The Defense Department has long been warning that decreased spending due to sequestration and the drawdown were coming. For defense contractors, these warnings are quickly becoming a reality.
In December 2012, the Pentagon spent $36.3 billion on defense contracts. A report by Bloomberg shows that amount decreased more than $10 billion last year, shrinking to $24.9 billion.
That $24.9 billion figure is actually an 8 percent increase from November, when DOD spending was slowed by the fall’s government shutdown. DOD issued 295 contracts in December, compared to 198 last month.
But the monthly surge bucks the broader trend in defense spending: more than a decade of endless money and bloated budgets are coming to an end. And this decrease in spending has sent shivers down the spine of the defense industry.
Big defense contractors like Northrup Grumman and Lockheed Martin have sent armies of lobbyists to Capitol Hill in recent months in an attempt to have Congress restore lost funding. The recent budget bill restores more than $20 billion to DOD’s budget next year, but the Pentagon is still facing a tighter budget environment, with a budget of around $500 billion this year, compared to $526 billion last year.
Now, the defense industry is warning that job cuts are coming.
“When there is less money to be spent, it has implications,” Northrop CEO Wes Bush said last month at a news conference on the Hill. “Sequester is having a negative impact on research and development that will inevitably slow economic growth.”
He and 109 other defense industry CEOs wrote a letter to Congress last month, saying that the cuts to defense hurt national security.
“We urge you to do whatever it takes to end sequestration before even greater damage is done to our nation's defense industrial base, technological advantages and national security,” they wrote in the letter circulated among lawmakers.
The defense industry might be fighting a losing battle. Defense Secretary Chuck Hagel has followed through on threats to slash spending, starting with a 20 percent reduction of his own staff. He’s made clear in recent months that the days of bottomless pockets at DOD are coming to an end.
“Every dollar that we save by reducing the size of our headquarters and back-office operations is a dollar that can be invested in war-fighting capabilities and readiness,” Hagel said when announcing the reductions last month.
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