Connecticut’s defense industry cautious after fiscal cliff deal

Washington — Congress’ compromise over the fiscal cliff stopped $55 billion in cuts to the Pentagon from taking effect today, but the defense industry isn’t out of danger yet, and it predicts little or no growth, at least for now.

The deal approved by the House and Senate this week halts a number of tax increases that would have hit most Americans and put off, for two months, $110 billion in automatic spending cuts-known as sequestration; those cuts would have been split evenly between the Pentagon and domestic programs.

Congress must come up with other, targeted cuts to avoid sequestration, and Connecticut’s defense contractors are wary.

“Pratt & Whitney’s position remains unchanged as long as there is no progress toward a solution on sequestration,” said company spokesman Bryan Kidder. “We continue to be cautious on decisions impacting hiring, capital investments and supply chain orders.”

Paul Jackson, spokesman for Sikorsky, said the Stratford-based company would “use caution in any new hiring or making other significant investments.”

“We are closely monitoring the process and ongoing congressional actions,” Jackson said. “We will continue to remain very conservative in running the business until we know the full detail of a deficit-reduction plan and that sequestration is no longer a possibility.”

A few months ago Sikorsky announced it plans to lay off 3 percent of its workforce. It has already cut more than 400 jobs in Connecticut where the company has a workforce of about 9,100.

Bob Hamilton, spokesman for Groton-based Electric Boat, was more optimistic than the spokesmen for Pratt & Whitney or Sikorsky. He said the Pentagon’s award of several lucrative contracts last month “stabilizes” the company for a while.

Electric Boat won a $2.5 billion contract to build two Virginia-class submarines this year, $308 million to begin plans for another sub in 2014 and two more in 2015. The company has also received $1.8 billion to design a new ballistic missile submarine.

Although he plans to hold hearings on how major cuts to the Pentagon’s budget would be implemented, House Armed Services Committee Chairman Howard P. “Buck” McKeon, R-Calif., said the two-month delay in sequestration was “better than nothing.”

Sen. Richard Blumenthal, D-Conn., a member of the Senate Armed Forces Committee, said that by avoiding immediate sequestration and its automatic, deep cuts, Congress “profoundly improved” the outlook for Connecticut’s defense contractors and has saved jobs.

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Connecticut Sen. Richard Blumenthal says a two-month delay in defense cuts may be a good thing for the state’s defense industry.

“It demonstrates Congress will make smarter cuts,” Blumenthal said. “That’s a good thing for defense industry programs and for national security.”

Loren Thompson, a defense analyst for the Lexington Institute, a Washington-area think tank, also said the defense industry should be more jubilant over the fiscal cliff deal. In that deal, Congress showed it is disinclined to make tough decisions on budget cuts or tax increases.

“It’s good because it shows sequestration may never hit,” Thompson said. “Congress will probably compromise.”

Thompson thinks Congress will cut far less than the $110 billion required under a 2011 deal that allowed an increase in the national debt ceiling.

Although defense isn’t likely to be completely spared, Thompson predicted that Congress would make smaller cuts than expected to the military’s budget and that those cuts would be “more flexible,” allowing the Pentagon to juggle projects.

But the prospect of sequestration may not be the only thing keeping Connecticut’s defense industry from expanding much in 2013.

The White House has asked Congress to cut the military budget by $487 billion over the next 10 years.

With the war in Afghanistan slated to draw to an end in 2014, even greater shrinking of the military seems inevitable. Some defense consultants predict companies will merge and others may be forced out of business.

The Pentagon’s new shift toward a smaller, more mobile force and toward increased defense of the Pacific coast may help some of Connecticut’s military contractors, such as Electric Boat.

But Sikorsky’s helicopter manufacturing operations may be hurt by a diminished force, especially in the Army, which would therefore have less of a need to use helicopters to transport troops.