address Looming Sequestration

On 3 December 2012, the Press Club in Washington, DC, hosted four defense industry CEOs for a discussion on sequestration and national security. The speakers included Wes Bush (Northrop Grumman), David Hess (Pratt & Whitney), Dawne Hickton (RTI International Metals, Inc.), and David Langstaff (TASC). As the capitol buzzes with endless talk over the politics behind the fiscal cliff, the speakers, all of whom are associated with aerospace, gave some much-needed specifics to the years-old anxiety surrounding defense sequestration.

If the definition of defense policy is matching force structure to strategy, then according to the panel of CEOs, the Budget Control Act of 2011, which enacted sequestration, will severely inhibit this policy. No one spared a breath to defend the legislation; sequestration was variously described as “a peanut butter approach” (Hess), “a meat axe” (Bush), and “indiscriminate” (Langstaff). Though deficit reduction appeared to be a priority for the group, the quick and dirty defense cuts possibly coming in 2013 would make current U.S. national security strategy unworkable in their view.

What no one really wants: Imagine the fury if some serviceable aircraft end up here, or if the military dusts off some mothballed jets.

The obvious effects of cuts on programs and purchases to both the economy and military readiness dominate the wider public debate on sequestration. However, the panel brought up some more subtle points on the business of national security: While causing 2.1 million job losses, defense cuts would particularly affect small- and mid-size businesses where 70 cents of every dollar flow, according to Dawne Hickton of RTI. She worries about the effect on the supply chain and the private sector’s ability to ramp up production after sequestration hits. RTI planned a $150 million investment in a manufacturing facility in Virginia in 2008, but due to the “uncertainty” of budget decisions, the factory operates at only half the projected size and employs a tenth of the workforce RTI intended. Hickton referred to this as a “ripple-down effect” likely to permeate the entire industry.

In addition to an atrophied industrial base and fewer weapons, Bush focused on the difficulty of supplying innovation. Abruptly slashing budgets, he said, would “damage our ability to attract and retain technical know-how.”

Some of the most biting comments came from David Langstaff of TASC. He strongly spoke in favor of lowering deficits by reducing the federal budget across the board. Inaction, he said, borders on denying reality: “We need to stop pretending that there is a scenario out there that offers no defense cuts; the question is whether we make them responsibly or irresponsibly…. The real alternative is a process of strategically targeted, phased, and predictable defense spending cuts [as part of a complete plan to address fiscal challenges].”

Short-term interest, rather than long-term national security, was another theme of the discussion. A palpable dismay at hardline budget positions on both sides of the aisle was evident: Deficits have to be trimmed, but tax increases should be discussed as well. No one endorsed the “cliff-jumper” position of intentionally waiting until after January 1 to negotiate a budget deal.

The panel avoided specific policy prescriptions needed to solve the current impasse, suggesting instead that negotiators “be reasonable.” Hess urged a “balanced approach,” and Langstaff called for fewer cuts and for them to be aligned with a strategic vision. Northrop Grumman’s CEO succinctly summed up the tone of the meeting while earning a chuckle from the press: “If this were a business negotiation, we’d be making a lot more progress. One side says there’s no way we’re going for revenue unless there’s entitlement reform, while the other says there’s no way we’re going for entitlement reform unless there’s revenue. Therein lies a deal.”