Sequestration is a meat axe to the defense industry, says Lockheed Martin CEO

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June 19, 2012

WASHINGTON. The single greatest challenge to the U.S. defense industry is the looming threat of sequestration, said Bob Stevens, Chairman and CEO of Lockheed Martin in a briefing today in Washington. ?Sequestration is a meat axe.?

“Despite concern from government and industry sequestration remains the law,” Stevens said. Under it the defense budget will be cut by half a trillion dollars in addition to the near half a trillion in defense cuts already proposed, he added.

Cutting across the board is “an inefficient way to manage a business,” Stevens said. When doing budget reform “we need to be able to safeguard our interest around the globe. The budget ought to be aligned with the mission to be accomplished.” The same philosophy should be applied for civil budgets as well, he added.

The impact of sequestration on the defense industry will be significant layoffs resulting in a loss of learning and talent as well as an erosion of quality, Stevens warned.

Lockheed Martin has already cut deeply just to meet the economic downturn and current budget cuts. Over the past three years the company has cut about a million and a half square feet of facility space and reduced their workforce by 18 percent to meet the expected budgetary cuts and slower economy, Stevens said. The pace of hiring as slowed considerably as well, he added.

The law could substantially affect small businesses that work with Lockheed Martin and other primes, Stevens said. With across the board cuts there is no direction on which program will get curtailed, he continued. Sequestration will be a “blunt force trauma … tearing the fabric of the supply chain and industrial base in a significant way.”

It will affect the way contracts with suppliers are structured, he said. It may be necessary for them to create exceptions in contracts based on whether or not sequestration happens. The suppliers also may say “sequestration causes a business disruption and provide a claim to us for adverse cost impact,” Stevens continued.