Defense slowdown hurts all of Connecticut
Washington – There’s not one corner of Connecticut that doesn’t benefit from Pentagon spending, but the go-go years for the state’s defense contractors may be over.
That’s bad news for what was one of the state’s hottest, growing industries, especially for Connecticut’s smaller defense contractors.
An analysis by the Connecticut Mirror shows the end of the war in Iraq and the wind down of the war in Afghanistan, as well as other budget constraints, began to be felt last year, when more than 3,000 defense contractors in the state won Department of Defense contracts worth nearly $10.2 billion.
That’s a lot of money, but less than the $12.9 billion in DoD contracts signed in 2012 and $12.5 billion in contracts signed in both 2011 and 2010.
Before last year’s drop, defense spending in Connecticut was growing at a fast clip every year. It was $6.2 billion in 2002 and more than double that 10 years later, says GovernmentContractswon.com.
Mike Lewis, an investment analyst specializing in defense with the Silverline Group, said the defense budget will not grow in the foreseeable future, meaning Connecticut’s defense industry may have fallen on lean times.
“The only way [defense] companies are going to grow is to take market share from someone else,” he said.
Lewis also said Connecticut’s defense industry is following “what’s going on in the rest of the country,” as the Pentagon, especially the Army, shrinks and reorganizes.
The big contractor with the largest drop in Pentagon contracts last year was Sikorsky. The value of its defense contracts fell by $2.3 billion from 2012 to 2013.
The CTMirror analysis shows most of the loss was from fewer contracts for aircraft part manufacturing.
“I can’t confirm your specific numbers because I don’t know what you included or didn’t include, said Sikorsky spokesman Paul Jackson. But he added “your numbers are at least directionally accurate.”
Jackson said “2012 was a strong year to compare against,” because Sikorsky received more funding from a multi- year contract to produce Black Hawk and Seahawk helicopters in 2012 than it did in 2013. Sikorsky also received more money in 2012 than 2013 to develop the new CH-53K heavy lift helicopter for the Marine Corps, he said.
“Also sales of military spare parts in 2013 declined 50 percent in 2012 due to the declining defense budgets,” Jackson said.
That drop in military spending last year was cited by Sikorsky as the reason the company eliminated 600 jobs in February of last year.
Lewis said when the Pentagon has to quickly reduce spending, it’s easier to cut operations and maintenance budgets, perhaps leading to the sharp decline in Sikorsky’s aircraft parts contracts last year.
Big Pentagon projects involve multi-year contracts which can’t be eliminated immediately.
That’s why General Dynamic Electric Boat’s financial future was strengthened by Congress’ move this year to authorize $5.9 billion for the Virginia Class submarine program, including $3.6 billion for two submarines in 2015 and $2.3 billion for two submarines in 2016. As it now stands, the Navy plans to build 10 submarines over the next five years at a two-a-year rate.
Pratt & Whitney will also benefit this year from the commitment of the Pentagon and Congress to purchase F-35 Joint Strike Fighters, and Congress may add to the Pentagon’s request of 34 planes.
Even Sikorsky will have a boost this year with the $1.25 billion contract it signed last month to build new presidential helicopters.
Lewis said any slump Sikorsky may be feeling now will eventually be reversed as the DoD’s aging helicopter fleet becomes obsolete.
“At the end of the day…they are going to have to replace these aircraft,” he said.
Lewis also said he expects the decline in the Pentagon’s budget to be less accelerated that it has been in the last few years.
But that may be little comfort to Connecticut’s smaller defense contractors who will feel the most pain from the Pentagon’s contraction on a “case by case” basis, Lewis said.
“A lot of these companies may have to close shop,” he said.
These smaller businesses provide the Pentagon with everything from meals to bullets. Even World Wrestling Entertainment has benefited, earning more than $10 million to provide since 2011 to provide advertising services for the Armed Forces.
Among many state companies that have suffered a recent drop in DoD business is Colt Defense, which had more than $215 million worth of Pentagon contracts in 2007. That dropped to about $30 million last year.
Colt did not return calls requesting comment.
The Connecticut Mirror analysis of defense contracts found that grocery manufacturers and other types of food retailers were among the smaller businesses that lost the most in Pentagon contracts last year –nearly $250 million –from what the sector earned in 2012.
Connecticut’s construction industry received about $105 million less from the DoD last year than it did in 2012, and the year-over-year drop for aircraft part manufacturers was more than $101 million.
Staff writer Elaina Rollins contributed to this report.
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