Matthew Daneman and Tom Tobin
Democrat and Chronicle
Harris RF Communications-made Falcon handheld radios. Ultralife rechargeable, non-rechargeable and thin cell batteries. Optics from many of the area’s specialty manufacturers.
When the U.S. Defense Department goes shopping for gear, its list includes stops at numerous Rochester-area employers.
But tighter military spending is squeezing many of the companies. And looming deeper budget cuts mandated by Congress have them sweating further.
“Rightfully so, there’s a cautious outlook until we get some clarity to what’s going on in Washington in the overall budget picture,” said Bob Bicksler, chief executive of JML Optical Industries, a Pittsford manufacturer that counts major defense contractors among its biggest customers.
“Like everybody else, we’re nervous about what (mandatory budget cuts) could mean,” said Harris RF President Dana Mehnert.
Some companies, including Harris RF, are starting to cut jobs to deal with the downturn in funding. Though manufacturing employment in the region has been growing for more than a year, reaching 62,000 jobs in July, that trend could quickly be reversed if too much Pentagon work disappears.
RF, a military radio manufacturer, is the biggest local company doing a significant amount of defense work, employing 2,300 people. Its most recent fiscal-year sales fell more than 6 percent due to lower Pentagon spending. The company cut 76 positions in June because of the slowdown.
Others are affected, too:
• Sales at L-3 Communications Holdings Inc., whose satellite communications systems operations are based in Victor, were down $221 million for the first half of the year. Most of that “reflected the challenging U.S. defense budget environment,” from the drawdown of forces in Iraq to reduced funding for some services the company provides through its Government Services business segment, CEO Michael T. Strianese said.
• Exelis Inc. CEO David Melcher told Wall Street analysts this month that the company had taken big cost-cutting steps “in response to declining surge support for the operations in Iraq and Afghanistan, and in anticipation of the down cycle in defense spending.” Exelis’ geospatial systems division is based in Monroe County.
• For the second quarter of 2012, Ultralife Corp. sales plunged nearly 57 percent, which the company chalked up to sizable military sales in 2011 that didn’t recur this year. The Wayne County company also said defense and other government orders for its batteries and other energy products have slowed. For 2012 overall, Ultralife is projecting a 20 percent to 30 percent drop in sales.
In a statement, CEO Michael. D. Popielec said Ultralife’s “highest priority is to remain financial healthy while demand remains soft,” meaning it expects to make sizable cuts in its own spending and overhead.
The Center for Security Policy, a Washington think tank that favors defense spending, said prime military contractors in New York state took in $7.6 billion from Uncle Sam in 2011. Over an 11-year period ending in 2011, Monroe County companies received a total of $8.5 billion in military contract work, the center said.
According to the White House, national defense spending was budgeted at $705.6 billion in fiscal 2011 and estimated to reach more than $716 billion in 2012 before starting a dramatic downward slide, to $701.8 billion in 2013 and $600 billion in 2014.
RF’s Mehnert said the hundreds of billions of dollars needed during the peak of the dual Iraq and Afghanistan wars has shrunk significantly and that even tighter times might be ckming because of sequestration — a set of automatic budget cuts passed by Congress and set to take effect in 2013 if no agreement can be reached on reducing the federal budget deficit.
The military and advocacy groups such as the Center for Security Policy have warned of dire consequences if sequestration comes to pass, with the think tank estimating it could mean $69 million less in military-related spending a year for Monroe County.
“If you look at sequestration, nobody quite knows what it means,” Mehnert said. Broad budget cuts might not hurt Harris RF as much as some other defense firms because the company’s fortunes aren’t tightly tied to a single weapons program.
You won’t find one budget line item that funds the majority of our business,” Mehnert said. “But clearly, if there were large budget cuts like that, we’d see some impact.”
Paul Tolley, executive director of the Smart System Technology and Commercialization Center in Canandaigua, said he wasn’t worried about the possibility of sequestration and the effect on the military budget.
“We’re a good fit with the reinvigoration of the military with regard to technology,” he said. “There’s an understanding that what we do brings value to the effort.”
The STC Center contracts with the Space and Naval Warfare Systems Command and the Army Research Center for research and manufacturing work involving tiny mechanical and electrical systems used in such applications as night-vision goggles and bomb detection.
Tolley said that the real pressure on the military budget is the war effort in Afghanistan and the lingering effects of the war in Iraq. “It was extraordinarily costly to be fighting two wars simultaneously,” he said. The U.S. will withdraw most of its combat forces from Afghanistan by 2014.
JML Optical’s Bicksler said that while companies doing defense-related work are concerned about federal spending issues, “The one area where there’s a great deal of optimism is in foreign military sales.”
A number of the major defense contractors that the 85-person optics company supplies “are saying while they’re certainly concerned at where (Defense spending) is next year or five years from now,” Bicksler said, “but on a global basis they’re finding projects.”
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