Budget Control Act Could Really Crimp Money Spigot Flowing to Defense Contractors
By itself the act was bad enough for the industry, requiring the Pentagon to cut $487bn from its budget over the next 10 years. But the automatic spending cuts triggered under the act's sequestration provisions could shrink the budget by an additional $500bn during the same period, unless Congress steps in.
Taken together, the measures could slow defense spending by nearly $1tr over the next decade. And the current transition from war to peace will make things worse. "It's not just sequestration that's taking a toll on the industry," comments Tim Dragelin, senior managing director in the corporate finance practice of FTI, a West Palm Beach, Fla.-based global advisory firm. "It's the other projected losses of revenue from traditional government budget drawdowns that really hurt."
Those drawdowns include a 37-percent decrease in the federal budget for operations and maintenance-related projects over the next three years, and a 400-percent reduction for Overseas Contingency Operations, from $162bn in FY 2010 to $40bn by FY 2014. "Those are the two areas of largest impact," says Dragelin.