Washington Perspective -- Industrial Base, Letter to HASC

AFA members, Washington is still seized with the impending actions of the Super Committee.  The Committee has to make recommendations for cutting $1.5T or else mandatory cuts of $1.2T will occur (called sequestration) – divided equally between Defense and non-defense accounts.  Sequestration will result in approximately $1T net reduction in the defense budget over 10 years [for reference, the Senate Appropriations Committee marked up DOD funding at $513B for FY12.]  This is close to a 20% cut in defense spending per year.

Many of you have written back that DOD must pay its share … and the Air Force Association agrees.  However, we believe the $450B+ that the President has levied on DOD is quite sufficient, given that, as a percentage of GDP, DOD spending is near an all-time low.

What has not been discussed in the press is the impact sequestration will have on the jobs front.  First, most estimates coming from the Department believe cuts of such magnitude will cause DOD to “lay off” upwards of 150,000 troops and tens of thousands of civilians.  A new study by Dr. Stephen S. Fuller at George Mason University has given us a hint at the impact on the industrial base.  The key findings of the study were as follows: 

• Total potential job losses (direct, indirect, community): 1,006,315
• Total potential aerospace/defense and supply chain job losses: 352,000
• Total loss of workers’ wages and salaries: $59.4 billion
• Impact on national unemployment rate: + .6%
• Impact on projected growth of 2013 Gross Domestic Product: - 25%

The impact on jobs varies by state … but California (-125,800), Virginia (-122,800), Texas (-91.600), Florida (-39,200), and Massachusetts (-38,200) are the ones with the highest numbers of jobs lost.

It isn’t just the defense companies that will be hurt by defense cuts, according to Fuller. “DOD buys from other sectors in the economy,” Fuller said. “Suppliers and other small businesses located in communities with large and small aerospace companies are affected by these cuts. As these companies suffer, so do the businesses further down the supply chain.”

For more information, see:  http://secondtonone.org/

Secondly, late last month, Barry Watts: Center for Strategic and Budgetary Assessments, Fred Downey: Aerospace Industrial Association, and Pierre Chao: Center for Strategic and International Studies testified on the industrial base before a panel of the House Armed Service Committee.  We’ve captured a number of quotes from the transcript.  See:  http://www.afa.org/PresidentsCorner/WashingtonPerscective/2011/Oct_24_HASC_Industrial_Base.pdf

A couple to interest you: 

Downey: “The industrial base that existed then does not exist today. It’s a far cry from the military industrial complex of the Eisenhower era. In the 20 years since the Cold War, nearly 150 significant defense companies have consolidated into 6. A number of companies left the market. Almost none have entered it.”

Chao: “Exports controls are absolutely critical to this category, where we’re not getting inside the technology because people are afraid to put technology inside the US because they can’t get it out again….”

Finally, this week a few AFA members penned a letter to the Chairman, Subcommittee on Readiness, House Armed Services Committee – Randy Forbes (R-VA).  The letter describes what Airpower can bring to our security.  I’m reminded of the quote from a former Senate staff member:  “The only thing more expensive than a first-rate Air Force is a second-rate Air Force.”

You can find a link to the letter at:  http://www.afa.org/grl/PDFs/Congressman%20Forbes.pdf

For your consideration,

Mike

Michael M. Dunn
President/CEO
Air Force Association