Department of Defense

Sequester and the Supply Chain: 'Life or Death' for the F-35's Small Companies

As manufacturers lose orders and lay off employees, the price of top weapons programs will rise. The anatomy of the F-35 shows why. By Sara Sorcher

In retrospect, Bob Stevens was overselling. Last summer, to help motivate lawmakers to undo the sequester, Lockheed Martin’s then-CEO warned that the impending cuts might force him to lay off 10,000 of the defense giant’s 120,000 employees. That never happened. But Lockheed, which reported $39 billion in net sales last year from government contracts, supports a giant ecosystem of subcontractors that provide parts and technology for Pentagon programs. How would the budget cuts affect them?

Mapping that ecosystem would be virtually impossible (just last year, for instance, the Defense Department committed $360 billion on 14 million contracts), so National Journal decided to look at one program as a proxy: the F-35 Joint Strike Fighter, the country’s costliest weapon system. Like almost everything else in the defense budget, its contracts are subject to sequestration’s looming across-the-board cuts. The U.S. is already buying 409 fewer planes than the 2,852 originally planned and has delayed the production of an additional 179.

But even this program is too unwieldy for a systematic investigation. Lockheed, the lead contractor, makes the aircraft’s nose and wing, but Northrop Grumman makes the fuselage, BAE Systems builds the tail section, and Pratt & Whitney constructs the engines. Altogether, 32,500 people across 46 states work on the program. There are 1,400 companies directly supplying the four major contractors. Of those, 600 are considered small businesses.

So, to narrow the focus further, I traced a single set of components down the supply chain. Lockheed’s F-35 gets its engine from Pratt & Whitney, which uses metal bearings from New Hampshire Ball Bearings, which buys super-tough metal from a specialty steel mill in Pennsylvania—a Russian nesting doll of national security. Ball Aerospace, which supplies Lockheed with the plane’s antennae, and Faustson Tool, which makes the antennae housing, also gave perspective.

In the end, Lockheed can make fewer fighters and Pratt can make fewer engines than initially planned; they’re big companies with lots of revenue streams, and they’ll be fine. But the sequester will rattle smaller companies already toughening metals, crafting parts, and writing software for planes that won’t be ready for years. Some of these suppliers, analysts predict, will leave the defense industry or go out of business, imperiling the weapons they build. “With sequestration, what looks like modest cuts at the top of the system, down at the supplier level looks like the difference between life and death,” says Loren Thompson, chief operating officer of the Lexington Institute think tank and also a consultant to Lockheed. “It could be the difference between making and losing money for a small enterprise located far from the capital.”

Even for those that survive, the cutbacks will likely change the way they build their budgets, forcing them to reduce risk by raising costs—at taxpayer expense. Unexpected reductions will strain already-thin margins. If a company has prepared for more business, for instance, it may have invested in machines, buildings, staff, and even parking lots. Less volume means charging higher prices to defray those costs. It’s like a shared apartment: If one of three roommates moves out, the others still have to pay the same rent. They may need higher salaries to afford it.

The risk is not just monetary: These hard-to-trace supplier disruptions are an “insidious problem,” says Aerospace Industries Association President and CEO Marion Blakey, a problem that could eventually imperil the defense industrial base and its ability to meet the demand for weapons that national security experts say America needs. “None of us know when all of a sudden the slight tremors we’re feeling under our feet will prove to be a much bigger shift in … the ability of the industry to deliver,” she says.

Consider the companies in this story as a microcosm of the giant supply chain. Other businesses supplying the F-35—or more-vulnerable defense programs—are facing similar challenges. Once the Pentagon officially implements sequester cuts, contracting life will become even worse.

Read more at National Journal

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.