Bloomberg Businessweek

Oct. 10–Bell Helicopter Chief Executive John Garrison on Tuesday joined the chorus of defense industry executives sounding the alarm about the likely consequences if Congress doesn’t act by early January to block huge defense spending cuts from automatically taking place.

Budget sequestration “in my opinion equals devastation,” Garrison said in a presentation at the Aviation and Aerospace Industry Manufacturing Summit being held in Fort Worth.

Sequestration is the legislative term for the process mandated in the Budget Control Act of 2011 that will require the federal government to slash roughly $1 trillion — about $100 billion a year — from projected spending over the next decade, unless Congress reaches a new budget deal.

By law, the cuts must be distributed equally between defense and non-defense budget items, excluding entitlements such as Medicare and Social Security.

Sequestration is “a horrible way to set policy,” Garrison said, and it will have far-reaching effects on defense contractors such as Bell and Lockheed Martin and ultimately their employees.

“It’s going to affect engineering. It’s going to affect manufacturing. And it’s going to have downstream effects” on the companies that supply defense contractors.

Defense contractors and industry lobbying groups have been ringing alarms bells for months about the impact that sequestration could have on businesses, jobs and the economy.

One pro-defense spending group, the Center for Security Policy, has put together state and county data showing where defense dollars from the 2011 budget were spent and presumably, where the cuts would occur.

The data shows that about $11.1 billion was spent with contractors in Tarrant County in 2011, more than $7 billion tied to Lockheed Martin’s F-35 fighter program. The total for the four-county Dallas-Fort Worth area was $15.8 billion and for the entire state was $36 billion.

The group says that under the budget law the contracts could be cut 18 percent or more across the board. But the first round of cuts, about $45 billion for the 2013 budget, was not applied equally.

The initial impact on Bell would likely be small, Garrison said, because the company has contracts and funding on V-22 aircraft and military helicopters through 2015. Bell likely would not have to send out WARN Act notices to employees advising them of possible layoffs, Garrison said, because it believed the immediate impact would be slight.

“I’d like to believe the federal government isn’t going to break contracts and this will be worked out going forward,” Garrison said.

Bell has been given virtually no guidance by the Department of Defense or other government agencies on how sequestration would be implemented. The law calls for across-the-board spending cuts, but President Barack Obama has said military payroll and benefits spending would be exempted.

Garrison said he believes the cuts would also not be made in the military’s operations accounts that are used to buy spare parts, food and fuel.

“The [only] guidance we’ve been given is what Secretary [Leon] Panetta said, that sequestration is not something that’s going to happen,” Garrison said after his speech.

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