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Despite Record Defense Spending Layoffs Starting to Mount

by: Matthew Potter
February 15, 2011

Category: BAE Systems, Business Line, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, development program, Events, Federal Budget Process, Florida, IT, logistics, New York, Northrop Grumman Corp., Pennsylvia, production program, Restructuring, Services, States, U.S. Army | RSS 2.0

The Obama Administration submitted its 2012 budget to Congress yesterday and it contains a record request for defense funding. This includes over a $100 billion to conduct operations in Afghanistan and Iraq while continuing the investment in new equipment to improve capabilities against other threats. Despite this and due to the cyclical nature of defense programs and spending several companies, large and small, announced recently a restructuring of their workforces.  As the U.S. defense budget adjusts to fiscal reality and requirement changes more companies may be in this situation.

Defense acquisition programs tend to be built in large quantities over a span of several years as the military attempts to field its needs quickly. This can lead to a requirement for a contractor to ramp up facilities, staff and production very quickly and then just as quickly cut it back as the U.S. military meets its requirements. It behooves a contractor to identify other customers or programs that it may support to try and maintain a steady production line and workforce. This is not always possible and the history of the Mine Resistant Ambush Protected (MRAP) vehicle production in America illustrates this as several companies invested in large plants that are now running at a much lower capacity as the U.S. has met its needs for the MRAP.

Recent layoff announcements include:

  • Amherst Systems of New York, which is a subsidy of Northrop Grumman (NOC), the engineering and manufacturing company provides systems to support electronic systems and test ranges.  They will be laying off over one hundred people or almost twenty percent of their workforce due to “a drop in orders”.
  • Northrop Grumman itself is eliminating 150 jobs at its Laser Systems facility in Florida.  The company had won a contract to produce laser rangefinders and designators.  Again the reduction is related to a future lack of work.
  • BAE Systems (BAE:LSE) is letting go about 50 people at a plant in Pennsylvania that makes MRAP vehicles.  The U.S. has shifted to one supplier, Oshkosh (OSK), for its new MRAP and relies on others to support and repair the existing fleet mainly purchased in 2005-2009.  Companies will now have to look for other countries to invest in MRAP to maintain their production and right now that is not happening.

Stories like this may accelerate in the near future as companies figure out what will be needed by the Defense Department in a time of reducing budgets.  At the same time there are other defense contractors who need to hire people to support their new work or programs.  Many times, though, the new company is not located near places where the layoffs are happening so that transferring people may not be so easy.

The history of the U.S. defense budget has been cycles of rapid, large expenditures followed by years of smaller budgets.  The U.S. may be entering a period of extended decline in defense spending with a negative effect on the defense contracting industry.

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3 Comments

  1. Horatio's Perspective on April 10th, 2011 5:50 am

    […] Matthew Potter, “Despite Record Defense Spending Layoffs Starting to Mount,” Defense Procurement News: http://www.defenseprocurementnews.com/2011/02/15/despite-record-defense-spending-layoffs-starting-to… […]

  2. Lockheed Announces More Layoffs | Defense Procurement News on July 1st, 2011 2:40 am

    […] many of the earlier cuts already made this year this is not related to the end of a contract or a restructuring of work by the Defense Department. This decision along with the recently planned […]

  3. More Defense Related Layoffs Announced | Defense Procurement News on September 28th, 2011 2:29 am

    […] and well being. The announced cuts represent almost 10 percent of their workers in that country. Earlier this year BAE had already began to make smaller cuts related to specific programs. This large one seems to be […]

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