By: Richard Burnett
The Orlando Sentinel
Despite Congress’ last-minute postponement of historic cuts in military spending back on New Year’s Day, Central Florida’s defense industry still has thousands of jobs and hundreds of millions of dollars at stake as the federal government’s deficit-reduction debate continues into 2013.
In a worst-case scenario, Florida’s biggest cluster of military contractors stand to lose nearly $1.1 billion in revenue cumulatively over more than a decade, based on spending cuts built into the 2011 deficit-reduction law, according to a 2012 study by the Center for Security Policy, a conservative think tank in Washington.
Even if Congress and the White House back away from those fiscal-cliff-sized drops in spending, most experts say significant cuts are inevitable now that the U.S. military has pulled out of Iraq and is winding down operations in Afghanistan.“Every community that has a significant cluster of defense-related companies is concerned with what is going to be happening with the Department of Defense,” said Angelos Angelou, an economic-development consultant in Austin, Texas, who has studied Central Florida’s high-tech industry.
“Clearly, that is not just because of the fiscal-cliff issue, but longer term as well,” he said. “We know that defense budgets are not sustainable at the high levels we have had during the wars” in Iraq and Afghanistan.
Many factors could offset the economic damage in Central Florida, however, as Congress prepares to tackle the issue of military spending again in March.
First of all, most experts say there is little chance Congress will ultimately enact the deficit-reduction law’s full, $1.3 trillion in mandatory, across-the-board cuts. As one industry executive said, such automatic cuts would be tantamont to performing surgery with a chainsaw — something neither Republicans nor Demcrats really wants to see happen.
Central Florida contractors already appear to have been somewhat protected from the worst-case scenario by the Pentagon’s year-end rush to award contracts in an effort to insulate them from possible “fiscal cliff” cuts on Jan. 1. In December alone, military agencies awarded contracts worth a combined $6.6 billion — most of them to Lockheed Martin Corp. — for work to be done partly or totally in Central Florida.
Also, Central Florida’s resilient training-simulation industry is something of an “evergreen” in the U.S. defense budget. Experts say spending on such training has tended to grow or at least remain steady when money gets tight at the Pentagon. And with more than 100 companies and military agencies and 20,000 jobs combined, the region’s high-tech military-training operations are considered the country’s largest such cluster.
The U.S. military’s drawdown will affect spending on training-simulation technologies, which generated more than $3.2 billion in revenue nationwide last year, said Michael Blades, senior industry analyst for the consulting firm Frost & Sullivan,if only because there will be fewer troops to train as the Pentagon shrinks from war-time levels.
But there also will be more emphasis placed on simulation systems for training the remaining troops, because such systems help offset the costs of war games and other live exercises that use actual weapons and equipment.
The net effect will be a slight expansion of the training-simulation market this year, according to Blades’ forecast.
“Initially, I had expected the training market to be flat in 2013, based on an assumption of the worst-case spending cuts,” he said. “But now that Congress is kicking the can down the road and it appears they won’t be taking those full budget cuts, I’d say the training market will probably grow by 2 percent to 3 percent.”
That does not mean Central Florida’s defense contractors will necessarily pass through unscathed. Contractors in the region have already eliminated more than 2,000 jobs in recent years, led by Northrop Grumman Corp., which has cut its Apopka laser-systems work force to 435 workers, from nearly 1,000 in 2008.
Bethesda, Md.-based Lockheed — the region’s largest military contractor and the largest in Florida — cut an unspecified number of jobs in its Central Florida training-simulation and missiles-and-fire-control operations last year.
Lockheed completed on Jan. 1 a restructuring of its Orlando training-simulation division that included the relocation of its headquarters to Washington and the expected elimination of 200 jobs nationwide, including an unknown number in Orlando. Those involuntary layoffs were eventually offset somewhat by “voluntary layoffs and attrition,” though it is unclear how many jobs were cumulatively eliminated.
The restructuring may be a sign of more things to come, said Darrell Kelley, a local economic-development expert and a former president of both Enterprise Florida and the Metro Orlando Economic Development Commission.
“I would suggest that Central Florida has not seen the last of Lockheed’s corporate restructuring,” he said. “The defense industry will likely be reinventing itself over the next several years, to position [itself] for the opportunities created by a newly designed military that has fewer resources and an expanded mission.”
Rick Weddle, the Metro Orlando EDC’s current president, said the agency has formed a committee and hired a consulting firm to come up with ways to help retain local defense operations during the drawdown.
“Our goal is to have a highly focused effort to work with the contractors, the Defense Department, Capitol Hill and Tallahassee to understand all the issues and develop a strategy to help this sector,” he said. “We feel the best way to help our defense industry is to have a good offense.”
This article can be read here: http://articles.orlandosentinel.com/2013-01-13/business/os-cfb-forecast-tech-military-0114-20130113_1_fiscal-cliff-cuts-automatic-cuts-significant-cuts
