Lockheed Warns Government Shutdown Could Delay Equipment, Inflate Costs
January 20 2018 - 06:41PM
Dow Jones News
By Doug Cameron
Lockheed Martin Corp. said Saturday that the government shutdown
could inflate acquisition costs and delay critical equipment as
defense contractors hunkered down for continuing uncertainty over
the military budget.
Lockheed, the world's largest defense company by sales, and
peers such as Boeing Co. and Raytheon Co. said they have triggered
contingency plans to keep programs running to compensate for any
furloughs among the Defense Department's civilian staff.
The defense sector has already been working for months under a
series of temporary budgets -- known as continuing resolutions --
that effectively freeze spending at the prior year's level and
prevent the start of new programs.
Contractors and Pentagon leaders have long warned that the
budget problems will raise costs and affect military readiness at a
time when the U.S. is embarking on a major refresh of equipment and
buying practices, as well as new priorities laid out in the
National Defense Strategy published on Friday.
"This shutdown negatively impacts hundreds of ongoing government
programs and thousands of our employees across the U.S.," Lockheed
said in a statement. "The shutdown could result in costly schedule
delays and breaks in production that will increase overall program
costs and interrupt the delivery of critical equipment to our U.S.
government customers."
Lockheed, maker of the F-35 Joint Strike Fighter and Black Hawk
helicopters, and its peers didn't detail any immediate effect on
their operations as contractors prepare to report their
fourth-quarter financial results and 2018 outlooks within the next
two weeks.
The 16-day shutdown in 2013 led some contractors to outline
plans to furlough thousands of staff, only for most of the plans to
be rescinded when then-Defense Secretary Chuck Hagel ordered
civilian Pentagon staff to return to work.
"A shutdown of a week or two would have an impact on DoD and
potentially on contractors, but this also depends on how the
shutdown is treated," said analyst Byron Callan of Capital Alpha
LLC.
The shutdown's fallout hinges on the length and the treatment of
crucial government departments. Furloughs at the Defense Contract
Audit Agency, which supervises Pentagon contracts, contributed to
problems for contractors in 2013. Most staff at the Defense
Contract Management Agency, which inspects work at plants producing
such equipment as the F-35 jet fighter, were also furloughed for
several days in 2013.
The Defense Contract Management Agency said Saturday that staff
should report as normal on Sunday and Monday, awaiting
developments. "If the government is still shutdown, DCMA will
follow orderly shutdown procedures," it said in a statement on its
website.
The Defense Contract Audit Agency didn't immediately respond to
a request for comment.
However, Lockheed and other defense contractors are also exposed
to agencies beyond the Pentagon. Most of the staff furloughed by
Lockheed in 2013 were tied to nondefense work for the government,
such as performing nuclear cleanup for the Energy Department,
modernizing air-traffic-control systems and supporting scientists
in Antarctica.
"We have deployed contingency plans to minimize the impact to
our employees affected by the shutdown," Lockheed said. "The
specific impact to our workforce and subcontractors is dependent on
individual contract terms."
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
January 20, 2018 19:26 ET (00:26 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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