Defense industry braces for shutdown

By Charley Keyes, CNN senior national security producer


WASHINGTON (CNN) -- American defense industry workers are bystanders to the political stand-off in Washington over the budget, but Monday morning they may find their jobs and paychecks in trouble.

Ron Klein, founder of a small defense firm in Huntsville, Ala., has told his 65 employees there may be no work next week.

"Our revenue on Monday may well drop to 10%," Klein told CNN from his Belzon, Inc., offices. The company provides support for Army helicopters at the giant Redstone Arsenal nearby. "The reaction from the employees has been asking for more information. The answer is we don't know."

Jay Kroopnick, owner of W. & G. Machine Company in Hamden, Conn., is hoping for the best. "It couldn't possibly last very long," said Kroopnick, whose company makes spare parts for all branches of the military. "When all is said and done, it's all bluster."

Kroopnick and his 40 employees will keep working, at least for now: "We're going to stand up to our obligations, even if Republicans and Democrats do not."

In Fairfax, Va., Nick Karangelen also sounds fed up with the uncertainty. He's worried about his 150 employees at Trident Systems, and warns that while Congress claims it is trying to save money it is doing the opposite.

"It is mind-boggling," Karangelen said Thursday. "What's going on is completely inexcusable."

The giants of the defense industry are mostly keeping quiet, making contingency plans behind closed doors and taking care not to spook investors and Wall Street regulators.

"We are declining to provide any comment," a Northrop Grumman spokeswoman said.

Same from Raytheon (RTN, Fortune 500). "We are closely monitoring the situation, but would not want to speculate so will decline comment for now," a spokesman said.

Behind the scenes, the largest defense firms are watching every political twitch and spasm from Washington. "The amount of effort being expended exploring all the contingencies is preventing a whole lot of people from getting any actual work done," said one insider.

Defense giant Lockheed Martin (LMT, Fortune 500), manufacturer of the F-35 fighter and a variety of major weapons systems, says it is watching Congress.

"In the event a full-year budget resolution is not passed, we are working closely with our government customers to understand the potential impact to our employees and programs during a government shutdown," a company spokesman told CNN in an e-mailed statement. "We have contingency plans in place, and as details become available we will share them with our employees and subcontractors."

There are many variables in gauging the impact of the shutdown. One defense company may have multi-year contracts worth billions of dollars to provide hardware such as fighter jets. Another might provide services to the Defense Department, with its employees sitting side-by-side with government workers. That "blended workforce" could get locked out of their government office Monday morning.

"A smaller company is clearly going to have a tougher problem than a larger company," said Stan Soloway, president of the Professional Services Council, the largest association of government contractors.

He says places like Huntsville, Ala.., San Antonio and Northern Virginia will be hardest hit. "In areas where the government is a major economic force, you could have an incredible impact on tens of thousand of jobs," Soloway said.

A shutdown sets off a ripple effect across the American economy, according to Loren Thompson, a defense analyst with the Lexington Institute.

"One of 10 American manufacturing jobs is in the defense sector," Thompson said in a recent interview.

The Huntsville Chamber of Commerce is bracing for whatever Congress serves up -- and remembering the bad old days when the community suffered through a scaling back of the space program.

The Redstone Arsenal is now booming, with 36,000 government and contractor employees. Right next door, the Cummings Research Park has another 25,000 employees, with more than 200 major defense firms -- such as Boeing (BA, Fortune 500), EADS and Teledyne (TDY) -- working on aerospace and defense projects.

"It is a concern," John Southerland, of the Huntsville Chamber of Commerce said of a possible government shutdown and subsequent slowdown of federal funds. "It really is the foundation of the community."

That concern trickles down from the executive suites to the shop floor.

"The reaction from the employees has been asking for more information," Klein said from Huntsville. "The answer is 'we don't know.'" To top of page

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