Defense contractors, in their relentless campaign to avoid reductions in Pentagon spending and, consequently, the hundreds of billions of taxpayer dollars they receive every year, have started taking hostages—their own employees.
Last week Politico reported that defense contractor's new plan is to “Threaten to send out layoff notices—hundreds of thousands of them, right before Election Day.” This threat is intended to frighten incumbents into rolling back the impending Budget Control Act sequestration, which would reduce Pentagon spending by roughly ten percent.
Despite the doomsday rhetoric and contractor funded “studies” reporting grossly overinflated job losses they claim would result if the Pentagon’s more than half a trillion dollar budget is cut, there is absolutely no reason these companies would need to have massive layoffs. This is nothing more than a political stunt.
The reason for such tactics is simple—defense contractors are getting more money from taxpayers than they ever have save one year. 2011 was a record year only bested by the $397.2 billion the defense industry received in 2008 from the Pentagon. A Price Waterhouse Coopers (PWC) review of the aerospace and defense industry rejoiced that 2011 “delivers a second consecutive year of record revenues and profits.”
In fiscal year 2011, defense contractors received more than $373 billion in Pentagon contracts, according to data from USASpending.gov. The $373 billion in taxpayer money defense contractors received was also more than double what all the troops in our military received in 2011—a fact the contractor lobby conveniently ignores while hiding its pleas for more taxpayer money behind a patriotic mask. Even if defense contractors had to bear all of the cuts from defense sequestration—an implausible scenario—they would still receive more than $300 billion per year from taxpayers. According to the Center for Strategic and Budgetary Assessments, sequestration would reduce Pentagon spending to 2007 levels, a year in which the U.S. was fighting two wars and defense contractors received more than $333 billion in taxpayer money.
In addition to the cushion provided by these record profits, the defense industry has even less cause for sacrificing jobs, based upon the analysis of one prominent defense industry advocate. Loren Thompson of the Lexington Institute, a defense contractor funded think tank, notes that the actual impact of sequestration on Pentagon spending is far less than his funders fear. Sequestration targets “budget authority rather than outlays. Budget authority typically takes several years to translate into outlays,” according to Thompson. Thus, “the reduction in defense outlays for 2013 will be only 5-6 percent.” Which is a far smaller percentage than contractors are using in their “study” to arrive at their hyperbolic claim that more than one million jobs will be lost if sequestration occurs.
Additionally, many of the major defense contractors have massive backlogs that will help to maintain their revenue streams for years to come. According to the PWC review, Lockheed Martin has an $81 billion backlog, Boeing has a $46 billion backlog, and both General Dynamics and Northrop Grumman have $40 billion backlogs. All of these dollar amounts are vastly greater than the amount of contracts the firms received from the Pentagon in 2011 or any year. Thus, once again, the notion that sequestration will bring the defense industry to a screeching halt simply isn’t true.
If you’re still unconvinced that these contractor’s cries of poverty run a tad weak, consider what the heads of major defense contractors are making.
Last year, Lockheed Martin’s Chairman and Chief Executive Officer, Robert J. Stevens’ total compensation exceeded $25 million. But even Stevens’ exorbitant compensation package could not top Northrop Grumman’s Wesley G. Bush, whose compensation package in 2011 exceeded $26 million. To put these compensation packages in perspective, both Stevens and Bush earned more than all but two Wall Street executives. Yet, the defense industry is clamoring about how tough times are and how they’ll be forced to axe workers.
Both Lockheed Martin and Northrop Grumman could afford to keep paying quite a few of their employees by dipping into their CEO's compensation. Unfortunately, it appears they’re more interested in playing political games, using their employee’s livelihoods in a game of chicken with Congress. If the CEO’s of major defense contractors are serious about saving money on personnel costs perhaps they should look no further than the mirror.