Small business in the crosshairs
November 15, 2012
When Charles Lindbergh needed a plane to carry him across the Atlantic, he had a lot of choices. Back then, America was dotted with small aircraft manufacturers, start ups inventing a brand new industry as they went along.
Lindbergh settled on Ryan Airlines in San Diego, which designed and built the Spirit of St. Louis in two months flat. Maximized for long-range reliability, it was like no plane ever flown — it didn't even have a windshield, placing the oversize fuel tank in front of the cockpit and leaving Lindbergh to see through a custom periscope.
It was a golden age of aerospace innovation and creativity, fueled by a blossoming network of small, hungry firms, many of which took root in California. And aerospace and defense has fueled our state's economy ever since, generating more than $50 billion in a year in local GDP and supporting more than 640,000 jobs. In tough times, it's been a steady engine, chugging along, helping to keep our state afloat as other sectors like housing and finance crumbled.
But today, this business and the jobs it supports are in the economic crosshairs. Now $1.2 trillion in "sequestration" cuts are scheduled to slice into defense and other federal budgets starting Jan. 2, the fallout from the collapse of the Congressional deficit supercommittee last year.
If the Congressional Budget Office is to be believed, sequestration could help send us tumbling into another steep recession.
These cuts would smother our economy, putting a quarter of a million Californians out of work and shrinking state GDP by $22 billion next year. Losses at that scale would bust budgets in Sacramento and around the state — aerospace generates more than $800 billion in state and local tax each year, which would evaporate as businesses shutter and the unemployment rolls swell. If the Congressional Budget Office is to be believed, sequestration could help send us tumbling into another steep recession.
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The wreckage would be scattered across our entire economy, but perhaps surprisingly, the bulk of the economic dislocation would occur at small and mid-sized businesses that make up our aerospace industrial chain of supply — the innovators and the start-ups, successors to Lindbergh's Ryan Air. People think of "defense contractors" and imagine gigantic mega-firms, but in fact, 70 cents out of every military purchasing dollar flows down the supply chain to small and mid-sized firms, which provide three-quarters of all defense manufacturing jobs. While big-name contractors have been shedding jobs and expertise in recent years, supply chain firms have been picking them up. That's where work most of the work is done today and where most of the budget cutting pain will be felt.
Take my firm, Seal Sciences, experts in cutting-edge technologies for designing and manufacturing sealing components for complex high-stress machinery. From low-observable system solutions for stealth vehicles to high-performance seals and gaskets for satellites or submarines, we've built up a unique portfolio of products and expertise over the last 30 years that are indispensable for the top-of-the line equipment that makes up a modern military.
It's a story that could be repeated by company after company across a vast range of technologies and capabilities — together making up a unique reservoir of know how and skill that is the foundation of this industry and a bulwark of the U.S. aerospace and military advantage.
But sequestration will drain that reservoir because the cuts fall so disproportionately on this critical sector. Defense makes up less than 20 percent of the budget but absorbs 50 percent of the cuts. Within defense, major cost areas like personnel, medical care and pensions, as well as veterans' benefits, will be spared under sequestration.
That's the right thing to do in time of war, but it will massively concentrate the remaining cuts on a small sliver of very critical modernization and technology accounts. The likely result — cutting-edge technologies that protect our troops and ensure they can overwhelm any enemy would be at risk if sequestration forced a downsizing of our already lean engineering and technical capabilities.
And because the cuts are arbitrary and mechanical, there is no room for DOD to exempt or preserve critical systems or capabilities. It's a military planning train wreck that can only be stopped by Congressional action to repeal this broken law.
Larger firms with deep pockets and global business portfolios may be able to weather the sequestration storm, but life in the supply chain isn't so luxurious. Any small business owner can tell you what it's like to live from contract to contract or to have your company's fate depend on far-away decisions you ultimately can't control.
The ax of sequestration is already swinging toward the small and mid-sized firms that are the base of American aerospace superiority. Congress has just a few short months to stop it.
Gregory Bloom is the executive vice president and general manager of Seal Science, Inc.